TIDMPRSR
RNS Number : 4835P
PRS REIT PLC (The)
10 October 2023
PRSR.L
The PRS REIT plc
("PRS REIT" or "the Company" or "the Group")
Audited Full Year Results
for the year ended 30 June 2023 & First Quarter Update
Portfolio now at 5,129 completed homes.
Assets are performing strongly, and rental demand continues to
grow
Key points
Financial
Year to Year to
30 June 30 June
2023 2022 Change
--------------------------------------- --------- ---------- -------
Revenue GBP49.7m GBP42.0m +18%
Net rental income GBP40.2m GBP34.3m +17%
Operating profit GBP58.9m GBP127.0m -54%
Profit after tax GBP42.5m GBP115.9m -63%
Basic earnings per share 7.7p 21.4p -64%
EPRA earnings per share ([1]) 3.1p 3.0p +3%
Adjusted earnings per share excluding
amortised debt costs ([2]) 3.5p 3.4p +3%
Net assets at 30 June GBP660m GBP639m +3%
IFRS NAV and EPRA NTA per share ([3]) 120.1p 116.4p +3%
--------------------------------------- --------- ---------- -------
Operational
At At At
30 Sept 30 June 30 June Year-on-year
2023 2023 2022 change
--------------------------------- ---------- --------- --------- -------------
Number of completed homes 5,129 5,080 4,786 +6%
Estimated rental value ("ERV")
per annum GBP57.6m GBP55.0m GBP47.8m +15%
--------------------------------- ---------- --------- --------- -------------
Number of contracted homes 395 444 693 -36%
ERV per annum GBP3.1m GBP3.8m GBP7.2m -47%
Completed and contracted sites 71 71 68 +4%
ERV per annum of completed
and contracted sites* GBP60.7m GBP58.8m GBP55.0m +7%
--------------------------------- ---------- --------- --------- -------------
Rent collected (as a percentage
of total rent invoiced for
the period) 98% 99% 99% -
--------------------------------- ---------- --------- --------- -------------
*based on all completed units being occupied/income
producing
-- Net asset value increased to GBP660m/120.1p per share at 30
June 2023 (2022: GBP 639 m/ 116.4p per share), underpinned by
strong ERV growth
- as at 30 June 2023, ERV was estimated to be GBP5.1m higher
than passing rent (2022: GBP2.7m higher), another indicator of the
strong rental market
- EPRA NTA increased by 3% to 120.1p per share (2022: 116.4p)
-- Portfolio grew by 294 homes over the year to 5,080 completed
homes at 30 June 2023, up 6% (2022: 802 new homes added; 4,786
completed homes)
- ERV of the 5, 080 homes is up to GBP55.0m p.a. (2022: 4,786 homes with ERV of GBP47.8m)
- further 444 hom es with an ERV of GBP3.8m p.a. were under way at 30 June 2023
-- As at 30 September 2023 the ERV of the completed and contracted homes was GBP60.7m p.a.
-- Decrease in operating profit to GBP58.9m (2022: GBP127.0m)
reflects the lower gains from fair value adjustments on investment
property compared to the prior year - GBP25.4m vs. GBP99.7m
- ERV continued to grow strongly in FY23
- yields softened in FY23 to 4.47% from 4.13% while FY22 saw yields tighten from 4.3% to 4.13%
- yield movements in FY23 have however been more than offset by the increase in ERV
-- Completed assets continued to perform strongly over the year:
- rent collection at 99% for FY 2023 (2022: 99%)
- occupancy at 97% at 30 June 2023 (2022: 98%)
- gross arrears at GBP1.0m at 30 June 2023 (30 June 2022: GBP0.6m)
- like-for-like blended rental growth ([4]) of c.7% over the
year on stabilised sites (where all units were completed and either
all, or nearly all, had been let at the end of the comparative
period)
o re-lets to new tenants achieved c.12% rental growth (2022:
c.10%)
- affordability (average rent as a proportion of gross household
income) very strong at 22% as at 30 June 2023 (2022: 25%)
- continued high levels of customer satisfaction - 98% of
tenants surveyed six months into their tenancy stated they were
happy with their home (2022: 95%)
- property costs were well managed - small increase to 19.1%
(2022: 18.2%) mainly reflected the increased number of assets out
of warranty and the slightly older age of the portfolio
-- Average net investment yield on the portfolio softened to 4.47% (30 June 2022: 4.13%)
-- EPRA loan to value ('LTV') on portfolio low at 37% (2022: 34%)
-- Approx. 82% of the current GBP427m of investment debt is
fixed at an average interest rate of 3.8% (post July 2023
re-financing)
-- Adjusted EPS, excluding amortised debt costs but including
non-utilisation fees, was 3.5p (2022: 3.4p)
-- Total dividends of 4.0p per share declared (2022: 4.0p)
Outlook
-- Target dividend of 4.0p per share for FY24; this is expected
to be covered on a run-rate basis during FY24 with YTD coverage at
a run rate of 90%
-- Q1 FY24 (three months to 30 September 2023 - portfolio performance remains very strong
- portfolio expanded to 5,129 completed homes, with ERV of GBP57.6m p.a. at 30 September 2023
- further 395 homes with an ERV of GBP3.1m p.a. under way
- occupancy high at 98%
- rent collection very strong at 98%
- like-for-like rental growth of 9.8%
- affordability (average rent as a proportion of gross household income) excellent at 22%
-- Once all the existing sites are completed and homes let, the
portfolio will comprise over 5,500 homes, with ERV of GBP60.7m
p.a.
-- Prospects remain very positive
- supported by structural shortage of quality family rental
homes in the UK; the number of properties available to rent is at a
14-year low ([5])
- under supply exacerbated by private landlords exiting rental
market, weak sales market and rising rental demand
- Propertymark reported in September 2023 that the number of new
applicants registered in August per member branch was up by 32%
year-on-year and that the number of properties available to rent
per member branch in August was an average of 11, unchanged on the
same month a year ago
- British Property Federation reported in July 2023 that only
c.9,200 suburban built-to-rent homes were in planning and c.9,100
units were under construction
Steve Smith, Chairman of the PRS REIT, commented:
"The PRS REIT remains a leader in the single-family rental
sector. Almost 300 new rental family homes were added to the
portfolio during the financial year, with a further 49 added over
the first quarter of the new financial year. This has taken the
number of completed homes in the portfolio at the end of September
to 5,129.
"Our homes continue to rent extremely strongly. Our developments
are attractive places in which to live, and are well-located. They
are affordable - tenants' average spend on rent is currently 22% of
gross household income, and we pay significant attention to
customer service.
"We are well-advanced in the delivery of an initial portfolio of
around 5,500 homes, providing over GBP1 billion of assets with an
anticipated rental income stream of over GBP60 million a year.
"Our model is highly resilient. Following our debt refinancing
in July, more than 80% of our long-term investment debt is at
favourable fixed rates for an average 16 years, and the portfolio
gearing is low at 37%.
"Prospects are very positive. The structural shortage of
high-quality rental homes in the UK and rising demand place the
Company in a strong position. Our high-quality,
professionally-managed, single-family rental homes are helping to
fix an urgent social problem."
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)
Jefferies International Limited Tel: 020 7029 8000
Gaudi Le Roux, Tom Yeadon
Harry Randall, Ollie Nott
G10 Capital Limited (part of the IQEQ Group Tel: 020 3745 2826
as AIFM)
Paul Turner
KTZ Communications Tel: 020 3178 6378
Katie Tzouliadis, Robert Morton
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 has
investment of 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. Now comprising over 5,000
build-to-rent homes, the Company believes its portfolio is the
largest build-to-rent single-family rental portfolio in the UK.
LEI: 21380037Q91HU97WZX58
About Sigma Capital Group Limited
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 excellent property procurement and
management 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
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 ", or
the " Company " or the " Group ") audited financial results for the
year ended 30 June 2023. The Company's portfolio of completed
rental homes continues to perform very well and, in the second half
of the financial year, passed the milestone of 5,000 homes. The
Group is now over 90% through its current delivery programme.
Largest portfolio of single-family rental homes in the UK
The PRS REIT's portfolio remains the largest portfolio of
single-family rental homes in the UK. During the year, a total of
294 new rental homes were added to the portfolio, taking the number
of completed homes by the financial year-end to 5,080 (30 June
2022: 4,786 completed homes), a 6% increase. A further 444 homes
were contracted at that date and were at varying stages of the
construction process.
The estimated rental value ("ERV") of the 5,080 completed homes
is GBP55.0 million per annum (30 June 2022: GBP47.8 million per
annum on 4,786 completed home), a 15% rise. The percentage increase
in rental value over the year compared to the percentage increase
in the number of completed homes over the same period mainly
reflects rental growth over the period. The 444 homes under way
have an ERV of GBP3.8 million per annum.
The portfolio's assets are predominantly spread across the major
regions of England. At 30 June 2023, there were 71 sites in total
(2022: 68 sites) ranged across the North-West, North-East,
Yorkshire, the Midlands, the South-East (excluding London) and East
of England, with one site in North Wales and another in Central
Scotland.
The ERV of our portfolio, some 5,500 homes in total, including
those still in the delivery process, is around GBP60.7 million per
annum.
Strong asset performance
The PRS REIT's assets performed extremely strongly throughout
the financial year. Occupancy and rent collection (measured as rent
collected relative to rent invoiced in any given period) remained
high, with rent collection at 99% (2022: 99%) and occupancy at 97%
at 30 June 2023 (2022: 98%), with 4,932 homes occupied out of 5,080
completed homes. Including those homes where a letting had been
agreed, but occupancy had not commenced, occupancy was 98% (2022:
99%).
Like-for-like rental growth over the year on stabilised sites
(where all units were completed and let, or nearly all let at the
end of the comparative period) was 7.5%. This reflects a blended
growth rate of c.12% on re-lets to new tenants and c.7% on renewals
with existing tenants. Gross rent arrears remained modest despite
the growth in the portfolio, standing at GBP1.0 million at 30 June
2023 (2022: GBP0.6 million).
Homes remain very affordable. The portfolio's affordability
ratio, measured as average rent as a proportion of gross household
income, is currently at 22% (2022: 25%). This is significantly
better than Homes England's guidance that rent should be less than
35% of tenants' gross household income. It reflects both the strong
tenant base and wage increases.
Net rental income over the financial year increased by 17% to
GBP40.2 million (2022: GBP34.3 million). The rise was driven by a
combination of a full year's rental income on properties that had
been completed and let part-way through the prior financial year,
increased unit numbers and rental growth.
The portfolio's outstanding asset performance to date
demonstrates the continuing market need for high-quality family
rental homes. Supply side issues have worsened over the year, with
private landlords continuing to exit the market, while demand has
been further fuelled by rising interest rates and general economic
uncertainty. These factors have put further obstacles in place for
potential homeowners.
In its latest Housing Insight Report, published in September
2023, Propertymark, the leading professional body for estate and
letting agents, commercial agents, auctioneers, valuers and
inventory providers, stated that the number of new applicants
registered in August 2023 per member branch was up by 32%
year-on-year, and that the number of properties available to rent
per member branch in August was an average of 11, unchanged from
August 2022. This "remains drastically below what is needed to keep
up with current demand". Propertymark expects this gap to widen as
more people come to the market to look for a home with very few
properties available to rent. Research by TwentyCi, which provides
UK residential property data, shows that the number of UK homes
available to rent has dropped to a 14-year low. The Company's
experience of tenants bidding above asking prices to secure rental
property reflects this mismatch of supply versus demand.
The Company's Investment Adviser's Report provides further
commentary on housing delivery and asset performance over the
year.
Financial Results
Revenue, which is generated wholly from rental income, increased
by 18% year-on-year to GBP49.7 million (2022: GBP42.0 million).
This reflected a combination of the increase in the portfolio and
strong rental growth. Non-recoverable property costs rose slightly
to 19.1% of revenue (2022: 18.2%), mainly reflecting the increasing
number of assets out of warranty and marginally increased
maintenance costs. After these were deducted, net rental income for
the financial year was GBP40.2 million (2022: GBP34.3 million), an
increase of 17% year-on-year.
Expenses in the year rose to GBP8.3 million (2022: GBP7.5
million) as the portfolio grew, with the increase also reflecting
some cost inflation.
The gain from the fair value adjustment on investment property
reduced significantly, as expected, to GBP25.4 million (2022:
GBP99.7 million) and reflects the combined impact of ERV and
average net investment yield movements.
ERV on completed and let properties at 30 June 2023 was
approximately GBP5.1 million (2022: GBP2.7 million) higher than
passing rent, and reflects continuing demand for the Company's
product. The fair value of investment property is based on the
valuer's estimate of ERV rather than actual passing rent.
Operating profit decreased by 54% to GBP58.9 million (2022:
GBP127.0 million), which reflected the expected decrease in gains
from fair value adjustments on investment property. These gains are
non-cash items.
Finance costs were higher at GBP16.5 million (2022: GBP11.1
million) as the Company drew down and utilised the variable rate
LBG / RBS investment debt facility during the year. The movement in
interest rates over the period of 3.75% (from 1.25% in June 2022 to
5.0% in June 2023) applied to the average balance of floating rate
investment debt drawn, resulted in an increase in the interest
expense of c.GBP2 million, which negatively affected EPS by 0.4p.
The impact of the increase in interest rates in the period was
mitigated by the quantum of lower cost fixed rate investment debt
with Scottish Widows. Finance income from short-term deposits in
the year was GBP49,000 (2022: GBP4,000), again reflecting the
increase in interest rates during the financial year.
Profit after taxation decreased by GBP73.4 million or 63% to
GBP42.5 million (2022: GBP115.9 million) while basic and diluted
earnings per share reduced by the same proportion to 7.7p (2022:
21.4p) on an IFRS basis.
The Group's IFRS net asset value ("NAV") per share and EPRA net
tangible asset ("NTA") per share at 30 June 2023, both increased to
120.1p (31 December 2022: 117.1p and 30 June 2022: 116.4p). This is
a year-on-year increase of 3% and a 3% increase over the prior six
months.
Net assets at 30 June 2023 were 3% higher year-on-year at GBP660
million (30 June 2022: GBP639 million). This is after paying
dividends of GBP22.0 million in the year (2022: GBP21.4
million).
Dividends
For the year to 30 June 2023, aggregate dividends of 4.0p per
share were declared and paid to shareholders (2022: 4.0p per
share). Including the dividend paid on 1 September 2023, total
dividends paid since the Company's inception in May 2017 amount to
26.0p per share.
The year's dividend of 4.0p was almost fully covered on a
run-rate EPRA EPS basis at the end of the financial year. Dividend
cover will continue to grow as construction, completions and
lettings advance. The Company is targeting a dividend of 4.0p per
share for the new financial year ending 30 June 2024. This is
expected to be covered on a run-rate basis during FY24.
Debt Facilities
The Company had GBP440 million of committed debt facilities
available for utilisation as at 30 June 2023. This comprised GBP400
million of investment debt facilities and GBP40 million of
development debt facilities. Just after the financial year-end, the
total was increased to GBP460 million (GBP427 million of investment
debt facilities and GBP33 million of development debt facilities)
following a debt refinancing process, which is detailed below.
Debt refinancing
At the beginning of July 2023, the Company completed the
refinancing of its GBP150 million revolving credit facility ("RCF")
provided by The Royal Bank of Scotland plc ("RBS") and Lloyds
Banking Group plc. A GBP102 million fixed-rate debt facility was
agreed for 15 years with Legal and General Investment Management
and a GBP75 million floating-rate debt facility was agreed for two
years with RBS. The latter facility provides the Company with the
flexibility to refinance this element at a potentially lower rate
over the two-year term of the loan. An interest rate cap was also
put in place on the floating rate debt in order to hedge against
downside risk on further interest rate movements.
Approximately two-thirds (GBP115 million) of the total debt of
GBP177 million was immediately deployed, specifically the entire
GBP102 million fixed-rate facility and GBP13 million of the
floating-rate facility, to fund already completed and stabilised
sites. The balance of floating-rate debt (GBP62 million) is
expected to be drawn down to fund sites completing and stabilising
before the end of calendar year 2024.
Separately, the Barclays Bank PLC development debt facility of
GBP40 million was reduced to GBP33 million in September 2023.
The PRS REIT now has total fixed long-term debt facilities of
GBP352 million, with an average blended interest rate of 3.8%. This
compares favourably with the average net investment yield of 4.47%
as at 30 June 2023.
-- Approximately 82% of the Company's overall debt is now
covered by long-term facilities, which have an average term of 16
years. This compared to 63% of overall debt previously covered by
long-term facilities, with an average term of 17 years.
-- The two new facilities have significantly lengthened the
maturity of the Company's overall debt facilities.
-- The average term for all debt has increased to 13.7 years at
30 June 2023, from 10.9 years at 31 December 2022.
-- Future annual debt amortisation costs will also reduce,
reflecting lower arrangement fees and a longer period of
amortisation.
Following the refinancing, 82% of the GBP427 million of
investment debt is fixed rate at an average of 3.8%.
Approximately GBP390 million of debt facilities have been drawn
to date, with the remainder presently forecast to be utilised over
the next 18 months as the current phase of construction finishes
and homes are let.
The portfolio's gearing remains low at 37% EPRA LTV (2022: 34%),
and, as determined by the Company's Investment Policy, the debt
facilities are subject to the maximum gearing ratio of 45% of gross
asset value. Our lending partners are: Scottish Widows (GBP250
million); Legal and General Investment Management (GBP102 million);
The Royal Bank of Scotland plc (GBP75 million); and Barclays Bank
PLC (GBP33 million). The latter GBP33 million debt facility is
available to be drawn as development debt, which enables multiple
sites to be developed simultaneously.
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 is responsible for determining the Company's
investment objectives and policy and has overall responsibility for
the Company's activities. This includes the review of investment
activity and performance.
The Board delegates the day-to-day management of the business,
including the management of ESG matters, to the Investment Adviser,
Sigma PRS Management Ltd ("Sigma PRS"), which is also a signatory
and participant of the United Nations Global Compact. Sigma PRS is
a subsidiary of Sigma, part of PineBridge Investments, a private,
global asset manager with over US$140bn in assets under management
at June 2023.
Details of ESG policies and activities are contained in the
Investment Adviser's Report.
Board Changes
We are delighted to announce the appointment of Karima Fahmy as
an Independent Non-Executive Director. She succeeds Jim Prower, who
will be retiring from the Company at the forthcoming Annual General
Meeting on 4 December 2023. On behalf of the Board, I am pleased to
welcome Karima and to thank Jim for his valuable contribution over
his tenure as a non-executive director.
Karima is a corporate lawyer with extensive experience of the UK
property market. She worked at Grosvenor Group ("Grosvenor"), the
international property group, latterly as General Counsel until
2020. She was a member of Grosvenor's UK Executive Committee, and
was involved in all aspects of Grosvenor's property business,
advising on a range of ventures, including new community schemes
and placemaking projects. Prior to that, she worked at Hogan
Lovells, the global law firm, advising both listed and unlisted
companies. She is also Non-executive Director of Latimer
Developments Limited and of BCP FuturePlaces Limited. Latimer
Developments Limited is the development arm of the Clarion Housing
Group, the UK's largest housing association, and BCP FuturePlaces
Limited is the urban regeneration company created by Bournemouth,
Christchurch and Poole (BCP) Council.
In addition, Karima is an Independent Board Member of University
of Cambridge Property Board and Non-executive Director of
Bournemouth University. She is a trustee of United Learning Trust,
a schools group, a trustee of Clarion Futures, Clarion Housing
Group's charitable foundation, and trustee of Great Ormond Street
Hospital's Children's Charity, where she is also a Member of its
Property & Development Committee.
On 21 March 2023, the Board was pleased to appoint Geeta Nanda,
an existing non-executive director as Senior Independent
Non-executive Director.
Outlook
During the first quarter of the new financial year, 49 new homes
were added to the portfolio, taking the total number of completed
homes at 30 September 2023 to 5,129. The ERV of completed homes has
increased accordingly to GBP57.6 million per annum (30 September
2022: 4,856 completed homes with an ERV of GBP49.4 million per
annum).
Asset performance remains strong. Rent collection in the first
quarter was 98% (2022: 99%) and total occupancy was at 98% at the
end of September (30 September 2022: 98%), with 4,995 homes
occupied out of the total of 5,129. A further 68 homes were
reserved for applicants who had passed referencing and paid rental
deposits. Total arrears at 30 September 2023 were low at GBP1.1
million. Like-for-like blended rental growth on stabilised sites
was 9.8%.
We are targeting a total dividend of 4.0p per share* for the new
financial year, and will declare the interim dividend for the first
quarter of the financial year in November 2023.
As ever, my fellow Directors and I would like to express our
thanks to all involved in the creation and management of this
pioneering venture in the single-family homes rental market. This
includes our investors, housebuilding partners, financiers and
supporters in government. The PRS REIT is providing much needed
housing for families and individuals and forging a new direction
for the UK's housing market.
As we have said previously, the business model remains firmly
supported by market fundamentals. Population growth, changing
household formations and low new housing volumes continue to drive
demand. Our homes are built to be attractive and comfortable and
are well-located and professionally managed. We expect them to
continue to rent very well into the future. The July debt
refinancing has provided a high degree of certainty over financing
costs.
The PRS REIT is a market leader and the Board remains confident
about prospects, with affordability - average rent as a proportion
of gross household income - and asset performance both very
strong.
Steve Smith
Chairman
*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
Under the European Real Estate Association ("EPRA") best
practice recommendations ("BPR") for financial disclosures by
public real estate companies, three measures for reporting net
asset value are available, EPRA Net Tangible Assets ("NTA"), EPRA
Net Reinstatement Value ("NRV"), and EPRA Net Disposal Value
("NDV").
The Group considers EPRA NTA to be the most relevant measure for
its operating activities, and has adopted this as the Group's
primary measure of net asset value.
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 this would therefore equate 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 the Group's overall portfolio of
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.
KPI Explanation Performance
Year to Year to
30 June 2023 30 June 2022
--------------- ---------------
IFRS NAV Unadjusted net asset value. 120.1p per 116.4p per
(see note 9) share share
----------------------------------- --------------- ---------------
EPRA NTA EPRA Net Tangible Asset 120.1p per 116.4p per
(see note 9) is net asset value adjusted share share
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 7.7p per share 21.4p per
(see note 5) share. share
----------------------------------- --------------- ---------------
EPRA EPS Earnings per share excluding 3.1p per share 3.0p per share
(see note 5) investment property revaluations,
gains and losses on disposals,
changes in the fair value
of financial instruments
and associated close-out
costs and their related
taxation.
----------------------------------- --------------- ---------------
EPRA Earnings EPRA Earnings is a measure GBP'000 GBP'000
of operational performance
and represents the net
income generated from the
operational activities
excluding changes in value
of investment properties.
(see note 5) 17,099 16,162
-------------- ----------------------------------- --------------- ---------------
Market Dynamics
The growth opportunity available in the UK Build-to-Rent ("BTR")
sector is significant. While the market continues to grow, the
total number of BTR homes built in the UK remains very modest. In a
report on UK BTR published in September 2021 ([6]) , JLL, a global
commercial real estate and investment management company, concluded
that the sector has potential to increase 10 times in size if it
achieves equivalence with the US market.
The British Property Federation in July 2023 ([7]) reported that
the number of BTR homes in the UK, completed, under construction or
in planning, stood at 253,402 at 30 June 2023. This represented an
increase of 12% on 2022. Of these 253,402 BTR homes at 30 June
2023, around 35% (c.88,100) were built, 21% (c.53,500) were under
construction, and 44% (c.111,800) were in planning.
In addition, the report showed that the overwhelming number of
BTR homes built remains in urban, rather than suburban settings,
and are flatted rather than single-family homes, which is the PRS
REIT's focus. The number of urban BTR homes in planning stood at
around 103,000 against around 9,200 suburban BTR homes in planning.
The report also showed that the UK single-family rented housing
sector is growing but that numbers are small, with nearly c.28,000
homes at the end of June 2023, of which c.9,600 were complete,
c.9,100 units under construction and c.9,200 in the planning
pipeline.
The total number of rental properties in the UK has not
increased significantly since 2016 although demand for rental
accommodation continues to rise. According to Zoopla, a leading UK
aggregator of property listings, the ongoing chronic imbalance
between supply and demand has pushed rents higher across all parts
of the UK. It forecasts continued demand and rental inflation into
H2 2023 ([8]) .
Landlords in the buy-to-let sector, still the largest provider
of rental properties in the UK, have been under greater pressures
and confidence is low, according to the National Landlords
Association. Its Landlord Confidence Index in Q1 2023 ([9]) showed
landlord confidence at -28 (the negative number indicating more
landlords are negative about the next twelve months than are
positive). It stated that the record proportion of landlords who
had increased rents in the last twelve months are doing so for
negative reasons, including the pipeline of regulatory changes and
in response to cost inflation and rising interest rates.
Private landlords have faced greater pressures since 2016, when
an extra 3% was added on stamp duty for additional home purchases.
This was followed by reform on mortgage interest rate relief.
Proposed rental reform measures in the Government's Renters
(Reform) Bill have further added to pressures on private landlords.
These include the proposed abolition of fixed-term tenancies and
reform of the grounds for repossession. The Government's proposed
change to increase the minimum energy efficiency standard that a
rental property must reach before it can be legally let, from EPC E
to EPC C, and higher interest rates gave further cause for concern
for private landlords, although the minimum energy efficiency
standard proposal was subsequently dropped in September 2023.
According to the National Landlords Association ([10]) , even
though rental demand is high, the proportion of landlords looking
to reduce their portfolio over the next twelve months continues to
rise and landlords "planning to sell" are now at record highs, with
30% planning to cut the size of their portfolios. Hamptons, the
property consultancy, reports that 140,000 landlords left the
sector last year and expects the run-rate of landlords leaving the
sector to be 100,000 per year for the next five years.
Challenges to home ownership have not eased, further fuelling
rental demand. Increased interest rates have created new pressures
for prospective homeowners wishing to purchase their first home and
for homeowners with mortgages due for renewal. The median house
price to income ratio, according to the Office for National
Statistics ([11]) is currently 8.16, and on 4 August 2023, the
average interest rate on a two-year fixed mortgage was 6.85%
according to financial data provider, Moneyfacts, with the average
rate on a five-year fixed mortgage at 6.35%. By comparison, the PRS
REIT's homes remain very affordable. At 30 September 2023, the
average household income of a PRS REIT tenant was GBP51,000 (30
September 2022: GBP41,000) and the average rent was GBP934 per
calendar month (2022: GBP849), meaning that rent as a proportion of
household income was 22% (2022: 25%). We believe that it is
reasonable to assume this improvement reflects a combination of
wage inflation and the emergence of a wealthier cohort of
disenfranchised would-be home buyers.
In summary, it is clear that the market opportunity in BTR
remains significant and that the sector remains an important means
of fulfilling a social need and meeting demand for high-quality,
well-managed rental housing in the UK.
Private Rented Sector Reform
In June 2022, the Government published a policy paper, which set
out its long-term vision for the private rented sector. Titled "A
fairer private rented sector" ([12]) , it contained plans to
fundamentally reform the private rented sector in the country and
level up housing quality. Subsequently, in May 2023, the Government
introduced the Renters (Reform) Bill to Parliament.
The Bill is little changed from the 2022 policy paper, which we
reported on in June 2022. We are in favour of proposals that
support the rights of tenants to a decent home while also
supporting responsible landlords. As a professional landlord, the
PRS REIT is in the market for the long-term and does not view the
Bill as likely to impact adversely the Company's operations.
Portfolio Analysis
As at 30 June 2023, the value of the Group's completed property
portfolio was GBP1 billion (2022: GBP962 million). The investment
value of all sites at that date was GBP1.1 billion on completion
(2022: GBP1 billion) with their current ERV at GBP58.8 million
(2022: GBP55 million).
Property Portfolio by Regional Split - at 30 June 2023
The portfolio is geographically diversified and the regional
split by investment value at 30 June 2023 was as follows:
-- North West 51% (2022: 52%);
-- West Midlands 21% (2022: 21%);
-- South East 11% (2022: 12%);
-- Yorkshire 11% (2022: 9%);
-- North East 3% (2022: 3%);
-- Wales 2% (2022: 2%); and
-- Scotland 1% (2022: 1%).
Other Metrics - at 30 June 2023
-- Rent roll: the rent roll at 30 June 2023 was GBP55.0 million
(2022: GBP47.8 million) and the average rent was GBP10,831 per
annum or GBP903 per month (2022: GBP10,004 per annum or GBP834 per
month).
-- Average size of site: the average size of site was 74 (2022: 78) housing units.
-- Properties by bedroom number: the split between 1, 2, 3 and
4-bed properties was approximately 3%, 26%, 62% and 9% respectively
(2022: 3%, 26%, 62% and 9% respectively).
-- Housebuilder relationships: the split for units under
construction was - Countryside 96%, Vistry 3%, and Seddon 1% (2022:
Countryside 86%, Vistry 8%, Seddon 5%, and EQUANS (formerly Engie)
1%).
-- Gross-to-net: the deduction from gross to net rent across the
portfolio for the year ended 30 June 2023 was 19.1% (2022:
18.2%).
-- Bad debt: bad debts expense for the year was GBP0.2 million
(2022: GBP0.4 million) and the bad debt provision at the year-end
was GBP0.5 million (2022: GBP0.3 million) reflecting a prudent
approach in the current economic climate.
Age Groupings
The largest age grouping across the customer base at the time of
sampling on 30 June 2023 was 26-35 years. This age group
represented 47% of the total customer base, and was also the
largest group in 2022 although it accounted for a lower proportion
of the total customer base at 38%. All other age groups are broadly
in line with 2022, with the exception of those aged 65 years and
over, where the proportion of residents has reduced by almost half
from a low percentage.
Age 2023 2022
Under 25 22% 23%
-----
26-35 47% 38%
-----
36-45 18% 21%
-----
46-55 8% 10%
-----
56-65 4% 6%
-----
65+ 1% 2%
-----
Household Income Bracket
Across the mid ranges of household incomes, 2023 groupings are
similar to 2022, although there is a notable rise in households
above the GBP45,000 gross income bracket.
The greatest changes between 2023 and 2022 are in the lowest and
highest income brackets. There has been a decrease of c.50% in the
lowest income households, earning GBP25,000 or less. This grouping
has reduced to 12% of households over the course of the year. We
assume that rising rents have impacted those on the lowest incomes.
Households with income of GBP65,000 and over have increased to over
a quarter of the customer base and households in the income bracket
GBP55,000 - GBP65,000 have also risen sharply year-on-year. We
believe that this reflects would-be home buyers turning to the
rental market as interest rates have risen and constrained mortgage
affordability.
Annual Household 2023 2022
Income
Under GBP25k 12% 25%
-----
GBP25k-GBP35k 16% 16%
-----
GBP35k-GBP45k 15% 18%
-----
GBP45k-GBP55k 17% 13%
-----
GBP55k-GBP65k 13% 8%
-----
GBP65k+ 27% 20%
-----
Tenancies with Children
Approximately 40% of households included children. This is
broadly unchanged from last year. It is reasonable to assume that
some in the 26-35 year-old group are moving into the homes with the
intention of starting a family, but the high volume of renters
without children may indicate a tendency to defer or abandon family
formation. The two largest groupings of tenants with children are
those with two or four children. This is similar to the prior
year.
Children 2023 2022
None 60% 58%
-----
One child 5% 9%
-----
Two children 18% 17%
-----
Three children 2% 3%
-----
Four+ children 15% 13%
-----
Distance Travelled
The distance travelled by tenants from their previous address to
their new 'Simple Life' ([13]) home is also recorded. The two
largest categories are those travelling less than 3 miles and
greater than 50 miles. As the brand is nationwide, we believe that
this shows increasing brand awareness and that the model for site
selection in and around major conurbations is capturing residents
moving for employment reasons.
Distance Travelled 2022 2022
<3 miles 27% 24%
-----
3-10 miles 23% 27%
-----
10-50 miles 23% 22%
-----
>50 miles 27% 27%
-----
All 2023 statistics are based on new applicant data between July
2022 and June 2023. Both sets of data are based on successful
applicants only reflective of the whole Simple Life Homes regional
brand.
Investment Strategy and Business Model
AWARDS
Insider NW Residential Property Insider NW Residential Property
Awards Awards
Sustainability and Social Impact Operator of the Year 2023
2023 (Shortlisted)
(Winner)
Property Week RESI Awards
Property Week RESI Awards Landlord of the Year 2023
Social Impact 2023 (Finalist)
(Finalist)
The Yorkshires
The Yorkshires ESG Excellence Award 2022 (Pullman
Best Large Development 2022 (Pullman Green)
Green) (Shortlisted)
(Winner)
WhatHouse? Awards
The Herald Property Awards Best Sustainable Development 2022
Development of the Year 2022 (Bertha (Bertha Park)
Park) (Winner)
(Finalist)
Home Views Awards
Top Rated Midlands Development
Home Views Awards 2022
Top Rated North East Development (Sutherland Grange, Silkin Green,
2022 (Bracken Grange) Stonefield Edge, Wards Keep)
(Finalist) (Finalist)
Insider Midlands Property Awards Love To Rent Awards
Large Development of the Year BTR Tech Award 2023
2023 (Stonefield Edge) (Shortlisted)
(Shortlisted)
Love to Rent Awards Love To Rent Awards
BTR Social Impact Award 2023 SFH BTR Development 2023 (Stonefield
(Shortlisted) Edge)
(Shortlisted)
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 only quoted Real Estate Investment Trust ("REIT") to focus
purely 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. Since
then, the Company has raised additional funds through two placings
and through gearing, taking its total available resources to GBP983
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, Policy 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 the establishment of a large-scale portfolio of
newly-constructed residential rental homes in or near towns and
cities in the UK for the private rented sector.
The Company's scalable business model is able to deliver new
homes across multiple geographies and sites. It utilises the
Investment Adviser's PRS property delivery and management platform
(the " Sigma PRS Platform ").
The Company's portfolio of homes is targeted at the family
market, which is the largest segment within the private rented
sector. The Company has concentrated on traditional housing, with
broad appeal across the demand spectrum, and its portfolio
comprises differing house types, built to standardised
specifications. They cater for different life stages, including
smaller houses for young couples and retirees, and larger houses
for growing families. The Company has also invested in some
low-rise flats in appropriate locations to broaden its rental
offering.
The Company's homes are located across multiple sites in the UK,
outside London. Sites are predominantly in the Midlands and North,
with locations chosen for their accessibility to main road and rail
links, good primary schooling, and to centres of economic activity,
which promote long-term employment prospects. The new-build nature
of the assets means that they benefit from a 10-year building
warranty, typically from the NHBC (National House Building
Council), and manufacturers' warranties. Homes are let on Assured
Shorthold Tenancies (as defined in the Housing Act 1988) to
qualifying tenants.
The sourcing of assets is undertaken by Sigma PRS and the
Company has been building its portfolio in two ways.
-- In the first instance, Sigma PRS has selected suitable
development sites ("PRS development sites") which already have
detailed planning permission and then agreed a fixed price design
& build contract with one of Sigma PRS's construction partners.
Sigma PRS then manages the delivery process on behalf of the
Company.
Assets are acquired with detailed planning consent and fixed
price design & build contracts, thereby minimising the
Company's exposure to development risk. Construction risk has been
further mitigated with standard fixed-price design & build
contracts, containing liquidated damages clauses for
non-performance, financial retentions for one year after
completion, and a parent company guarantee ensuring the
satisfactory performance by the contractor and an indemnity for
losses incurred. Over three-quarters of the Company's assets have
been sourced through this way.
-- In the second instance, assets have been acquired by entering
into forward purchase agreements with Sigma Capital Group Limited
("Sigma"), the ultimate holding company of Sigma PRS. The assets
are acquired once fully completed and let. Typically, they have
been constructed by the same construction partners and supply chain
as other assets whose development is described above, thereby
ensuring homogeneity of the Company's housing stock. Completed and
stabilised developments may also be purchased from other
third-parties using approved construction partners.
In both instances, assets are acquired at the valuation provided
by the independent valuer. The PRS REIT retains the
right-of-first-refusal to acquire and develop any sites sourced by
Sigma PRS that meet the Company's investment objective and policy
subject to the availability of funding.
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser has been utilising Sigma's
well-established PRS property delivery and management platform to
scale the PRS REIT's portfolio 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 Partnerships, Vistry,
Seddon, and EQUANS (formerly Engie). 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 have an appropriate
certificate of title, detailed planning consent and a fixed price
design & 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 sources land for development sites, and has delivered 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 in different
regions, the PRS REIT's concentration risk has been reduced.
The Company has targeted a mix of locations, which demonstrate
higher yielding profiles (predominantly those in the North of
England) and/or greater potential for capital appreciation (often
in the South of England). Proximity to good primary schools remains
a key requirement, reflecting the Company's focus on family
rental.
In addition, no investment has been made in any single completed
PRS site or PRS development site that exceeds 10% 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 aims to set a 'gold standard' in the private rented sector, by
providing high-quality, sensibly-priced rental homes, which are
supported by high customer service standards.
The PRS REIT's long-term approach to the ownership of its assets
provides reassurance to residents that tenancies have longevity.
The Group also actively fosters initiatives that help to create a
sense of community within the Group's developments.
Investment Restrictions
The Group observes the following investment restrictions:
-- the Group only invests in private rented residential houses
and apartments located in the UK (predominantly in England);
-- the Group invests in assets that require development by means
of the Group's forward funding model, (so long as when completed
they fall within the Company's investment policy). However, it does
not undertake development without planning consent being in place
or if the gross committed (but unspent) construction costs to the
Group of all such forward funded development exceeds 25% of the
aggregate gross value of total assets of the Group at the time of
commitment, as determined in accordance with the accounting
principles adopted by the Group from time to time (the " gross
asset value "). Any forward funded development will only be for
investment purposes;
-- in order to further manage risk in the portfolio, no
investment by the Group in any completed PRS site or PRS
development site exceeds 10% of the aggregate value of the gross
asset value of the Group at the time of commitment); and
-- the Group does not invest in other alternative investment
funds or closed ended investment companies.
Equity and Debt Financing
Three tranches of equity have been raised to date: GBP250
million (gross) at the Company's IPO on 31 May 2017; GBP250 million
(gross) in February 2018; and GBP55.6 million (gross) in September
2021.
The PRS REIT utilises gearing to enhance equity returns. The
level of borrowing is prudent for the asset class, whilst
maintaining flexibility in the underlying security requirements and
the structure of both the PRS portfolio and the Group. The Group
has raised debt from banks and institutions, with equity from Homes
England and the capital markets. In line with the Company's
Investment Policy, the aggregate borrowings of the Group are always
subject to an absolute maximum, calculated at the time of drawdown
of the relevant borrowings, of not more than 45% of the gross asset
value, although the Investment Adviser expects actual gearing to
settle to around 40% following stabilisation of the portfolio. See
further detail of debt facilities in the Investment Adviser's
Report.
Derivatives
The PRS REIT uses derivatives for efficient portfolio
management. In particular, the Company may engage in full or
partial interest rate hedging or otherwise seek to mitigate the
risk of interest rate increases on borrowings incurred, in
accordance with the gearing limits as part of the management of the
PRS Portfolio. In July 2023, as part of the debt refinancing
process, an interest rate cap was put in place on the RBS GBP75
million floating rate debt to hedge against downside risk on
further interest rate movements. This is in addition to the
fixed-rate borrowings with Scottish Widows and Legal and General
Investment Management.
REIT Status
The Company will conduct its affairs so as to enable it to
remain qualified as a REIT for the purposes of Part 12 of the
Corporation Tax Act 2010 (and the regulations made thereunder).
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. It is pleased to provide a report on the PRS
REIT's activities and progress for the year ended 30 June 2023 and
to outline the portfolio's performance in the first quarter of the
new financial year ending 30 June 2024.
Operational Review
Development Activity and Acquisitions
A total of 294 homes were added to the PRS REIT's portfolio in
the financial year to 30 June 2023. This compared with 802 in the
prior year and reflects the advanced stage of the rollout of the
portfolio, with fewer sites under active development as the
portfolio approaches maturity.
The total number of completed homes in the portfolio at the end
of June 2023 stood at 5,080, an increase of 6% on the same point
last year (2022: 4,786). The homes are located predominately across
six of the eight major regions of England, and their combined
estimated rental value ("ERV"), was GBP55.0 million per annum as at
30 June 2023. This is a 15% increase in the portfolio's estimated
rental value over the year (30 June 2022: ERV of completed homes
stood at GBP47.8 million per annum).
At the beginning of the year, four development sites were
acquired. They are located in Warwickshire, Shropshire, South
Yorkshire and Staffordshire, and when completed, will add a
combined 97 new homes to the portfolio.
The Company's assets now reflect a difference between ERV, used
for valuation, and actual passing rent paid by tenants. As at 30
June 2023, ERV was estimated to be GBP5.1 million higher than
passing rent (2022: GBP2.7 million higher). This reflects the
strength of demand for the Company's portfolio of assets. The fair
value of the Group's investment properties as at 30 June 2023 is
based on ERV as opposed to passing rent. All estimates were
compiled independently by Savills.
The table below provides further information on development
activity over the financial year, and includes data for the first
quarter of the new financial year ending 30 June 2024, as well as
comparative data for the financial year ended 30 June 2022.
At At At
30 September 30 June 30 June
2023 2023 2022
Number of completed homes 5,129 5,080 4,786
-------------- --------- ---------
ERV per annum of completed GBP57.6m GBP55.0m GBP47.8m
homes
-------------- --------- ---------
Completed sites 63 63 58
-------------- --------- ---------
Contracted sites 8 8 10
-------------- --------- ---------
Number of contracted homes 395 444 693
-------------- --------- ---------
ERV per annum of contracted GBP3.1m GBP3.8m GBP7.2m
homes
-------------- --------- ---------
Construction Resource
The construction resource provided by the Sigma PRS Platform has
national reach. It has underpinned the continued expansion of the
Company to key population centres across the UK, primarily in
England, and supported the creation of a geographically diverse
portfolio.
There are many 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 works well and the model we operate of using standard
family house types, fixed price design & build contracts,
together with standardised specification, helps to ensure that
developments are built to budget. The standardisation of housing
type also means that completed assets can be maintained and managed
more efficiently.
Financial Results
Income statement
The Group's revenue (which is wholly derived from rental income)
increased by nearly 18% over the year to GBP49.7 million (2022:
GBP42.0 million). After the deduction of non-recoverable property
costs, the net rental income was GBP40.2 million (2022: GBP34.3
million). Administration expenses were slightly higher at GBP8.3
million (2022: GBP7.5 million).
The gain from the fair value adjustment on investment property
was GBP25.4 million (2022: GBP99.7 million). The gain reflects a
combination of higher ERV offset partially by the negative impact
of higher yields in the current period as asset values move
inversely to yield. As against the comparative period, the overall
reduction in the level of the gain principally reflects a higher
level of ERV growth during the prior year. Operating profit was
GBP58.9 million (2022: GBP127.0 million).
Finance costs for the year were GBP16.5 million (2022: GBP11.1
million) reflecting the debt utilisation and associated costs
during the year as well as an increase in interest rates on
variable rate debt during the year. Finance income for the period
from short-term deposits was GBP49,000 (2022: GBP4,000). The profit
after taxation was GBP42.5 million (2022: GBP115.9 million).
The basic and fully diluted earnings per share on an IFRS basis
for the year were 7.7p (2022: 21.4p).
Dividends
The total dividend for the financial year under review amounted
to 4.0p (2022: 4.0p) per ordinary share, declared and paid
quarterly as follows:
-- On 2 November 2022, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 July 2022 to 30 September 2022, which was paid on 30
November 2022 to shareholders on the register as at 11 November
2022.
-- On 7 February 2023, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 October 2022 to 31 December 2022, which was paid on 3 March
2023 to shareholders on the register as at 17 February 2023.
-- On 25 April 2023, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 January 2023 to 31 March 2023, which was paid on 26 May 2023
to shareholders on the register as at 5 May 2023.
-- On 2 August 2023, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 April 2023 to 30 June 2023, which was paid on 1 September
2023 to shareholders on the register as at 11 August 2023.
Balance Sheet
The principal items on the balance sheet are investment property
of GBP1.0 billion (2022: GBP961.9 million), cash and cash
equivalents of GBP13.2 million (2022: GBP48.7 million), long-term
loans of GBP248.4million (2022: GBP246.7 million), short term loans
of GBP126.7 million (2022: GBP100.0 million) and trade and other
payables, accruals and deferred income of GBP20.1 million (2022:
GBP32.0 million).
Investment property includes completed assets and assets under
construction at fair value.
Debt Financing
At 30 June 2023, the PRS REIT had the following debt
facilities:
-- GBP150 million revolving credit facility ("RCF") with Lloyds
Banking Group plc / The Royal Bank of Scotland plc ("RBS") for an
initial term of three years, extended to mid-July 2023. Interest
was based on three-month Sterling Overnight Interbank Average Rate
("SONIA") plus applicable margin and the loan was secured over
assets allocated to Lloyds Banking Group. As at 30 June 2023,
GBP115 million had been drawn (2022: GBP85.4 million);
-- GBP100 million term loan of 15 years with Scottish Widows,
fully drawn as at 30 June 2023 (2022: fully drawn) and maturing in
June 2033. Interest is fixed at 3.1% 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 2023 (2022: fully drawn) and maturing in
June 2044. Interest is fixed at 2.8% and the loan is secured over
assets allocated to Scottish Widows; and
-- GBP40 million (2022: GBP40 million) development debt facility
with Barclays Bank PLC, maturing in August 2025. Interest is based
on three-month SONIA plus applicable margin and the loan is secured
over assets allocated to Barclays Bank PLC. As at 30 June 2023,
GBP12.1 million had been drawn (2022: GBP15.2 million drawn).
Post period debt refinancing
At the beginning of July 2023, the Company completed the
refinancing of the GBP150 million RCF provided by RBS and Lloyds
Banking Group plc. The RCF had been originally due to mature in
February 2023 and was extended on substantially the same terms to
mid-July 2023 (with an option to extend until October 2023).
A GBP102 million facility of fixed-rate debt for 15 years was
agreed with Legal and General Investment Management, together with
a GBP75 million floating-rate debt facility for two years with RBS.
The floating-rate facility provides the Company with the
flexibility to refinance this element of debt at a potentially more
favourable rate during the two-year term of the loan. An interest
rate cap was also put in place on the floating rate debt to hedge
against downside risk on further interest rate movements.
The Company immediately deployed almost two-thirds (GBP115
million) of the revised facilities (specifically the entire GBP102
million fixed-rate facility and GBP13 million of the floating-rate
facility) to fund already completed and stabilised sites. The
balance of GBP62 million of floating-rate debt is expected to be
drawn down to fund sites completing and stabilising before the end
of calendar year 2024.
In September 2023, the Barclays Bank PLC development debt
facility was reduced from GBP40 million to GBP33 million.
Gearing on the portfolio remains low at 37% EPRA LTV.
Approximately 82% of the GBP427 million of investment debt is now
fixed rate at an average of 3.8%, which compares favourably against
the average net investment yield for valuation purposes of
4.47%.
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% of the value of the
assets. Although the aggregate debt facilities total GBP460
million, the GBP33 million Barclays Bank PLC debt facility can be
drawn as development debt to enable a larger number of sites to be
developed simultaneously. Following practical completion and
stabilisation of lettings on sites partially funded by development
debt, the assets are refinanced using the Company's longer-term
investment debt facilities. On this basis, the total borrowings
will not exceed the maximum gearing level of 45% highlighted
above.
Key performance indicators
The Company's performance is tracked and the major key
performance indicators ("KPIs") are shown below:
KPI June 2023 June 2022 Change
Rental income (gross) GBP49.7m GBP42.0m +18%
---------- ---------- -------
Average rent per month per tenant GBP903 GBP834 +8%
---------- ---------- -------
Number of properties available to rent 5,080 4,786 +6%
---------- ---------- -------
Average net investment yield 4.5% 4.1% +8%
---------- ---------- -------
Non-recoverable property costs as a percentage
of gross rent (gross to net) 19.1% 18.2% +5%
---------- ---------- -------
Fair value uplift on investment property GBP25.4m GBP99.7m -75%
---------- ---------- -------
Operating profit GBP58.9m GBP127.0m -54%
---------- ---------- -------
Earnings per share ('EPS') 7.7p 21.4p -64%
---------- ---------- -------
EPRA EPS 3.1p 3.0p +3%
---------- ---------- -------
Dividends declared per share in relation
to the period 4.0p 4.0p -
---------- ---------- -------
Dividends paid during the period 4.0p 4.0p -
---------- ---------- -------
All the KPIs are in line with management expectations. Rental
income increases, 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.
The valuation of the Group's property assets is based on five
key drivers being, land purchase, cost to build, ERV, gross to net
income deductions, and yield. Rental income, being passing rent
receivable rather than ERV, and gross to net income deductions or
operating costs, are the key factors in determining net income.
Small variations in these can have a material impact on the
valuation of property or the net income levels. These drivers
therefore form the basis of the key performance indicators measured
and monitored by the Company.
As the majority of the property assets are now complete and let,
costs have already been incurred and the focus has moved to rental
income, operating expenses and average net investment yield. Levels
of rental income are dependent on the number of completions and
annual rent levels set at the time of renewals and re-lets. Average
rent of GBP903 per calendar month at June 2023 reflects growth of
8% over the average of GBP834 at June 2022 and is consistent with
the like-for-like growth of 7.5% during the financial year.
The number of completed homes is the other key determinant of
gross rental income. At the end of June 2023 the number of
completed homes stood at 5,080, up by 294 from 4,786 at the same
point in 2022. The delivery of the initial portfolio is nearing an
end, with the majority of assets completed and let.
Operating expenses determine the quantum of gross rental income
that is converted into net rental income. This, in turn, determines
the underlying profitability of the Group. In addition, the
independent valuers utilise industry standard assumptions around
long-term sustainable operating expenses in performing their
valuation work. Monitoring actual operating expense levels against
the industry standard assumptions is therefore key in assessing
overall asset performance and re-affirming the assumptions utilised
by the independent valuers. The prevailing level of operating
expenditure of 19.1% (2022: 18.2%) is lower than the long-term
sustainable assumption reflecting the age of the assets in the
portfolio.
Valuation of the Group's property assets represents the largest
component of the balance sheet. Movements in the valuation between
balance sheet dates are therefore essential in understanding
profitability through the income statement and asset strength on
the statement of financial position. The valuation uplift during
the year reflects a combination of the development surplus
recognised on assets under construction together with the impact of
the revaluation of the portfolio at the year end. The valuation
uplift of GBP25.4 million (2022: GBP99.7 million) reflects the
combined impact of ERV and average net investment yield movements.
Over the financial year, ERV has grown from GBP47.8m to GBP55.0
million for completed homes, an increase of 15%, of which unit
numbers account for only 6%, while the average net investment yield
has softened from 4.13% to 4.47%. As asset values move inversely to
yield, the ERV growth has more than offset the increase in net
investment yield.
The portfolio's average rental affordability ratio (measured as
rent paid as a proportion of gross household income) is very
healthy at 22% in 2023 (2022: 25%). This is after like-for-like
rental growth of 7.5% over the financial year on stabilised sites
(2022: 5.1%). Like-for-like blended rental growth on stabilised
sites is the annual rental growth on sites where all units have
been completed and either all or nearly all have been let.
Post Period Review
Over the first quarter of the new financial year, 49 new homes
were added to the portfolio, taking the number of completed homes
at 30 September 2023 to 5,129, and the cumulative ERV of completed
homes to GBP57.6 million per annum. At the end of September 2023,
there were an additional 395 homes, with a combined ERV of GBP3.1
million per annum, under way. The portfolio's total ERV of
completed and not-yet-completed homes therefore amounted to GBP60.7
million at 30 September 2023.
The Company continues to work with one of its principal house
building partners to resolve a planning issue in respect of one of
its sites. Further details can be found in Note 7.
The table below provides further information of delivery
activity over the first quarter of the new financial year.
At At
30 September 30 June
2023 2023
Number of completed PRS homes 5,129 5,080
-------------- ---------
ERV per annum of completed homes GBP57.6m GBP55.0m
-------------- ---------
Number of contracted homes 395 444
-------------- ---------
ERV per annum of contracted homes GBP3.1m GBP3.8m
-------------- ---------
Resident feedback
All tenants receive a tenant satisfaction survey email one week
into their tenancy and then approximately six months later. This
helps the Investment Adviser to monitor tenants' experience with
the lettings and moving-in teams and then again once settled into
their tenancies. Tenants are also surveyed when renewing their
tenancies.
The following table provides data based on tenant satisfaction
results for the 12-month period from July 2021 to the end of June
2022, in comparison to results for the 12-month period from July
2022 to the end of June 2023.
July 2021 - July 2022
June 2022 - June 2023
% of tenants who said
the team made it easy
Move in survey to apply 93% 96%
----------------------------- ------------ -------------
% who said they were
kept well-informed
during the application
process 88% 89%
---------------------------------------------- ------------ -------------
% who said they received
all the information
they required 84% 91%
---------------------------------------------- ------------ -------------
% who said they would
recommend 'Simple Life' 95% 96%
---------------------------------------------- ------------ -------------
% of tenants who said
they were still happy
6-month survey with their home 95% 98%
----------------------------- ------------ -------------
% who said they were
happy with the service
provided 89% 89%
---------------------------------------------- ------------ -------------
% who said they felt
they had been kept
well-informed 83% 88%
---------------------------------------------- ------------ -------------
% who said they felt
their Asset Manager
was responsive and
were satisfied with
the service provided 76% 89%
---------------------------------------------- ------------ -------------
% who said the communal
areas were well maintained 86% 84%
---------------------------------------------- ------------ -------------
% who said they feel
part of a community 85% 85%
---------------------------------------------- ------------ -------------
% who said they felt
their maintenance requests
were fixed in a timely
manner 76% 77%
---------------------------------------------- ------------ -------------
% who said they would
recommend 'Simple Life' 94% 95%
---------------------------------------------- ------------ -------------
% of tenants who were
happy with their 'Simple
Life' experience so
Renewal survey far 96% 96%
----------------------------- ------------ -------------
% of people who renewed
their tenancies because
they love the property 49% 58%
---------------------------------------------- ------------ -------------
% who renewed because
they love the area 40% 20%
---------------------------------------------- ------------ -------------
% who renewed because
of the rent (value
for money) 9% 5%
---------------------------------------------- ------------ -------------
% who renewed because
'Simple Life' offers
a better service than
a 'one-off' landlord 2% 17%
---------------------------------------------- ------------ -------------
% of people who see
themselves staying
with 'Simple Life'
for 4 years or more 62% 58%
---------------------------------------------- ------------ -------------
% who see themselves
staying for 3 years
or more 78% 76%
---------------------------------------------- ------------ -------------
% who said they would
recommend 'Simple Life' 91% 94%
---------------------------------------------- ------------ -------------
All results are based on responses on a range from "neutral" to
"strongly agree". Tenants are given the option to respond on a
range from "disagree" to "strongly disagree", these responses are
not included in the results reported above.
Overall the results from the latest survey are in line with
those of the prior year, with the majority showing an improvement
in customer satisfaction.
The biggest increase from the previous year was the feedback on
Asset Management, with 89% saying their Asset Manager was
responsive and that they were satisfied with the service provided
(2022: 76%). This question was introduced last year to enhance
insight and provide another measure of asset manager performance
across sites.
It is encouraging to see that across the three surveys the
proportion of residents who would recommend Simple Life to friends
and family has increased by 5% year-on-year.
The strength of the Simple Life brand continues to grow. Over
the past 12 months the Simple Life website received c.1.6 million
page views and over 16,000 enquiry submissions. The number of leads
obtained through the website continued to exceed enquiries coming
from third-party websites, such as Rightmove. Site signage,
recommendation and online search continue to be the largest sources
of enquiries of those coming through the Simple Life website.
Tenant Initiatives
Affordability and Energy Calculator
As reported previously, an affordability calculator, based on
the Investment Adviser's referencing criteria, is built into the
Simple Life website. It is designed as an aid to assist prospective
residents to determine how much monthly rent they can afford
relative to their earnings and outgoings.
Following the energy efficiency modelling that Sigma undertook
last year, the Simple Life website now offers an energy efficiency
calculator against our most common property types. Users are able
to input their usage habits and property details to obtain an
energy bill estimate.
Rental Availability
The Simple Life website lists the availability of rental homes
in real-time. As well as giving potential renters a better service,
it also facilitates a more efficient uptake of homes. In 2023, an
'all-available properties' page was introduced, enabling users to
view all available properties according to their search criteria.
This also helps to give prospective residents an idea of comparable
rental prices where a specific development has no live
availability.
'My Simple Life' Mobile App
The bespoke resident mobile app, 'My Simple Life', which was
launched in August 2021, provides a convenient and efficient
'one-stop shop' for residents' needs and is available on Google and
Apple devices. It 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.
New services were added to the app over the financial year.
These included the following:
-- content presentation by property type (apartment or house);
-- a notification log;
-- a new meter-reading section, which enables residents to
access meter readings and request new meter readings, including
'push' notifications when a new reading is ready to view; and
-- a dedicated health and wellbeing ("H&W") section.
App enhancements that are scheduled over the coming year include
functionality that will enable tenants to:
-- add images to forum topics and comments - particularly
relevant for 'lost and found' inquiries and furniture swaps;
and
-- upload health and wellbeing content to the H&W hub.
Affiliate Offers
The Investment Adviser has increased the range of affiliate
offers that are available to tenants. These are promoted through
the 'My Simple Life' mobile app. New offers agreed this year
include discounts from Sparkling Cleaning, Sculpt Pilates, Grow
Gorgeous, ESPA, Dot. (Professional Organisers), Wash Doctors,
Virgin Wines, Simply Cook, Leaf Envy and Smol. These offers
supplement existing affiliate offers from Oddbox, Sky, Argos,
Dunelm, Wayfair, AO, Pretty Little Thing, Appleyard London
Florists, and The Modern Milkman.
Podcast
The Investment Adviser's 'Simple Life Chat' podcast gained a new
host this year, which was Capital Radio presenter, Russ Morris. He
continues to address the experience of renting and explores topics
of interest to residents, with experts and residents participating
in discussions.
New Market Research Survey
The Investment Adviser monitors the rental market on behalf of
the PRS REIT in order to enhance decision-making and identify
opportunities. During the year, it commissioned a major piece of
market research, which surveyed a broad cross-section of some 2,000
UK renters, including some of the Company's tenants, and was
supplemented by two focus groups. Some interesting findings that
emerged included the following:
-- the average age of a UK renter is 44 years;
-- the main reason for renting - reported by 71% of survey
participants - is lack of ability to buy;
-- the average length of time participants had been renting was just under 7 years;
-- property location was a key factor for 89% of survey participants;
-- the average rent paid was GBP700 per calendar month;
-- home office space was cited as a requirement by 44% of
participants, reflecting post-pandemic hybrid working patterns;
and
-- environmentally -friendly features were sought by 61% of participants.
The market research report can be viewed online at
www.theprsreit.com/company/the-private-rented-sector-marketplace/
.
Online reviews
Simple Life is registered with Trustpilot and tenants are
routinely invited to leave reviews. This helps the Investment
Adviser to identify any areas that need improvement. There are over
750 reviews on Trustpilot and Simple Life achieved an overall
rating of 4.2 stars out of 5.0. This is significantly above the
average of 3.6 for the business category of Property Rental
Agency.
Simple Life developments also feature on 'Home Views', a
dedicated review website for housing developments. They have gained
an average score of 4.28 out of 5.00 from approximately 750
resident reviews (with the BTR benchmark at 4.19). Nine Simple Life
developments were rated above the industry benchmark for
facilities, design, value and management.
Customer testimonials
A selection of customer testimonials are below.
"Just perfect. The layout of the greenery and roads are
fantastic. We even recommended it so much we have friends moving in
the area soon! The fact all the front gardens are looked after
really helps us during our busy lives. Always kept well and the
staff are so friendly."
Aimee (Newhall Resident) on Home Views
"I love the design of the houses. Having a kitchen that you can
entertain in is a must for me. The downstairs toilet means no
visitors are having to invade on your private space upstairs. The
property is warm and I've hardly had to use the heating system
although it's good to have a monitor in the bedroom for cold
mornings. Any issues I have had I have been able to easily report
them through the app and a contractor has been sent to fix the
issue almost immediately."
Jade (Stanley Park Resident) on Home Views
"The apartments themselves are very well decorated and I have
had a great time living here. The apartments are spacious, and I
have had very few problems with the property, and when I have,
these have always been resolved quickly by management. The
furniture provided is very high quality and adds greatly to the
apartment. They have been a very good landlord responding quickly
to repairs and have enjoyed some of the organised activities such
as free pizza for the opening of the communal garden."
Emily W (Empyrean Resident) on Home Views
"The design of the house is superb, particularly the en-suite
room. I really like that appliances are included with the property
and the garden is fantastic! The property manager is easy to
contact and they are quick to resolve an issue. Overall the
property is outstanding."
Adam (Durban Mill Resident) on Home Views
"The development is lovely; everyone seems very friendly and are
respectful to the space. The location is ideal as you are close to
town but aren't in the centre of everything, which is ideal for me
as I have a young baby. The house is gorgeous and Simple Life are
very supportive when there are any maintenance issues."
Emily C (Beehive Mill Resident) on Home Views
"We are very happy with our house. It is perfect for our family
and very clean and new. We have had great communication with the
management team and if we have had a problem or something damaged,
they work hard to get it fixed asap. Even the rent is very
affordable. We are very happy with the location - it is a 20min
walk to most areas and lots of parks for our kids."
Chris Webb (Silkin Green Resident) on Home Views
"I recently approached Simple Life with a view to renting a
home. I spoke to a representative, Jade. She guided us through the
process, made herself available at any time - nothing was too much
trouble. Such customer service is now rare I feel she must be such
an asset to Simple Life."
Janet Wilkinson (Simple Life Resident) on Trust Pilot
"From moving into our new forever home, has been absolutely
wonderful, Simple Life have made it stress free from the very
start. I have a lot of health issues which they are aware of,
especially Junior. He's been absolutely amazing and very helpful
throughout. He is very considerate and compassionate when dealing
with any issues I've had. Junior goes above and beyond to help
guide me through everything in relation to Simple Life, I think
personally every office needs a Junior, thank you so so much."
Dawn (Simple Life Resident) on Trust Pilot
"Simple Life do exactly what they say; they make renting simple.
The home I rent is of outstanding specifications, maintenance is
quick and easy and their app is really useful for tracking your
rent account and logging repairs. Overall, Simple Life are an
outstanding company who make renting simple!"
Adam (Simple Life Resident) on Trust Pilot
"The quality of the rental property provided by "Simple Life" Is
truly impressive. The property is impeccably clean,
well-maintained, and equipped with all the necessary amenities. It
is evident that the company takes great pride in their properties,
as everything is in excellent condition. I feel comfortable and at
home from the moment I stepped through the door."
Ion Postolachi (Simple Life Resident) on Trust Pilot
Summary and Outlook
The PRS REIT's assets continue to perform very strongly as
figures for the first quarter of the new financial year show.
Demand remains high, occupancy very strong, rent collection
extremely robust and affordability well within the guidance
provided by Homes England. We expect this to continue, with the
structural undersupply of rental homes and other fundamental market
drivers supporting the sector. In the near term, higher mortgage
rates and general economic uncertainty will also act as stimulants
to the rental market.
We are in the final phase of housing delivery for the PRS REIT's
initial portfolio. At completion, it is expected to comprise around
5,500 homes with an ERV of GBP60.7 million per annum, consolidating
the PRS REIT's position as the leader in single-family rental homes
in the UK. We continue to focus our efforts on steering through
remaining delivery, providing our residents with a high standard of
customer care, and ensuring all our developments are attractive,
sustainable, and neighbourly places in which to live.
Environmental, Social and Governance
ESG statement
The Company's Investment Adviser, Sigma PRS, undertakes the
day-to-day management of the Company's ESG strategy and takes
responsibility for managing the Company's ESG priorities at both a
Company level and at asset level. Sigma PRS reports on ESG matters
to the PRS REIT's Board 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. Its Investment Adviser engages with
leading industry ESG bodies for support in achieving the Company's
ESG goals.
-- The Investment Adviser is a signatory of the United Nations
Global Compact ("UN Global Compact"). This is a special initiative
of the United Nations Secretary-General, which is designed to
encourage business leaders to implement universal sustainability
principles and, in particular, the UN Global Compact's Ten
Principles and so help to deliver the UN's Sustainable Development
Goals ("SDG"). The Ten Principles 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 Nations Convention Against Corruption. The UN Global Compact
is the world's large corporate sustainability initiative.
-- The Investment Adviser has also committed to SDG Ambition
guides, which support the UN's goals. It is particularly focusing
on the UN's target of Land Degradation Neutrality ("LDN") and its
LDN principles. Objectives include zero deforestation and enhanced
biodiversity through tree and wildflower planting programmes.
-- The Investment Adviser is also cognisant of legislative
developments in relation to the Government's Biodiversity net gain
("BNG") strategy, which aims to safeguard habitat for wildlife, and
its encouragement of the energy performance efficiency of rental
homes.
-- The PRS REIT is a member of European Public Real Estate
Association ("EPRA"), a not-for-profit association that represents
the publicly-traded European real estate sector. EPRA's mission is
to promote, develop and represent the European public real estate
sector by, amongst other things, providing better information to
investors and stakeholders, actively engaging in public and
political debate, and promoting best practices.
The Investment Adviser regularly monitors the changing
legislative and reporting landscape, including the EU Sustainable
Finance Disclosure Regulation ("SFDR"), the UN Principles of
Responsible Investment ("PRI"), the Task Force on Climate-Related
Financial Disclosures ("TCFD"), the Taskforce on Nature-related
Financial Disclosures ("TNFD"), the EU's Corporate Sustainability
Reporting Directive ("CSRD"), as well as national and city-level
regulations, which are increasing.
The Investment Adviser has incorporated ESG factors into its
decision-making processes and operations. Its practices are based
on the following policy approaches in key areas :
Opportunity review
-- ESG risks are assessed, reviewed and monitored, and
strategies for enhancement and/or mitigation are set. These
strategies are based on recognised frameworks such as climate
change and social needs.
Investment decisions
-- ESG issues are listed and addressed in a summary investment
paper, which informs decision-making at the Investment Committee
approval stage.
-- ESG costs, including for ongoing community involvement, are
also determined and factored into investment decision-making
processes.
Asset management
-- Appropriate governance structures are established.
-- Relevant laws and regulations are adhered to.
-- ESG issues are monitored and managed.
-- 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 e.g. service providers.
-- Policy reviews and updates are ongoing.
-- Good practice is established.
-- Continued research and review of carbon reduction opportunities are ongoing.
-- Investment restrictions are screened to ensure ongoing compliance.
-- The 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 regarding the
environment and also public priorities. The Government's '10 Point
Plan for a Green Industrial Revolution', and "Net Zero Strategy:
Build Back Greener" set out pathways to accelerate the UK's
attainment of net zero carbon emissions and encompasses energy,
production, 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 continuing need for action
in areas including energy and water consumption, non-fossil fuel
heating provision and biodiversity. In developing the Company's ESG
agenda, the Investment Adviser has embedded best practices, and
works closely with supply chain and construction partners to ensure
that their policies and activities comply with the PRS REIT's
commitment to legislative requirements and best practice.
Environmental Impact and Data
The Company is aware of the impact that its activities have on
the environment and is committed to taking action to minimise and
mitigate any negative aspects as much as possible.
A particular focus for the Company is ensuring that the homes in
its portfolio are highly energy efficient. All homes added during
the financial year ended 30 June 2023 had an EPC rating of at least
a B, and across the Company's portfolio 87% of homes are rated A or
B. The balance have an EPC rating of C. The portfolio was therefore
in compliance with the Government's proposed new Minimum Energy
Efficiency Standard, requiring all rental homes to have a minimum
rating of C by 2028. The Government dropped this measure in
September 2023, in a policy change to take a more pragmatic,
proportionate and realistic approach to reaching net zero.
The total EPC data for the Company's homes is as follows:
EPC No.
Rating of Homes %
A 47 1%
---------- -----
B 4,352 86%
---------- -----
C 681 13%
---------- -----
Total 5,080 100%
---------- -----
The Company provides residents with access to clean and
renewable energy through the installation of electric vehicle
("EV") charging facilities and solar photovoltaic panels, where
possible. To date, 188 homes have access to EV chargers, 255 homes
have been installed with wiring looms, which are specially designed
wiring systems that provide for greater efficiency, protection and
safety, and 18 EV chargers have been installed at apartment blocks.
Photovoltaic panels have been installed at 966 homes.
Homes with photovoltaic % of portfolio Estimated generated Estimated avoided
panels with photovoltaic kWh/yr CO2 emissions
panels kg/yr
966 21% 592,584 148,864
------------------- -------------------- ------------------
Sigma PRS is working closely with the Company's construction
partners to understand and monitor the greenhouse gas emissions and
waste produced in the construction of homes. Gathering relevant and
meaningful data to help direct future design and asset maintenance
is important, and the Investment Adviser is in discussion with
building partners, Vistry and Countryside Partnerships to develop a
strategy and process for data gathering in this area. Data
collation is not an easy task as there is no legal obligation on
third parties such as suppliers and customers to provide
information. In the absence of relationship and economic leverage,
this process is therefore reliant on a voluntary co-operation.
Collaboration has involved participation in a sustainability
materiality assessment, which will be used to discuss and agree
targets.
Scope 1 and 2 emissions are those owned or controlled by a
company. Scope 3 emissions are a result of the activities of the
company but occur from sources not owned or controlled by a
company. Examples of Scope 1 include direct emissions from fuel
combustion on site such as boilers and fleet vehicles. Scope 2
emissions relate to indirect emissions generated from purchased
energy such as electricity, and Scope 3 emissions relate to
emissions created by the products we buy from suppliers and that
our customers use.
Further details on the PRS REIT's environmental, social and
governance activities can be found in its annual ESG Report, which
is available on the Company's website at www.theprsreit.com .
Social Engagement
The Company places great importance on engaging with the
communities in which its developments are sited. Over the last
twelve months, the Company has supported over 20 charities and
clubs across the country, either financially or practically,
through work undertaken by the Investment Adviser. Residents are
often involved in selecting these charities and organisations and
the Investment Adviser aims to ensure that residents will readily
identify with chosen causes.
A wide range of organisations and social initiatives were
supported over the year, ranging from local clubs promoting girls'
football and women's cricket and rugby, to smaller and national
charities.
Examples of initiatives that were supported include the British
Heart Foundation's RevivR project, which teaches vital
cardiopulmonary resuscitation, and the NSPCC's parenting skills
project, 'Look, Say, Sing, Play' as well as its Adolescence
programme in Liverpool, and its "The Net" project to raise
awareness of online safety for children in Doncaster and Leeds. A
new partnership was started with Alzheimer's Research UK. It has
provided residents with the opportunity for significant engagement,
including visiting the charity's research laboratories.
The Investment Adviser seeks to establish productive
relationships with charity partners. During the year, visits were
organised with a number of charity partners, including Embassy
Village, Atherton and Leigh Foodbank, Knowsley Foodbank, Salford
Loaves and Fishes, Barnardo's Gap Homes Project, Speed of Sight,
and Carluke Men's Shed. They provided the opportunity for the
Investment Adviser to discuss how best to provide ongoing
support.
Large-scale initiatives during the year included the Simple Life
Schools and Communities Biodiversity Project, which was launched in
partnership with Green the UK, and the DanceSing Wellbeing
initiative. The Simple Life Schools and Communities Biodiversity
Project is a countrywide project, which involves communities and
schools engaging in activities such as planting trees, vegetables,
and wildflowers. The DanceSing Wellbeing initiative has resident
wellbeing at its heart and offers residents online access to a wide
range of activities that support physical and mental health.
We are pleased to provide below some of the feedback from the
charities and organisations with which we have been involved.
Michele Duckworth from Knowsley Foodbank wrote:
"Knowsley foodbank started nearly 12 years ago. Now the Big Help
Project Food division has a team of eight people working from our
warehouse in Kirkby. We have three drivers, two warehouse
operatives, and three office-based colleagues alongside a team of
dedicated volunteers. The warehouse handles all of the food for our
seven foodbanks and 17 food clubs. The foodbank via food clubs has
been successful in expanding throughout Knowsley and the Liverpool
City Region and the Wirral.
"Last year we distributed over 275.5 tonnes of food to across
our foodbanks and food clubs in total, which helped to feed 140,000
people; of this 261 tonnes was surplus food.(saved from going to
landfill).
"Donations for the foodbank are essential to ensure that we
maintain our support to those people who are living in crisis and
poverty. We are grateful to those people and companies that support
us in our work as without them we could not achieve what we do
within the community."
Simon McDermot, Regional Fundraising Officer for Alzheimer's
Research UK wrote:
"Thank you so much for the donation to Alzheimer's Research UK.
We're so grateful that Simple Life Homes/the PRS REIT plc has
supported our work to help bring about life-changing treatments for
dementia. Your support makes a difference We're making huge
advances in our understanding of dementia, and the breakthroughs
keep coming. Support like yours has helped our scientists discover
over 20 genes linked to Alzheimer's disease, uncovering new avenues
of investigation in the search for new treatments. Thank you once
again for your generous donation and we look forward to supporting
your efforts in raising awareness of dementia with your local
communities.
Resident Michelle Bryan, a member of Runcorn Women's Cricket
Club, wrote:
"I'm ecstatic to show you our new hoodies which arrived
yesterday. And one of our new kit bags so far. I have to say again,
a massive thank you to you and your company for making this happen.
Feel like we are moving on up in the world."
Rachel Shields, Fundraising and Partnerships Manager, at Smart
Works Scotland wrote,
"We really value your support, which will help fund our vital
service to equip women in need with the clothes, coaching and
confidence to secure employment, gain financial stability and
change the trajectory of their lives."
Jane from The Bereavement Café in Bolton, emailed to say:
"Wow! Thank you so much! This is fantastic news and really very
much appreciated - and needed!"
Octavia and Jade Snedeker, Corporate Partnerships Officer from
Alzheimer's Research UK commented,
"We're delighted that you have raised funds for ground-breaking
dementia research. That is such a kind and generous thing to do."
"WOW! That is amazing news, I know the team will be so
grateful."
Becki Stewart, Normanton U12 Girls Rugby team, commented:
"Honestly, I cannot thank you enough. This will benefit the
girls so much; you've given us a truly amazing opportunity."
David Nation, Manager of U18 Sandymoor FC, said:
"Again, I cannot thank you enough for your support! For both
Sandymoor and Runcorn Women's cricket team. Honestly, it is
massively appreciated what Simple Life have done for both
teams!"
Resident Focused Initiatives
The Investment Adviser's report covers many of our
resident-focused initiatives. They are designed to create specific
opportunities for residents to engagement with each other and to
bring educational, social and other benefits. Two further
initiatives are highlighted below.
Outward Bound Trust
Sigma PRS partnership with The Outward Bound Trust, 'Building
for My Future', continues to go from strength to strength, with
Simple Life residents offered the opportunity to participate, fully
funded by Sigma Capital Group. Young people from schools and youth
groups close to Simple Life homes joined residents for a week of
challenges and adventure. Several young people went on to develop
their skills at summer courses, further enhancing the experience. A
selection of feedback from participants is below.
Lucja - "This was my second time going for a five-day course
with Simple Life Homes, at Outward Bound in Ullswater. Both times
have allowed me to stretch my abilities, especially this time
around as I took more of a leadership position becoming more
connected with the people in my group. It helped me build
confidence, personal strengths and resilience. I am thankful for
this opportunity and hope to move into doing the seven-day course
to expand my strengths even further."
Nanette - "I'm not a very active or social person but I wanted
to try something new and meet new people. I wasn't sure how it
would be but I took the chance and I don't regret it. I even became
good friends with my wonderful teammates and I actually enjoyed the
activities even though they were out of my comfort zone. I can say
it's better to try than just to rule something out because if I
hadn't tried this course I would have missed out on a lot."
Ben - "The time I spent with my team was some of the most fun
I've had in years. It really helped me get past some old stress and
get to know some amazing people, who I'm still in contact with. I'd
definitely recommend the week for anyone looking to expand your
horizons and hope you have as much fun with it as I did. Pushing
boundaries with their amazing staff has got me in a healthy state
of mind for my coming exams and I'm sure it can help others
too."
Book Boxes and Guardians
In August 2022, Sigma PRS launched a Book Box programme across
several developments to encourage residents to share books. To date
17 book boxes have been installed providing a means of sharing and
accessing free books to over 1,417 homes and enhancing
opportunities for community engagement. The book boxes were
sustainably made from 100% repurposed materials in partnership with
a specialist recycling company, Ground Neutral.
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 construction and 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 (2022: none).
Governance
Strong governance is essential to ensuring that risks are
identified and managed, and that accountability, responsibility,
fairness and transparency are maintained at all times.
The Company 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 and Ethnicity
Directors of The PRS 2023 2022
REIT Plc
Male 80% 80%
----- -----
Female 20% 20%
----- -----
Directors of The PRS 2023 2022
REIT Plc
White British 80% 80%
----- -----
Asian / Asian British 20% 20%
----- -----
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023
30 June 30 June
2023 2022
Note GBP'000 GBP'000
Rental income 49,701 41,963
Non-recoverable property costs (9,551) (7,635)
--------- ---------
Net rental income 40,150 34,328
Other income 1,646 470
Administrative expenses
Directors' remuneration (180) (170)
Investment advisory fee (5,788) (5,158)
Other administrative expenses (2,300) (2,183)
Total administrative expenses (8,268) (7,511)
Gain from fair value adjustment on investment
property 7 25,353 99,727
--------- ---------
Operating profit 58,881 127,014
Finance income 49 4
Finance cost (16,478) (11,129)
--------- ---------
Profit before taxation 42,452 115,889
Taxation 4 - -
--------- ---------
Profit after tax and Total comprehensive
income for the year attributable to
the equity holders of the Company 42,452 115,889
========= =========
Earnings per share attributable to
the equity holders of the Company:
IFRS earnings per share (basic and diluted) 5 7.7p 21.4p
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 2023
30 June 30 June
2023 2022
Note GBP'000 GBP'000
ASSETS
Non-current assets
Investment property 7 1,034,732 961,915
---------- ----------
1,034,732 961,915
---------- ----------
Current assets
Trade and other receivables 7,066 7,286
Cash and cash equivalents 13,198 48,682
---------- ----------
20,264 55,968
---------- ----------
Total assets 1,054,996 1,017,883
---------- ----------
LIABILITIES
Non-current liabilities
Accruals and deferred income 2,081 2,243
Interest bearing loans and borrowings 8 248,440 246,687
250,521 248,930
Current liabilities
Trade and other payables 17,076 29,742
Provisions 934 -
Interest bearing loans and borrowings 8 126,745 99,973
144,755 129,715
---------- ----------
Total liabilities 395,276 378,645
---------- ----------
Net assets 659,720 639,238
========== ==========
EQUITY
Called up share capital 5,493 5,493
Share premium account 298,974 298,974
Capital reduction reserve 118,584 140,554
Retained earnings 236,669 194,217
---------- ----------
Total equity attributable to the equity
holders of the Company 659,720 639,238
========== ==========
IFRS net asset value per share (basic
and diluted) 9 120.1p 116.4p
As at 30 June 2023, 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 9 October 2023
and signed on its behalf by:
Steve Smith
Chairman
Consolidated Statement of Changes in Equity
For the year ended 30 June 2023
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 2021 4,953 245,005 161,984 78,328 490,270
Comprehensive
income
Profit for the
year - - - 115,889 115,889
Transactions with
owners
Issue of ordinary
shares 540 53,969 - - 54,509
Dividend paid - - (21,430) - (21,430)
At 30 June 2022 5,493 298,974 140,554 194,217 639,238
========= ========= =========== ========== =========
Comprehensive
income
Profit for the
year - - - 42,452 42,452
Transactions with
owners
Dividend paid - - (21,970) - (21,970)
At 30 June 2023 5,493 298,974 118,584 236,669 659,720
========= ========= =========== ========== =========
Consolidated Statement of Cash Flows
For the year ended 30 June 2023
30 June 30 June
2023 2022
Note GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 42,452 115,889
Finance income (49) (4)
Finance costs 16,478 11,129
Fair value adjustment on investment
property 7 (25,353) (99,727)
--------- ----------
Cash generated by operations 33,528 27,287
(Increase) / Decrease in trade and other
receivables (578) 124
(Decrease) / Increase in trade and other
payables (1,640) 4,795
Net cash generated from operating activities 31,310 32,206
--------- ----------
Cash flows from investing activities
Purchase of investment properties - (26,346)
Development expenditure on investment
properties* (47,458) (55,476)
Decrease in capital trade and other
payables (10,255) -
Finance income 49 4
Net cash used in investing activities (57,664) (81,818)
--------- ----------
Cash flows from financing activities
Proceeds from issue of ordinary shares - 55,593
Cost of share issue - (1,084)
Bank and other loans advanced 49,801 89,624
Bank and other loans repaid (23,304) (100,014)
Finance costs (13,657) (10,809)
Dividends paid 6 (21,970) (21,430)
--------- ----------
Net cash (used in) / generated from
financing activities (9,130) 11,880
--------- ----------
Net decrease in cash and cash equivalents (35,484) (37,732)
Cash and cash equivalents at beginning
of year 48,682 86,414
Cash and cash equivalents at end of
year 13,198 48,682
========= ==========
The accompanying notes are an integral part of this cash flow
statement.
* Includes capitalised interest of GBP0.9 million (2022: GBP2.5
million).
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 9
October 2023.
2. Basis of preparation
The financial information set out in this announcement does not
constitute statutory financial statements for the year ended 30
June 2023 and year ended 30 June 2022. The financial information in
this announcement has been derived from the statutory accounts for
the year ending 30 June 2023 and year ending 30 June 2022. The
report of the auditor on the statutory financial statements for the
year ended 30 June 2023 and year ended 30 June 2022 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 2023 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting. The statutory accounts for the year ending
30 June 2022 have been delivered to the Registrar of Companies.
3. Going concern
The consolidated and Company financial statements have been
prepared on a going concern basis. The Directors have reviewed the
current and projected financial position of the Group, making
reasonable assumptions about future trading performance with
sensitivity testing undertaken to replicate plausible downside
scenarios related to the principal risks and uncertainties
associated with the business. As interest rate exposure has largely
been mitigated with 82% of the investment debt in the portfolio at
fixed rates, the Directors paid particular attention to the risk of
a deterioration in the forecast rental growth over the review
period which would have a negative impact on both forecast
valuations and cashflows. The outcome of this stress testing
indicated that covenants on existing facilities would not be
breached. As part of the review, the Group has considered its cash
balances, and its debt maturity profile, including undrawn
facilities. The Group had net current liabilities of GBP124.5
million as at 30 June 2023 (2022: net current liabilities GBP73.8
million). The increase in net current liabilities reflects the LBG
/ RBS debt facility (refinanced on maturity in July 2023), which
was GBP115.0 million drawn at 30 June 2023 (2022: GBP85.4 million
drawn) and the utilisation of cash. The Group's cash balances at 30
June 2023 were GBP13.2 million (2022: GBP48.7 million), of which
GBP3.5m was restricted but released within 3 months. The Group had
debt borrowing as at 30 June 2023 of GBP374.1 million. A portion of
the development debt facilities were utilised subsequent to the
year-end to enable the Group to continue to develop assets to
completion and enabling the letting of these to tenants. Following
stabilisation on a site, which comprises practical completion and
substantial letting, investment debt is drawn down to replace the
development debt facilities utilised. In July 2023, the LBG / RBS
variable rate investment debt facility was amended to a 2-year
facility of GBP75 million, of which GBP13 million was immediately
drawn. A new 15-year fixed rate investment debt facility was taken
out with LGIM of which GBP102 million was immediately drawn.
Capital commitments outstanding as at 30 June 2023 were GBP27.3
million. The Group's current ERV as at 30 June 2023, was GBP55.0
million from 5,080 homes and has increased to GBP57.6 million from
5,129 homes as at 30 September 2023. This has increased the
Company's recurring income which at this level is more than
sufficient to cover monthly cash costs. Based on the prevailing
run-rate of monthly cash costs and average rent levels,
approximately 2,500 homes are required to generate income to cover
monthly cash outlays.
The current market volatility is being monitored by the Board
however, the strong income performance and high proportion of fixed
rate debt puts the Group in a good position.
Therefore, the Directors believe the Group and Company are well
placed to manage their business risks successfully. After making
enquiries, the Directors have a reasonable expectation that the
Group and Company 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 Group's
consolidated financial statements and the Company's financial
statements for the year ended 30 June 2023.
4. 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.
5. 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,
basic and diluted earnings per share are the same for both the
current and prior periods.
The calculation of basic and diluted earnings per share is based
on the following:
2023 2022
GBP'000 GBP'000
Earnings per IFRS income statement 42,452 115,889
Adjustments to calculate EPRA Earnings:
Changes in value of investment properties
(Note 7) (25,353) (99,727)
------------ ------------
EPRA Earnings 17,099 16,162
============ ============
Weighted average number of ordinary
shares 549,251,458 535,203,388
IFRS EPS (pence) 7.7 21.4
EPRA EPS (pence) 3.1 3.0
6. Dividends
The following dividends were paid during the current year and
prior year:
2023 2022
GBP'000 GBP'000
Dividends on ordinary shares declared
and paid:
Dividend of 1.0p for the 3 months to
30 June 2021 - 4,953
Dividend of 1.0p for the 3 months to
30 September 2021 - 5,492
Dividend of 1.0p for the 3 months to
31 December 2021 - 5,492
Dividend of 1.0p for the 3 months to
31 March 2022 - 5,493
Dividend of 1.0p for the 3 months to 5,493 -
30 June 2022
Dividend of 1.0p for the 3 months to 5,493 -
30 September 2022
Dividend of 1.0p for the 3 months to 5,492 -
31 December 2022
Dividend of 1.0p for the 3 months to 5,492 -
31 March 2023
21,970 21,430
======== ========
Proposed dividends on ordinary shares:
3 months to 30 June 2022: 1.0p per
share - 5,493
3 months to 30 June 2023: 1.0p per 5,493 -
share
----------- -----------
5,493 5,493
=========== ===========
7. 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 2023 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 2022, 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 2021 533,774 246,592 780,366
Properties acquired on acquisition
of subsidiaries 14,820 11,526 26,346
Property additions - subsequent
expenditure - 55,476 55,476
Change in fair value 69,461 30,266 99,727
Transfers to completed assets 222,300 (222,300) -
------------- --------------- ------------
At 30 June 2022 840,355 121,560 961,915
------------- --------------- ------------
Property additions - subsequent
expenditure - 47,464 47,464
Change in fair value 26,963 (1,600) 25,353
Transfers to completed assets 80,419 (80,419) -
------------- --------------- ------------
At 30 June 2023 947,727 87,005 1,034,732
============= =============== ============
The historic cost of completed assets and assets under
construction as at 30 June 2023 was GBP831.8 million (2022:
GBP785.0 million).
The carrying amount of investment property pledged as security
as at 30 June 2023 was GBP952.5 million (2022: GBP823.6
million).
The Group 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 2023 (2022: GBP1 million).
The PRS REIT acquired a site at Coppenhall Place, Crewe with
planning consent during the year ended 30 June 2019. At the same
time, the Company also entered into a fixed price design and build
contract with one of its principal house building partners to
complete 131 units. This represented approximately 50% of the
entire Coppenhall Place site with the balance being developed by
the house builder as market for sale units. The design and build
contract contained standard clauses making the house builder
responsible for delivering the site and doing so in compliance with
the requirements of the original planning consent.
Shortly after physical completion and letting of more than 95%
of the units on the site acquired by the PRS REIT, a dispute arose
between the respective Council and the house builder regarding
compliance with the original planning consent. After consultation
between these two parties, the house builder submitted a further
planning application with a view to resolving the areas of dispute.
The submission was recommended to the Elected Council Members
("Members") by the Council Executive but a decision was deferred at
the hearing in order that the Members could obtain additional
information on viability, a peer review to clarify on-site
ventilation and clarification on queries regarding potential soil
contamination in certain areas of the whole site. As at the date of
approval of these financial statements the house building partner
continues to work with the Council Executive to address outstanding
matters before reverting to the Members for approval. The
Investment Adviser is closely monitoring progress. The Board of the
PRS REIT is of the view that remaining areas of work will be
completed and the planning issues ultimately finalised to the
satisfaction of all parties, including the private owners of the
market for sale units.
The financial statements include an investment value for the
Coppenhall Place asset of GBP23.5 million as at 30 June 2023 on the
assumption that the planning matters are resolved. The value of the
site represents approximately 2.3% of the balance sheet investment
value of assets as at the year-end date. Given the contractual
protections, the risk of any potential impact to the Group is
considered highly unlikely, and given the value of the site
relative to the overall balance sheet, the risk of any potential
impact to the Group is considered to be immaterial.
Fair Values
IFRS 13 sets out a three-tier hierarchy for 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
2023 2022
ERV per unit GBP10k - GBP22k GBP7k - GBP22k
Investment yield 4.10% to 5.00% 3.75% to 4.50%
Gross to net assumption 22.5% to 25.0% 22.5% to 25.0%
The following descriptions and definitions relate to key
unobservable inputs made in determining fair values:
-- ERV (Estimated Rental Value) per unit: the estimated
annual market rental value that could be earned on
a unit basis annually;
-- Investment yield: the net income earned as a percentage
of the investment value; and
-- Gross to net assumption: the non-recoverable property
costs expected to be incurred on a rental property
as a percentage of rental income.
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 as at 30 June
2023, was from 29% to 99% (2022: 7% to 99%). The final investment
value uses the assumptions stated above. An increase of 2% in the
gross development cost would reduce the fair valuation of these
assets by c.GBP1.7 million.
The impact of changes to the significant unobservable inputs for
completed and development assets are:
2023 2023 2022 2022
Impact on Impact Impact on Impact
statement on statement statement on statement
of comprehensive of financial of comprehensive of financial
income position income position
GBP'000 GBP'000 GBP'000 GBP'000
Improvement in ERV
by 5% 52,650 52,650 48,213 48,213
Worsening in ERV by
5% (51,303) (51,303 (48,223) (48,223)
Improvement in yield
by 0.125% 30,078 30,078 30,124 30,124
Worsening in yield
by 0.125% (28,407) (28,407) (28,359) (28,359)
Improvement in gross
to net by 1% 14,192 14,192 12,492 12,492
Worsening in gross
to net by 1% (12,738) (12,738) (12,402) (12,402)
The rates of sensitivity reflected in the above table have been
selected as being reflective of movements experienced in ERV,
yields and gross to net expenses.
8. Interest bearing loans and borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount is recognised in
profit or loss over the period of the borrowings using the
effective interest method.
Group Company Group Company
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
Current liabilities
Bank loans at 1 July 99,941 - 109,998 -
Loans advanced in the
year 49,801 - 89,624 -
Loans repaid in the year (23,304) - (100,014) -
Capitalised loan costs 275 - 333 -
--------- -------- ---------- --------
Bank loans at 30 June 126,713 - 99,941 -
Lease liability 32 - 32 -
--------- -------- ---------- --------
Total loans and borrowings 126,745 - 99,973 -
========= ======== ========== ========
Non-current liabilities
Bank loans at 1 July 245,684 - 244,875 -
Loans advanced in the
year - - - -
Capitalised loan costs 1,748 - 809 -
--------- -------- ---------- --------
Bank loans at 30 June 247,432 - 245,684 -
Lease liability 1,008 - 1,003 -
--------- -------- ---------- --------
Total loans and borrowings 248,440 - 246,687 -
========= ======== ========== ========
The fair value of loans and borrowings at year end totalled
GBP300.2 million (2022: GBP365.3 million).
Bank loans
Through its subsidiaries the Company has granted fixed and
floating charges over certain investment property assets to secure
the loans.
The Group's borrowing facilities are with Scottish Widows,
Lloyds Banking Group plc / RBS plc and Barclays Bank PLC. At 30
June 2023, these comprised the following:
Lender Loan Balance Loan Interest Loan
facility drawn period rate Type Maturity
30 June (all in)
2023
Scottish GBP100 GBP100 15 3.14% Fixed June 2033
Widows million million years
-------------------- ------------------- ------------------ -------------------- -------------------- ---------------------
Scottish GBP150 GBP150 25 2.76% Fixed June 2044
Widows million million years
-------------------- ------------------- ------------------ -------------------- -------------------- ---------------------
Lloyds GBP150 GBP115 3 6.53% Variable July
Banking million million years 2023
Group
plc
/RBS*
-------------------- ------------------- ------------------ -------------------- -------------------- ---------------------
Barclays GBP40 GBP12 3 8.28% Variable August
Bank million million years 2025
PLC
-------------------- ------------------- ------------------ -------------------- -------------------- ---------------------
* In July 2023, the loan was restated as a two-year GBP75
million floating-rate debt facility with RBS. GBP13.1 million was
drawn immediately
As determined by the Company's Investment Policy, the Group's
maximum loan to value ratio can be no more than 45%. As at 30 June
2023 the Group's EPRA loan to value was 37% (2022: 34%).
Reconciliation of movements of borrowings to cash flows arising
from financing activities:
2023 2022
GBP'000 GBP'000
Balance as at 1 July 345,625 354,873
Cash movements
Proceeds from borrowings 49,801 89,624
Borrowings repaid (23,304) (100,014)
Interest paid (11,957) (9,825)
Non-utilisation fees paid (703) -
Arrangement and commitment fees paid (932) (846)
Non-Cash movements
Finance costs 15,615 11,813
--------- ----------
Balance as at 30 June 374,145 345,625
========= ==========
Debt refinancing
At the beginning of July 2023, the Company completed the
refinancing of its GBP150 million revolving credit facility ("RCF")
provided by RBS and Lloyds Banking Group plc. The Group secured a
GBP102 million facility of fixed-rate debt for 15 years with Legal
and General Investment Management, together with a further GBP75
million of floating-rate debt agreed for two years with RBS. An
interest rate cap has been put in place on the floating rate debt
to hedge against downside risk on further interest rate
movements.
9. Net Asset Value
EPRA NTA, is considered to be the most relevant measure for the
Group. 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:
2023 2022
IFRS Net assets at 30 June (GBP'000) 659,720 639,238
EPRA adjustments to NTA - -
------------ ------------
EPRA NTA at 30 June 659,720 639,238
------------ ------------
Shares in issue at end of year 549,251,458 549,251,458
Basic IFRS NAV per share (pence) 120.1 116.4
============ ============
EPRA NTA per share (pence) 120.1 116.4
============ ============
The NTA per share calculated on an EPRA basis is the same as the
IFRS NAV per share for the year ended 30 June 2023 and the year
ended 30 June 2022.
10. Transactions with Investment Adviser
On 31 March 2017, Sigma PRS was appointed 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 2023, fees of GBP5.8 million (2022:
GBP5.2 million) were incurred and payable to Sigma PRS in respect
of asset management fees. At 30 June 2023, GBP0.5 million (2022:
GBP0.9 million) remained unpaid.
For the year ended 30 June 2023, development management fees of
GBP1.8 million (2022: GBP2.5 million) were incurred and payable to
Sigma PRS. At 30 June 2023, GBP0.2 million (2022: GBP0.3 million)
remained unpaid. Development management fees were capitalised as
development costs during the year and prior year.
For the year ended 30 June 2023, administration and secretarial
services of GBP70,000 (2022: GBP85,000) were incurred and payable
to Sigma Capital Property Ltd, a fellow subsidiary of the ultimate
holding company of the Investment Adviser. At 30 June 2023,
GBP9,000 (2022: GBP49,000) remained unpaid.
Sigma PRS's shareholding as at 30 June 2023 was 5,889,852 (2022:
5,889,852), which represents 1.07% (2022: 1.07%) of the issued
share capital in the Company. All the shares acquired were in
accordance with the Development Management Agreement between the
Company and Sigma PRS.
For the year ended 30 June 2023, Sigma PRS received dividends
from the Company of GBP236,000 (2022: GBP236,000).
11. Post balance sheet events
Debt refinancing
At the beginning of July, the Group completed the refinancing of
its GBP150 million revolving credit facility provided by RBS and
Lloyds Banking Group. The facility had been originally due to
mature in February 2023 and was extended on substantially the same
terms to mid-July 2023 (with an option to extend until October
2023). The Board views the refinancing as having been completed on
attractive commercial terms in light of the current interest rate
environment.
The Investment Adviser secured a GBP102 million facility of
fixed-rate debt for 15 years, together with a further GBP75 million
of floating-rate debt agreed for two years, providing the Group
with the flexibility to refinance this element over that period. An
interest rate cap has been put in place on the floating rate debt
to hedge against downside risk on further interest rate movements.
These new facilities have been established with Legal and General
Investment Management and RBS respectively.
The Investment Adviser immediately arranged for deployment of
almost two-thirds (GBP115 million) of the total debt, specifically
the entire GBP102 million fixed-rate facility and GBP13 million of
the floating-rate facility, to fund already completed and
stabilised sites. The balance of GBP62 million of floating-rate
debt is expected to be drawn down to fund sites completing and
stabilising before calendar year 2024.
Dividends
On 2 August 2023, 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 1 September 2023, to
shareholders on the register as at 11 August 2023.
12. Availability of statutory financial information
Copies of the full statutory financial statements are available
on the Company's website at www.theprsreit.com .
13. Annual General Meeting
The Annual General Meeting of the Company will be held at the
offices of Singer Capital Markets, 1 Bartholomew Lane, London EC2N
2AX on Monday 4 December 2023 commencing at 2 pm. ([1]) A full
reconciliation between IFRS profit and EPRA earnings can be found
in note 5 of the Financial Statements
[2] Finance costs adjusted to exclude amortised debt costs of
GBP2.1m (2022: GBP2.2m)
[3] A reconciliation of IFRS NAV to EPRA NTA can be found in
note 9 of the Financial Statements
[4] Like-for-like blended rental growth on stabilised sites is
defined as the annual rental growth on sites where all units have
been completed and either all or nearly all have been let
[5] TwentyCi https://www.twentyci.co.uk/resources/
([6]) Jones Lang LaSalle (JLL), UK Build To Rent (BTR) Report,
September 2021
([7]) British Property Federation, Build-to-Rent Report, Q2
2023
([8]) Zoopla Rental Market Report, June 2023
([9]) National Residential Landlords Association, Landlord
Confidence Index (LCI) No.17: 2023 Q1
([10]) National Residential Landlords Association, Landlord
Confidence Index (LCI) No.18: 2023 Q2
([11]) Office for National Statistics, Housing Purchase
Affordability, UK: 2022
([12]) Department for Levelling Up, Housing & Communities, A
Fairer Private Rented Sector, June 2022
([13]) ' Simple Life' - The PRS REIT's rental homes are marketed
under the 'Simple Life' brand.
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