TIDMPRSR
RNS Number : 5893T
PRS REIT PLC (The)
21 March 2023
PRSR.L
The PRS REIT plc
("the Company" or "the PRS REIT")
Interim Results
for the six months ended 31 December 2022
Very strong asset performance and portfolio now at over 4,980
completed homes
Highlights
Financial
Six months Six months
ended ended
31 December 31 December
2022 2021 Change
-------------------------- ------------- ------------- -------
Net rental income GBP19.6m GBP16.4m +20%
Adjusted earnings* GBP16.9m GBP12.9m +31%
Operating profit GBP22.7m GBP44.0m -48%
Profit after tax GBP14.7m GBP38.6m -62%
Basic earnings per share 2.7p 7.4p -64%
* Operating profit excluding changes in the fair value of
investment properties
-- Profitability in line with management expectations and the
year-on-year change mainly reflects the difference in gains from
fair value adjustments on investment property between the two
periods, with GBP5.8m recognised in the period under review ("H1
2023") compared to GBP31.1m in the comparative period ("H1 2022").
These gains are non-cash items.
At At
31 Dec 30 Jun
2022 2022 Change
--------------------------- -------- -------- -------
Net assets GBP643m GBP639m +1%
IFRS NAV and EPRA NTA per
share 117.1p 116.4p +1%
--------------------------- -------- -------- -------
Operational
Portfolio delivery At At At
31 Dec 30 Jun 31 Dec
2022 2022 2021
--------------------------------- --------- --------- ---------
No. of completed homes 4,913 4,786 4,489
Estimated rental value ("ERV") GBP50.7m GBP47.8m GBP43.5m
per annum
--------------------------------- --------- --------- ---------
No. of contracted homes 613 693 949
ERV per annum GBP6.6m GBP7.2m GBP8.2m
Completed and contracted
sites 71 68 67
ERV per annum GBP57.3m GBP55.0m GBP51.7m
--------------------------------- --------- --------- ---------
No. of completed and contracted
homes 5,526 5,479 5,438
--------------------------------- --------- --------- ---------
Portfolio performance At At
31 Dec 31 Dec
2022 2021
------------------------------------------------ -------- --------
Cost management of Gross to Net 18.8% 17.6%
Rent collection (rent collected in H1 relative
to rent invoiced in H1) 98% 99%
------------------------------------------------ -------- --------
Like-for-like rental growth (based on average
rent per unit for stabilised sites) 5.7% 3.2%
------------------------------------------------ -------- --------
Average yield on assets in the portfolio 4.3% 4.2%
------------------------------------------------ -------- --------
-- Housing delivery in its final stages, with 127 homes
completed in H1 2023, taking the Company's portfolio to 4,913
completed homes with an ERV of GBP50.7m p.a. at 31 December 2022
and a further 613 homes under way
o four development sites were acquired, which will deliver 97
homes once completed
-- Completed assets continued to perform strongly; occupancy at
97% (98% including homes reserved for applicants who have passed
referencing and paid deposits) and rent collection also at 98%
o like-for-like rental growth for the year to 31 December 2022
on stabilised sites was c. 5.7% - with renewals up by c.5% and
re-lets to new tenants up by c.10%
o arrears remained low at c.1% of annualised ERV
o net rental income up 20% to GBP19.6m (H1 2022: GBP16.4m)
o average rent as a proportion of gross household income was at
c.25% - well below Homes England's upper limit of 35%
o Bloomberg cumulative total return from IPO to 31 December 2022
of 13.5p
-- Net asset value per share increased in H1 2023 to 117.1p (30
June 2022: 116.4p). This reflects strong ERV growth, which offset
the softening in the net average investment yield
o The Single Family Rental sub-sector delivered the most robust
performance in investment yields across the property sector,
reflecting the resilience of this category
-- Delivery estimated to finalise at c.5,600 homes, with an ERV of c.GBP58m per annum*
Outlook
-- Dividends amounting to 2.0p per share were declared in H1
2023 (H1 2022: 2.0p). Total dividend target for FY 2023 remains
4.0p per share*, which is expected to be almost fully covered by
earnings on an annualised run-rate basis by the financial
year-end
-- Between 1 January and 10 March 2023, 68 new homes were added
to the portfolio, taking it to 4,981 completed homes with an ERV of
GBP52.2 million p.a. A further 545 homes were under construction at
10 March 2023
-- Rental demand for high-quality family homes remains very
strong nationally and is expected to grow against a background of
structural under supply, interest rate rises and cost-of-living
pressures
(1) CBRE UK Investment Yields Report (March 2023)
Steve Smith, Non-Executive Chairman of The PRS REIT plc,
said:
"The PRS REIT's portfolio of high-quality, professionally
managed, build-to-rent family homes continues to perform very
strongly. Demand, affordability, occupancy levels and rent
collection are all high and arrears remain low. This supports cash
generation and predictable income flows as our portfolio nears
completion.
"On 10 March 2023, the portfolio reached 4,981 homes and expects
to reach 5,000 completed units by the end of March. Once delivery
is fully complete, we expect the portfolio to comprise around 5,600
homes, with an estimated rental value of GBP58 million per
year.
"Market factors remain strongly in our favour, and our sector -
single family rental - is very robust. This reflects lack of
supply, strong rental growth, and the benefit of multiple
individual counterparties, which reduces concentration risk. Our
homes are affordable for ordinary families up and down the country
and we remain very confident of prospects for the PRS REIT."
*These are targets only and not a forecast. There can be no
assurance that these targets will be met and they should not be
taken as an indication of the Company's expected future results
.
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 Ltd Tel: 0333 999 9926
Graham Barnet, Mike McGill
Singer Capital Markets Tel: 020 7496 3000
James Maxwell, Asha Chotai (Investment
Banking)
Alan Geeves, James Waterlow, Sam Greatrex
(Sales)
Panmure Gordon (UK) Limited Tel: 020 7886 2500
Alex Collins (Investment Banking)
G10 Capital Limited, part of IQ-EQ Tel: 0207 397 5450
(AIFM)
Paul Cowland
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 is
investing over GBP1bn in a portfolio of high-quality homes for
private rental across the regions, having raised a total of
GBP0.56bn (gross) through its Initial Public Offering, on 31 May
2017 and subsequent fundraisings in February 2018 and September
2021. The UK Government's Homes England has supported the Company
with direct investments. On 2 March 2021, the Company transferred
its entire issued share capital to the premium listing segment of
the Official List of the FCA and to the London Stock Exchange's
premium segment of the Main Market. Approaching its 5,000th new
rental home, 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 (formerly Sigma Capital Group
plc)
www.sigmacapital.co.uk
Sigma Capital Group Limited ("Sigma") is a PRS, residential
development, and urban regeneration specialist, with offices in
Edinburgh, Manchester and London. Sigma's principal focus is on the
delivery of large-scale housing schemes for the private rented
sector. The Company has a well-established track record in
assisting with property related regeneration projects in the public
sector, acting as a bridge between the public and private
sectors.
Sigma has created an 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 Ltd, is Investment Adviser to The PRS REIT plc.
About Sigma PRS Management Ltd
Sigma PRS Management Ltd 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
Overview
I am pleased to present The PRS REIT plc's (the "Company" or
"PRS REIT") financial results for the six months ended 31 December
2022. The portfolio is in the final stages of its delivery
programme; almost 90% finished, with 4,981 completed new homes at
10 March 2023 and 545 under way. Completed assets are continuing to
perform strongly.
Largest portfolio of single-family rental homes in the UK
The Company's portfolio of build-to-rent ("BTR") family homes
grew by an additional 127 homes over the six-month period. This
took the total number of homes to 4,913 by 31 December 2022, a 9%
increase against the same point last year (31 December 2021: 4,489
completed homes).
The estimated rental value ("ERV") of the 4,913 completed homes
was GBP50.7 million per annum, increasing the portfolio's ERV by
17% year-on-year (31 December 2021: GBP43.5 million). The
percentage rise in the portfolio's rental value against the
percentage increase in the number of completed homes over the
period reflects rental growth over that time.
At 31 December 2022, a further 613 homes with an ERV of GBP6.6
million per annum were under way and at varying stages of the
construction process. Included within that number are 97 homes,
which are under construction across four development sites in
Warwickshire, Shropshire, South Yorkshire and Staffordshire and
were acquired in the period with the September 2021 equity placing
proceeds.
The value of our net assets at 31 December 2022 stood at GBP643
million, up by 12% year-on-year and by 1% since 30 June 2022 (31
December 2021: GBP573 million and 30 June 2022: GBP639 million).
This equates to a net asset value ("NAV") per share of 117.1p. The
Bloomberg cumulative total return from IPO to 31 December 2022 is
13.5p per share.
The Company's portfolio of high-quality single-family homes
remains the largest of its kind in the UK. Assets are
geographically widely spread. Currently, we have 71 sites (31
December 2021: 67 sites) across the major regions of England, in
the North-West, North-East, Yorkshire, the Midlands, East of
England and South-East (excluding London), with a single site in
Scotland at present.
The number of new homes continues to rise. Our most recent
delivery data at 10 March 2023 shows that the portfolio has risen
to 4,981 homes, taking its ERV to GBP52.2 million, with a further
545 homes under way. Once the delivery programme is complete, we
currently estimate that the portfolio will comprise some 5,600
homes with an ERV of approximately GBP58 million per annum once the
homes are fully let .
Continued strong asset performance
Occupancy and rent collection
We continued to experience high demand for our homes in the
period, and occupancy and rent collection remained very strong.
Occupancy at 31 December 2022 stood at 97%, with 4,788 of the 4,913
completed homes occupied (31 December 2021: 98%). A further 44
homes were reserved for applicants who had passed referencing and
paid rental deposits, giving an occupancy rate of 98%. Rent
collection (measured as rent collected relative to rent invoiced in
the period) was 98% (31 December 2021: 99%).
Affordability and Arrears
The affordability ratio of homes remains very healthy, with
average rent as a proportion of gross household income at
approximately 25%. This is significantly within Home England's
upper limit of 35%.
Total arrears remained low at 31 December 2022 at GBP0.7
million, which equated to approximately 1% of annualised ERV on
completed units (H1 2022: GBP0.5 million on 4,489 completed
units).
Rental income growth
The growth of the portfolio and strong asset performance is
reflected in the 20% increase in net rental income to GBP19.6
million (H1 2022: GBP16.4 million). Like-for-like rental growth per
unit on stabilised sites was 5.7% up over the twelve months to 31
December 2022 and up by 2.8% over the six months to 31 December
2022. Rental growth on lets to new tenants averaged a little over
10% and marginally below 5% on renewals with existing tenants.
The strong asset performance reflects the demand for
high-quality family rental homes, which remain structurally
undersupplied. Rightmove's Rental Trends Tracker report for Q4 2022
highlighted the ongoing high demand for rental properties, with the
number of enquiries up 7% on 2021 and up by 53% on 2019, before the
coronavirus pandemic. Rightmove forecasts national average asking
rents for newly-available properties rising by a further 5% in
2023, if there is no significant addition to the national rental
stock.
The Investment Adviser's report provides further commentary on
housing delivery, asset performance and our ESG activity over the
year.
Financial results
Revenue, which is derived entirely from rental income, increased
by 22% to GBP24.2 million against the same period last year (H1
2022: GBP19.9 million). This reflected growth in completed and let
homes. After non-recoverable property costs, the net rental income
for the period was GBP19.6 million, a 20% rise on the first half of
2022 (H1 2022: GBP16.4 million). Other income of GBP1.3 million (H1
2022: GBP0.3m) related to compensation payments arising from
delayed housing delivery across development sites.
As expected, profit from operations decreased to GBP22.7 million
(H1 2022: GBP44.0 million), with the reduction principally
reflecting the significant difference in gains from fair value
adjustment on investment property between the two periods as well
as the maturity of the delivery programme. In H1 2023, there were
gains of GBP5.8 million from fair value adjustments on investment
property, which compared to gains of GBP31.1 million in H1 2022.
These gains are non-cash items. Profit from operations is also
stated after total expenses, which were GBP4.1 million (H1 2022:
GBP3.8 million).
Profit before tax was GBP14.7 million (H1 2022: GBP38.6
million), and basic earnings per share were 2.7p (H1 2022: 7.4p).
Of this, 1.6p represented recurring earnings per share in line with
the EPRA definition and provided 80% dividend cover in the period,
with dividends of 2.0p per share.
Net assets increased over the year by 12% to GBP643 million as
at 31 December 2022 (31 December 2021: GBP573 million and 30 June
2022: GBP639 million). This equates to a net asset value ("NAV") of
117.1p per share on an International Financial Reporting Standards
("IFRS") basis and on the European Public Real Estate Association
("EPRA") Net Tangible Asset ("NTA") basis (30 June 2022: IFRS and
EPRA NTA both 116.4p).
Six months Six months Year
ended ended ended
31 December 31 December 30 June
NAV movement: 2022 2021 2022
Opening NAV 116.4p 99.0p 99.0p
------------- ------------- ---------
Valuation and development 1.1p 5.9p 18.4p
------------- ------------- ---------
Earnings 1.6p 1.4p 3.0p
------------- ------------- ---------
Dividends paid (2.0)p (2.0)p (4.0)p
------------- ------------- ---------
Closing NAV 117.1p 104.3p 116.4p
------------- ------------- ---------
The movement in the NAV position, from 116.4p to 117.1p between
30 June 2022 and 31 December 2022, is after total dividend payments
of 2.0p per share (GBP11.0 million). These dividend payments
related to the fourth quarter of the 2022 financial year and the
first quarter of 2023 financial year, and were paid in August and
November 2022, respectively.
Operating cash inflows continued to exceed operating outflows
and covered the Company's cost base.
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2022 (unaudited) 2021 (unaudited) 2022 (audited)
IFRS EPS (pence per share) 2.7 7.4 21.4
------------------ ------------------ ----------------
EPRA EPS (pence per share) 1.6 1.4 3.0
------------------ ------------------ ----------------
As at As at As at
31 December 31 December 30 June
2022 (unaudited) 2021 (unaudited) 2022 (audited)
IFRS NAV (pence per share) 117.1 104.3 116.4
------------------ ------------------ ----------------
EPRA NTA (pence per share) 117.1 104.3 116.4
------------------ ------------------ ----------------
Dividends
Two dividend payments, each of 1.0p per ordinary share, were
made in the period. They related to the last quarter of the
financial year ended 30 June 2022 and the first quarter of the
current financial year and were paid on 26 August and 30 November
2022 respectively.
A dividend of 1.0p per ordinary share relating to the second
quarter of the current financial year was paid on 3 March 2023 to
shareholders on the register at 17 February 2023. This brought the
total of dividends paid to date since the Company's inception in
May 2017 to 24.0p per share.
The Board expects to announce the payment of an interim dividend
for the third quarter of the current financial year in April.
The Board continues to target a total dividend of 4.0p per
ordinary share for the current financial year. A 4.0p per share
dividend is expected to be almost fully covered by earnings on an
annualised run-rate basis by the end of the current financial year,
with coverage continuing to grow during the year as construction,
completions and lettings advance.
Debt Facilities
As at 31 December 2022, the Company had GBP440 million of
committed debt facilities available for utilisation. This comprised
GBP400 million of investment debt facilities and GBP40 million of
development debt facilities. Our lending partners are:
-- Scottish Widows (GBP250 million);
-- The Royal Bank of Scotland plc (GBP100 million);
-- Lloyds Banking Group plc (GBP50 million); and
-- Barclays Bank PLC (GBP40 million).
The Barclays Bank PLC debt facility is available to be drawn as
development debt, which enables a number of sites to be developed
simultaneously.
The debt facilities are subject to the maximum gearing ratio of
45% of gross asset value, in line with the Company's Investment
Policy. Approximately GBP374 million of these facilities have been
drawn to date, with the remainder presently forecast to be utilised
over the next 12 months as we finish the current phase of
construction, completion and letting activity. The fixed-interest,
long-term investment debt facilities of GBP250 million have an
average term of 17.6 years and an average weighted cost of 2.9%
once fully drawn.
In the light of significant market volatility, the Company
obtained, in December 2022, an extension to its GBP150 million
revolving credit facility with Lloyds/RBS, which had been due to
mature in February 2023. This short-term extension provides
additional time for market conditions to stabilise and has been
secured for the period to 14 July 2023 at the same margin above the
three-month SONIA rate as the existing arrangements. The Company is
now better placed to consider its funding options and positive
discussions are ongoing with a number of parties, with a view to
securing long-term investment debt. The Board expects to be in a
position to enter into heads of terms in due course.
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 including the review of investment
activity and performance. The Board consists of five independent
non-executive directors, who together bring significant and
complementary experience in the management of listed funds, equity
capital markets, public policy, operations and finance in the
property and investment funds sectors.
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 a subsidiary of
Sigma Capital Group Limited ("Sigma"), and a signatory and
participant of the United Nations Global Compact. Sigma Capital
Group Limited is part of PineBridge Investments, a private global
asset manager with $143bn in assets under management as at December
2022.
Details of ESG policies and activities are contained separately
in the Investment Adviser's Report.
Outlook
The national supply of new homes continues to remain below
required levels. Elevated house prices and increased borrowing
costs remain obstacles to home purchases. This is illustrated in a
survey published by Rightmove in August 2022, which reported that
across Great Britain the average price of a first-time buyer home
was 7.2 times the average salary. Affordability constraints are
also being stretched by the increase in the cost-of-living. We
expect these factors to continue to drive demand for rental
property and the potential for further rental growth in 2023.
Against this backdrop, the Company is offering high-quality,
modern, energy-efficient homes (for further information on
energy-efficiency, see the Energy Performance data section),
supported by high customer service standards provided by the
award-winning rental brand, 'Simple Life'. The homes we provide are
for the long-term and so remove the uncertainty many residents feel
when renting in the private sector. We aim to foster a sense of
community across our developments with regular events and an app
that also acts as a hub, bringing together all of our
stakeholders.
Critically, our homes are priced at an affordable level for
average families. As previously stated, the portfolio's average
rent as a proportion of household income is c.25%, well within Home
England's stated affordability target of 35%.
We fully expect our assets to continue to perform strongly, with
high occupancy, strong rent collection levels and continuing low
arrears.
The delivery of the final tranche of the Company's portfolio is
continuing in line with forecast as we approach our estimated
target of 5,600 homes with an ERV of c.GBP58 million per annum.
The Board is confident that the Company is on track to meet its
targets for the financial year and to continue to progress to an
almost fully covered annual dividend of 4.0p per share on an
annualised basis by the end of the 2023 financial year.
Finally, I would like to acknowledge all our stakeholders
involved in the funding, delivery, and management of the new homes
we are building, and to thank, in particular, our investors,
housebuilder partners and supporters in government, all of whom
have faced severe challenges in the recent past. Our project
continues to deliver significant benefits to both the UK housing
market and, most importantly, to the families who have chosen to
rent our homes.
Steve Smith
Chairman
Investment Adviser's Report
Sigma PRS Management Ltd ("Sigma PRS"), the Investment Adviser
("IA") to the PRS REIT is pleased to report on the Company's
progress for the six months to 31 December 2022. Sigma PRS is a
wholly-owned subsidiary of Sigma Capital Group Limited ("Sigma"),
which is part of PineBridge Investments, a private global asset
manager with over $143bn in assets under management.
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 portfolio of
newly-constructed residential rental homes in or near towns and
cities in the UK for the private rented sector.
The Company has a scalable business model, which utilises the
Investment Adviser's PRS property delivery and management platform
to deliver and manage new homes across multiple geographies and
sites across the UK.
The Company's portfolio of homes is targeted at the family
market, which is the largest and growing segment within the private
rented sector. The Company is concentrating on traditional housing
that has a broad appeal across the demand spectrum and differing
house types for different life stages, including smaller houses for
young couples and retirees, and larger houses for growing families.
It also invests in some low-rise flats in appropriate locations to
broaden the rental offering.
The Company has targeted sites in the largest employment centres
in England (outside London), predominantly in the Midlands and the
North of England. Locations are chosen for their accessibility to
main road and rail links, good schooling, and to centres of
economic activity, which promote long-term employment prospects.
The new-build nature of the assets, alongside standardised
specifications, means that they benefit from a 10-year building
warranty, typically from the NHBC (National House Building Council)
and manufacturers' warranties. The homes are let on Assured
Shorthold Tenancies (as defined in the Housing Act 1988) to
qualifying tenants. Tenants enter into a rental agreement with a
minimum tenure of six months, after which the tenancy can be
extended or terminated.
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 selects suitable development
sites ("PRS development sites"), works with house builders to
obtain detailed planning permission before the development site is
acquired by PRS REIT, and agrees a fixed-price, design & build
contract with one of the Sigma PRS's construction partners. Sigma
PRS then manages the delivery process on behalf of the Company.
As the assets are acquired with detailed planning consent and
fixed-price, design & build contracts, the Company is exposed
to minimal development risk. The construction risk is further
mitigated with standard 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,
together with an indemnity for losses incurred. In accordance with
the right-of-first-refusal agreement with Sigma PRS, the Company
has sourced not less than two-thirds of its assets in this way.
-- In the second instance, assets are acquired by entering into
forward-purchase agreements with Sigma Capital Group Limited
("Sigma"), the ultimate holding company of Sigma PRS. These assets
are acquired as completed and stabilised developments. Typically,
they have been constructed by the same construction partners and
supply chain, thereby supporting the homogeneity of the PRS REIT's
housing stock. Completed and stabilised developments are also
purchased from other third-parties using approved construction
partners.
The PRS REIT retains the right-of-first-refusal to acquire and
develop any sites sourced by Sigma PRS that meet its investment
objective and policy, subject to the availability of funding.
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser uses Sigma's well-established PRS
property delivery and management platform (the "Sigma PRS
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 of relationships with
construction partners, central government, and local authorities.
Key construction partners include Countryside Partnerships, Vistry
Group, EQUANS (formerly Engie) and Seddon. Homes England, an
executive non-departmental public body sponsored by the Department
for Levelling Up, Housing and Communities, works closely with Sigma
in the common goal of accelerating new housing delivery in
England.
All pre-development risks are identified and underwritten by
Sigma and its partners, and development sites will have an
appropriate certificate-of-title, detailed planning consent and a
fixed-price, design & build contract with one of Sigma's
housebuilding partners. During the construction phase, many of the
properties are pre-let and subsequently occupied once complete.
The Sigma PRS Platform sources land for development sites
through its wide network of relationships, and delivers 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.
Delivery and pipeline
A total of 127 new homes were added to the PRS REIT's portfolio
in the first half of the current financial year. This took the
total number of completed homes in the Company's portfolio at 31
December 2022 to 4,913, a 9% increase period-on-period (31 December
2021: 4,489 homes). The portfolio's estimated rental value ("ERV")
at the end of the first half was GBP50.7 million per annum (31
December 2021: GBP43.5 million per annum), a rise of 17% from the
same date in 2021.
Purchases of investment property over the first half to 31
December 2022 totalled GBP30.5 million (H1 2022: GBP48.0 million).
The year-on-year reduction reflects the maturity of the portfolio
and the normal cycle of property development expenditure, where
expenditure is typically higher during the earlier months of
acquiring and developing a site and reduces as homes complete
across a site.
The Company's gross funding of GBP956 million (including debt),
which includes an equity placing of GBP55.6 million (gross)
completed in September 2021, has been fully allocated. During the
first half of the financial year, part of the September equity
placing proceeds were used to acquire four development sites. These
are located in Warwickshire, Shropshire, South Yorkshire and
Staffordshire, and when completed, the sites will add 97 new homes
to the portfolio.
The table below provides a summary of development activity and
shows the cumulative number of PRS units that have been completed
since the launch of the Company on 31 May 2017 and the ERV of homes
under construction or completed.
At At 30 At
31 Dec Jun 31 Dec
2022 2022 2021
No. of completed PRS units 4,913 4,786 4,489
--------- --------- ---------
ERV per annum GBP50.7m GBP47.8m GBP43.5m
--------- --------- ---------
No. of contracted homes 613 693 949
--------- --------- ---------
ERV per annum GBP6.6m GBP7.2m GBP8.2m
--------- --------- ---------
Total number of sites (completed
and contracted) 71 68 67
--------- --------- ---------
No. of completed and contracted
units 5,526 5,479 5,438
--------- --------- ---------
ERV per annum GBP57.3m GBP55.0m GBP51.7m
--------- --------- ---------
Geographic diversification
The number of sites in the Company's portfolio stood at 71 on 31
December 2022 (31 December 2021: 67). Sites span the major regions
of England, with a single site in central Scotland at present.
Approximately 58% of homes in the portfolio, both completed and
under development, are located in the North West of England, 21%
are sited in the Midlands, and 13% are in Yorkshire and the North
East. Of the balance, approximately 7% of homes are in the South of
England and the remaining 1% of homes are situated in central
Scotland. The wide geographical spread of homes has created a
diverse customer base, which helps to balance risk, especially
given current market and economic uncertainties.
As at 31 December 2022, 61 sites were completed and
income-producing, with the remaining 10 sites still part-way
through development. Many of the partially-completed sites are
already producing rental income. This is because sites are
developed in such a way that batches of completed homes can be
released for letting while construction continues, subject to
health and safety reviews. This approach enables development sites
to become income-generating relatively quickly.
Rental performance and key performance measures
Demand for The PRS REIT's homes remain high, and the portfolio
continues to perform very strongly as it grows.
-- Increased rental income and rental growth
Annualised gross rental income as at 31 December 2022 increased
by 11% year-on-year to GBP57.3 million and was 4% higher than at 30
June 2022 (31 December 2021: GBP51.7 million and 30 June 2022:
GBP55.0 million). These increases reflect the rising number of
assets in the portfolio and buoyant demand.
Like-for-like rental growth in the 12 months to 31 December 2022
was 5.7% on stabilised sites, with nearly 3% of this increase
arising in the first half of the current financial year.
-- High occupancy levels
Occupancy was at 97% at 31 December 2022 (31 December 2021:
98%). Including prospective tenants who had passed referencing and
paid their deposits, but not yet taken occupation as at 31 December
2022, occupancy was 98%.
-- Strong rent collection
Rent collection remained strong at 98%. Rent collection is
measured as rent invoiced in the period relative to rent received
in the same period (H1 2022: 99%). Rent arrears continued to be
low, at GBP0.7 million, which is approximately 1% of annualised ERV
(H1 2022: GBP0.5 million, approximately 1%).
-- Cost base covered
The Company's cost base is covered, and operating cash inflows
have increased in the period as rental income from completed and
let homes has grown.
Currently, non-recoverable property costs are 18.8% of gross
rent, reflecting the lower lettings costs. All other costs are in
line with management's targets.
-- Affordable homes
Homes remain well within Home England's stated affordability
upper limit of 35%. The average rent of PRS REIT homes as a
proportion of average gross household income is at c.25%.
Bloomberg total return
The Bloomberg cumulative total return from IPO to 31 December
2022 is 13.5p.
Key performance indicators
The Company's aim to deliver sustainable earnings and long-term
capital growth through the execution of the Group's strategy is
tracked by monitoring the below key performance indicators
("KPIs"):
Six months Six months
ended 31 ended
Dec 2022 31 Dec
2021
Rental income (gross) GBP24.2m GBP19.9m
----------- -----------
Average rent per month per tenant GBP861 GBP808
----------- -----------
Non-recoverable property costs as a percentage
of gross rent (gross to net) 18.8% 17.6%
----------- -----------
Fair value uplift on investment property GBP5.8m GBP31.1m
----------- -----------
Operating profit GBP22.7m GBP44.0m
----------- -----------
Dividends declared per share in relation to the
period 2.0p 2.0p
----------- -----------
Dividends paid during the period 2.0p 2.0p
----------- -----------
Number of properties available to rent 4,913 4,489
----------- -----------
Average yield on assets in the portfolio 4.3% 4.2%
----------- -----------
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.
Latest data on delivery and asset performance
Between 1 January and 10 March 2023, we delivered a further 68
rental homes with an ERV of approximately GBP0.8 million per annum.
This has taken the Company's portfolio of completed homes at 10
March 2023 to 4,981 homes, with an ERV of around GBP52.2 million
per annum. A further 545 homes were under way at that point.
Out of 4,981 completed homes, 4,837 homes were let as at 10
March 2023, providing an annualised rental income of GBP50.7
million. A further 70 homes were reserved to qualified applicants
with rent deposits paid at that date.
ESG Approach
The PRS REIT recognises that it is a long-term stakeholder in
the communities and neighbourhoods it creates, and understands the
social and economic value of strong, stable tenancies and the
delivery of new homes. It has delegated the day-to-day management
of ESG strategy to Sigma PRS. Sigma PRS takes responsibility for
how the Company's ESG priorities are managed at both Company and
asset level, and has funded all the PRS REIT's social and
charitable activities to date. The PRS REIT will also contribute to
funding such activities this year. Its funding will be delivered
through a REIT Community Fund, which Sigma PRS will manage.
Sigma PRS reports to the PRS REIT's Board on ESG formally on a
bi-annual basis and informally at every Board meeting.
Sigma PRS is a signatory of the United Nations Global Compact
("UN Global Compact"), which is a voluntary initiative designed to
encourage business leaders to implement universal sustainability
principles and in particular the UN Global Compact's Ten
Principles. These 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.
In addition, Sigma PRS is committed to completing the UN's
Sustainable Development Goals ("SDG") Ambition programme. This is a
six-month accelerator programme, which aims to challenge and
support participating companies in setting ambitious corporate
targets and accelerating integration of the UN Global Compact's 17
SDGs into core business management.
Processes and strategies
As an industry leader in the provision of private rental homes,
the PRS REIT is aware of its ESG responsibilities and wishes to
deliver maximum impact. Sigma PRS therefore aims to work with
forward-looking partners who share the Company's goals and
aspirations for reduced carbon emissions. It also recognises the
need for action in priority areas such as energy and water
consumption, non-fossil fuel heating provision, and
biodiversity.
As Sigma PRS continues to develop the Company's ESG agenda,
goals and strategy, the focus is on embedding best practice,
monitoring supply chain activity, and ensuring policies and
activities comply with the PRS REIT's commitment to the UN Global
Compact.
Partnerships
Sigma PRS engages closely with all partners to deliver the PRS
REIT's ESG commitments. Shared priorities include, reducing carbon
emissions, measuring impact and gathering data, 'future-proofing'
assets, and supporting biodiversity. Sigma PRS is pleased to report
good progress in construction data gathering with Countryside and
its Sustainability Team, and carbon reduction planning with Vistry
Group and its Sustainability Team. Initiatives to reduce traffic
flow and site waste, and to recycle and divert waste from landfill
remain areas of focus for all partners.
Sigma PRS partnership's GreenTheUK, now in its second year, has
established a national community and school Biodiversity Project,
which will run over the course of 2023.
Maintenance Support
The repair and management app, FixFlo, implemented by the
Investment Adviser, continues to provide both a highly convenient
way for Simple Life customers to report and monitor repair and
maintenance issues and for maintenance services to be provided
efficiently, with the minimum of physical contractor visits, which
typically incur carbon emissions.
From 1 July 2022 to 31 December 2022, of 13,000 maintenance
issues raised:
-- 46% were resolved through system advice and self-fix, while
-- 54% continued to a contractor for resolution.
Energy Performance data
The energy performance of the homes in the portfolio is well
above the Government's current and future target levels for rental
properties. Currently, all rental properties are required to reach
a minimum EPC rating of E, however the Government has recently
introduced a new minimum EPC rating of C 2, with all rented
properties expected to have reached this rating by 2028.
The PRS REIT's portfolio is well ahead of targeted requirements.
Approximately 86% of homes are rated in band A or B (1% in band A
and 85% in band B), with 14% rated in band C.
In an independent study undertaken by Calfordseaden LLP, the
property and construction consultancy, the energy consumption of
the PRS REIT's core house types was evaluated against homes from
four other eras. The study showed that the PRS REIT's homes are 25%
cheaper to run in comparison to properties built between 2007-2011,
and up to 74% cheaper to run than older homes.
Charities
Sigma PRS continues to support chosen partner charities and in
the period expanded its charitable links while maintaining its
focus on building long-term partnerships.
Sigma PRS has also increased its focus on local charities,
consulting with residents and colleagues over where to direct
support. One example of resident collaboration was the 2022 '12
Days of Christmas' campaign. The campaign received over 140
nominations for different charities from residents, and 12
charities chosen from this list each received GBP1,000. Sigma PRS
intends to strengthen resident collaboration with its charitable
activities.
Projects
The long-term partnership with Clever Cogz Learning continues to
flourish, and over 1,200 children from 13 schools and groups
located close to PRS REIT communities, took part in The Enchanted
Forest Escape Rooms learning experience in the period. The focus
was on transferring teamwork skills, including co-operation and
collaboration, to situations beyond the classroom environment.
In October 2022, a second 'Building for My Future' course was
launched with The Outward Bound Trust, an educational charity that
aims to help young people to defy limitations through learning and
outdoor adventures. The 'Building for My Future' course is designed
to build life and leadership skills and foster confidence and
resilience. Sigma PRS supported 16 young people through this
course.
During November and December 2022, Sigma PRS's 'Winter Warmth
Project' run in partnership with Craigdon Mountain Sports, the
outdoor clothing and equipment retailer based in Edinburgh,
delivered warm clothing to charities, schools and youth groups.
Surplus stock in excess of GBP60,000 was kindly donated by the
retailer, also promoting the circular economy.
Social events for residents
Sigma PRS's social events for residents remain popular across
the PRS REIT's communities. These events are geared towards
encouraging social interaction and engendering a greater sense of
community and neighbourliness. The PRS REIT places great importance
on the value of these events, which reflects its own brand
principles.
-- Over the summer, Sigma PRS organised ice-cream vans to visit
over 50 communities, delivering over 4,000 ice creams and
slushies.
-- In the autumn, Sigma PRS organised evening pizza events
across 13 developments, and an extended entertainment evening was
held at the Empyrean development. Over 1,650 pizzas were provided
in total.
-- At Christmas, Sigma PRS arranged for Father Christmas and an
accompanying band to visit sites across the country.
-- Sigma PRS also introduced a live bedtime storytelling
initiative over four nights on Facebook.
-- In December, Sigma PRS announced its partnership with
DanceSing, which fuses the arts and fitness for positive mental and
physical well-being. DanceSing classes, including pilates, dance
fitness, yoga, barre, and singing, are now available to all
residents and delivered online.
The Company's Environment, Social and Governance initiatives and
policies are detailed in its ESG Report 2022, which can be obtained
from the Company's website at, www.theprsreit.com.
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 the Investment Adviser's and the Company's knowledge,
principal suppliers and advisors comply with the provisions of the
Act. The Company operates a zero-tolerance approach to bribery,
corruption and fraud.
Health and Safety
In order to maintain high standards of health and safety for
those working on sites, monthly checks by independent project
monitoring surveyors are commissioned to ensure that all potential
risks have been identified and mitigated. These checks supplement
those undertaken by development partners. The data is reported to
the Board on a quarterly basis in the event of a nil return, and
immediately in the event of an incident. There were no reportable
incidents over the year.
Gender diversity
The PRS REIT plc has five Board Directors. The male-to-female
ratio of Directors in 2022 was 80:20 (H1 2022: 80:20), and the
Company intends to be fully compliant with the new Listing Rules LR
9.8.6R(9) and LR 14.3.33R(1) by no later than the end of
calendar-year 2023.
Governance
Appropriate and proportionate governance is essential to ensure
that risks are identified and managed, and that accountability,
responsibility, fairness and transparency are maintained at all
times.
The Group is subject to statutory reporting requirements and to
rules and responsibilities prescribed by the London Stock Exchange
and the Financial Conduct Authority. The Board has a balanced range
of complementary skills and experience, with independent
Non-executive Directors who provide oversight, and challenge
decisions and policies as appropriate. The Board believe in robust
and effective corporate governance and is committed to maintaining
high standards and applying the principles of best practice.
Summary
The delivery programme is in its final stages and progressed
well over the period. Since the start of the Company's third
financial quarter on 1 January 2023 to 10 March 2023, a further 68
new homes have been completed, taking the PRS REIT's portfolio to
4,981 completed homes, with a further 545 homes under way. The ERV
of the portfolio at 10 March 2023 had grown to GBP57.9 million per
annum.
Completed assets are performing strongly and demand for homes
remains high. As at 10 March 2023, the percentage of occupied homes
stood at 97%. Including applicants who had paid deposits and passed
our qualification process, but not yet taken occupancy at that
date, occupancy was at 99%. Between 1 January and 10 March 2023,
rent collection relative to rent invoiced was also very strong at
99%, and arrears remained low at GBP0.7 million. These figures
continue to demonstrate the appeal of our homes and the structural
undersupply of quality family rental homes in the UK. We expect
cost-of-living increases and higher interest rates to boost demand
as mortgage affordability pressures rise, especially for first-time
buyers.
The Board will consider the payment of an interim dividend in
respect of the three months to 31 March 2023 in the fourth quarter
of the current financial year. It continues to target* a total
dividend of 4p per ordinary share for the current financial year.
This level of dividend is expected to be almost fully covered by
earnings on an annualised basis by the end of the current financial
year. Dividend cover will increase further as assets are completed
and let and rental income grows.
Sigma PRS Management Ltd
*These are targets only and not forecasts. There can be no
assurance that these targets will be met and they should not be
taken as an indication of the Company's expected future results
PRINCIPAL RISKS AND UNCERTAINTIES
The Audit Committee, which assists the Board with its
responsibilities for managing risk, considers that the principal
risks and uncertainties as presented on pages 48 to 51 of the
Company's 2022 Annual Report were unchanged during the period and
will remain unchanged for the remaining six months of the financial
year.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors have elected to prepare the Interim Financial
Report for the Company in accordance with the UK-adopted
International Accounting Standards ("IAS").
In preparing the Interim Financial Report for the six month
period to 31 December 2022, the Directors confirm that, to the best
of their knowledge, this condensed set of financial statements has
been prepared in accordance with IAS 34 "Interim Financial
Reporting" and that the Chairman's statement includes a fair review
of the information required by DTR 4.2.7 and DTR 4.2.8 of the
Disclosure and Transparency rules of the United Kingdom's Financial
Conduct Authority namely:
a) the Interim Financial Report includes a fair review of important
events during the period and their effect on the Financial Statements
and a description of specific risks and uncertainties for the
remainder of the accounting period;
b) the Interim Financial Report gives a true and fair view in accordance
with IAS of the assets, liabilities, financial position and of
the results of the Company for the period and complies with IAS
and the Companies Act 2006;
c) the Interim Financial Report includes a fair review of related
party transactions and changes therein. There were no related
party transactions for the accounting period; and
d) the Directors believe that the Company has sufficient financial
resources to manage its business risks in the current uncertain
economic outlook.
The Directors have reasonable expectations that the Company has
adequate resources to continue in operational existence for at
least the next 12 months, therefore they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
Steve Smith
Chairman
CONDENSED CONSOLIDATED Statement of COMPREHENSIVE INCOME
For the six months ended 31 December 2022
Six months Six months Year ended
ended ended 30 June
31 December 31 December
2022 2021 2022
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Rental income 24,171 19,865 41,963
Non-recoverable property costs (4,548) (3,493) (7,635)
-------------- -------------- ------------
Net rental income 19,623 16,372 34,328
Other income 4 1,335 295 470
Administrative expenses
Directors' remuneration (85) (83) (170)
Investment advisory fee (2,889) (2,485) (5,158)
Other administrative expenses (1,112) (1,235) (2,183)
Total expenses (4,086) (3,803) (7,511)
Gain from fair value adjustment
on investment property 5 5,816 31,100 99,727
-------------- -------------- ------------
Operating profit 22,688 43,964 127,014
Finance income 8 - 4
Finance costs (7,983) (5,414) (11,129)
-------------- -------------- ------------
Profit before taxation 14,713 38,550 115,889
Taxation - - -
-------------- -------------- ------------
Total comprehensive income for
the period / year attributable to
the equity holders of the Company 14,713 38,550 115,889
============== ============== ============
Earnings per share attributable
to the equity holders of the Company:
Basic earnings per share 7 2.7p 7.4p 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.
CONDENSED CONSOLIDATED Statement of financial position
As at 31 December 2022
As at
As at 30 June
As at 31
December 31 December
2022 2021 2022
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Investment property 5 998,184 859,485 961,915
-------------- -------------- ------------
998,184 859,485 961,915
-------------- -------------- ------------
Current assets
Trade and other receivables 8,567 9,105 7,286
Cash and cash equivalents 17,768 48,633 48,682
-------------- -------------- ------------
26,335 57,738 55,968
-------------- -------------- ------------
Total assets 1,024,519 917,223 1,017,883
-------------- -------------- ------------
LIABILITIES
Non-current liabilities
Accruals and deferred income 1,780 3,501 2,243
Interest bearing loans and borrowings 6 248,631 278,214 246,687
-------------- -------------- ------------
250,411 281,715 248,930
-------------- -------------- ------------
Current liabilities
Trade and other payables 18,433 18,741 29,742
Interest bearing loans and borrowings 6 112,709 43,884 99,973
-------------- -------------- ------------
131,142 62,625 129,715
-------------- -------------- ------------
Total liabilities 381,553 344,340 378,645
-------------- -------------- ------------
Net assets 642,966 572,883 639,238
============== ============== ============
EQUITY
Called up share capital 5,493 5,493 5,493
Share premium reserve 298,974 298,974 298,974
Capital reduction reserve 129,569 151,539 140,554
Retained earnings 208,930 116,877 194,217
-------------- -------------- ------------
Total equity attributable to
the equity holders of the Company 642,966 572,883 639,238
============== ============== ============
Net asset value per share 8 117.1p 104.3p 116.4p
As at 31 December 2022, there was no difference between NAV per
share and EPRA NTA per share.
condensed Consolidated statement of changes in equity
For the six months ended 31 December 2022
Share Capital
Share premium reduction Retained Total
capital reserve reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2021 4,953 245,005 161,984 78,328 490,270
Transactions with owners
Issue of ordinary shares 540 53,969 - - 54,509
Dividends paid 11 - - (10,446) - (10,446)
Comprehensive income
Profit for the period - - - 38,550 38,550
---------- ---------
At 31 December 2021 5,493 298,974 151,538 116,878 572,883
--------- --------- ----------- ---------- ---------
Transactions with owners
Dividends paid - - (10,984) - (10,984)
Comprehensive income
Profit for the period - - - 77,339 77,339
At 30 June 2022 5,493 298,974 140,554 194,217 639,238
--------- --------- ----------- ---------- ---------
Transactions with owners
Dividends paid 11 - - (10,985) - (10,985)
Comprehensive income
Profit for the period - - - 14,713 14,713
--------- --------- ----------- ---------- ---------
At 31 December 2022 5,493 298,974 129,569 208,930 642,966
========= ========= =========== ========== =========
condensed CONSOLIDATED STATEMENT OF Cash Flows
For the six months ended 31 December 2022
Year
ended
Six months Six months
ended ended 30 June
31 December 31 December
2022 2021 2022
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 14,713 38,550 115,889
Finance income (8) - (4)
Finance costs 7,983 5,414 11,129
Fair value adjustment on investment
property 5 (5,816) (31,100) (99,727)
------------
Cash generated from operations 16,872 12,864 27,287
(Increase) / Decrease in trade
and other receivables (2,123) (1,884) 124
(Decrease) / Increase in trade
and other payables (11,774) (4,966) 4,795
Net cash generated from operating
activities 2,975 6,014 32,206
-------------- -------------- ------------
Cash flows from investing activities
Purchase of investment property 5 (30,453) (48,020) (81,822)
Finance income 8 - 4
Net cash used in investing
activities (30,445) (48,020) (81,818)
-------------- -------------- ------------
Cash flows from financing activities
Proceeds from issue of Ordinary
Shares - 55,593 55,593
Cost of share issue - (1,084) (1,084)
Bank and other loans advanced 47,819 48,271 89,624
Bank and other loans repaid (33,998) (82,789) (100,014)
Finance costs (6,280) (5,321) (10,809)
Dividends paid (10,985) (10,445) (21,430)
-------------- -------------- ------------
Net cash (used in) / generated
from financing activities (3,444) 4,225 11,880
-------------- -------------- ------------
Net decrease in cash and cash
equivalents (30,914) (37,781) (37,732)
Cash and cash equivalents at
beginning of period 48,682 86,414 86,414
-------------- --------------
Cash and cash equivalents at
end of period 17,768 48,633 48,682
============== ============== ============
Notes to the Financial Statements
1. General Information
The PRS REIT plc (the "Company") is a public limited company
incorporated on 24 February 2017 in England and having its
registered office at Floor 3, 1 St. Ann Street, Manchester, M2 7LR
with company number 10638461.
The Company is quoted on the Premium Segment of the Main Market
of the London Stock Exchange.
This interim condensed consolidated financial information was
approved and authorised for issue by the Board of Directors on 20
March 2023 .
2. Basis of preparation and changes to the Group's accounting policies
Basis of preparation
The financial information for the period ended 31 December 2022
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. A copy of the statutory accounts for the
year ended 30 June 2022, has been delivered to the Registrar of
Companies. The auditor's report on those accounts was not
qualified, did not include a reference to matters to which the
auditor drew attention by way of emphasis without qualifying the
report, and did not contain statements under section 498(2) or (3)
of the Companies Act 2006.
The condensed consolidated interim financial report for the six
month reporting period to 31 December 2022 has been prepared on a
going concern basis using accounting policies consistent with
UK-adopted International Accounting Standards, in accordance with
IAS 34 Interim Financial Reporting. The current period financial
information presented in this document has not been reviewed or
audited.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report is to be read in conjunction with the annual report for the
year ended 30 June 2022, which has been prepared in accordance with
UK-adopted International Accounting Standards and the requirements
of the Companies Act 2006 . The Group's annual consolidated
financial statements are available on the Company's' website,
www.theprsreit.com .
Adoption of new and revised standards
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 30 June 2022,
except for the adoption of new standards effective as of 1 July
2022.
As at the date of authorisation of these financial statements
there were standards and amendments which were in issue but which
were not yet effective and which have not been applied. The
principal ones were:
-- classification of Liabilities as Current or Non-Current - Amendments to IAS 1
-- disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
-- definition of Accounting Estimates - Amendments to IAS 8
-- deferred tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12
The Directors do not expect the adoption of these standards and
amendments to have a material impact on the financial
statements.
In the current period, the following amendments have been
adopted which were effective for the periods commencing on or after
1 July 2022:
-- property, plant and equipment: Proceeds before intended use - Amendment to IAS 16
-- reference to the Conceptual Framework - Amendments to IFRS 3
-- onerous contracts - Costs of Fulfilling a Contract - Amendment to IAS 37
-- annual improvements to IFRS Standards 2018 - 2020
The adoption of these amendments has not had a material impact
on the financial statements.
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies, the
Directors have made the following judgements which have the most
significant effect on the amounts recognised in the consolidated
financial statements.
i. Fair value of investment property
The fair value of any property, including investment property
under construction is determined by an independent property
valuation expert to be the estimated amount for which a property
should exchange on the date of the valuation in an arm's length
transaction. The valuation experts use recognised valuation
techniques applying principles of both IAS40 and IFRS13.
The Group values its investment properties using the investment
approach to valuation. Principal assumptions and management's
underlying estimations that are used in the fair value assessment
of completed assets relate to estimated rental value, net
investment yield and gross to net deductions. Principal assumptions
and management's underlying estimations that are used in the fair
value assessment of assets under construction are investment value
on completion and gross development costs, taking into account
construction costs spent and forecast costs to completion. There
are inter-relationships between the valuation inputs and they are
primarily determined by market conditions. The effect of an
increase in more than one input could be to magnify the impact on
the valuation. However, the impact on the valuation could be offset
by the inter-relationship of two inputs moving in opposite
directions.
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.
3. Going concern
The interim condensed consolidated financial statements have
been prepared on a going concern basis. The Group had net current
liabilities of GBP104.8 million as at 31 December 2022. The
increase in net current liabilities reflects the LBG / RBS debt
facility which is due to be refinanced on maturity in July 2023.
The amount drawn on this facility at 31 December 2022 was GBP106.5
million . The LBG / RBS GBP150 million debt facility is in the
process of being refinanced, in the event that refinancing is not
completed then the Company would seek to roll forward the existing
facility until such time that the refinancing was completed . The
Group's cash balances at 31 December 2022 were GBP18 million, of
which GBP11 million was readily available. The Group had debt
borrowing as at 31 December 2022 of GBP364 million (gross of
unamortised arrangement fees), and has secured further facilities
of GBP76 million. Capital commitments outstanding as at 31 December
2022 were GBP45 million. The Group's ERV as at 31 December 2022 was
GBP50.7 million from 4,913 homes and has increased to GBP52.2
million from 4,981 homes as at 10 March 2023. This has increased
the Company's recurring income and at this level is more than
sufficient to cover monthly cash costs and to support dividend
payments, thereby maintaining the Company's REIT status. The
Company has monitored and performed stress tests throughout the
period since the Government imposed the first national lockdown
almost two years ago, and these have shown the Group to be in a
strong position throughout.
Therefore, the Directors believe the Group is well placed to
manage its business risks successfully. After making enquiries, the
Directors have a reasonable expectation that the Group 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 interim condensed consolidated
financial statements for the six months ended 31 December 2022. The
Board is therefore of the opinion that the going concern basis
adopted in the preparation of the interim condensed consolidated
financial statements for the six months ended 31 December 2022, is
appropriate.
4. Other income
Other income represents amounts payable by partners in respect
of later than expected delivery of assets where the delay is
attributable to the partner.
5. Investment property
In accordance with International Accounting Standard, IAS 40
Investment Property, investment property has been independently
valued at fair value by Savills (UK) Limited, an accredited
external valuer with a recognised relevant professional
qualification and with recent experience in the locations and
categories of the investment properties being valued. The valuation
basis conforms to International Valuation Standards and is based on
market evidence of investment yields, expected gross to net income
rates and actual and expected rental values.
The valuations are the ultimate responsibility of the Directors.
Accordingly, the critical assumption used in establishing the
independent valuations are reviewed by the Board.
Completed Assets
assets under construction Total
GBP'000 GBP'000 GBP'000
--------------------------------- ---------- -------------------- --------
As at 1 July 2021 533,774 246,592 780,366
Completed properties acquired
on acquisition of subsidiaries 4,565 - 4,565
Property additions - subsequent
expenditure - 43,454 43,454
Change in fair value 17,349 13,751 31,100
Transfers to completed assets 111,935 (111,935) -
---------- -------------------- --------
As at 31 December 2021 667,623 191,862 859,485
Completed properties acquired
on acquisition of subsidiaries 10,255 11,526 21,781
Property additions - subsequent
expenditure - 12,022 12,022
Change in fair value 52,112 16,515 68,627
Transfers to completed assets 110,365 (110,365) -
---------- -------------------- --------
As at 30 June 2022 840,355 121,560 961,915
Property additions - subsequent
expenditure - 30,453 30,453
Change in fair value 7,224 (1,408) 5,816
Transfers to completed assets 57,885 (57,885) -
---------- -------------------- --------
As at 31 December 2022 905,464 92,720 998,184
========== ==================== ========
The historic cost of completed assets and assets under
construction as at 31 December 2022 was GBP815.5 million (30 June
2022: GBP785.0 million, 31 December 2021: GBP751.2 million).
Fair values
IFRS 13 sets out a three-tier hierarchy for financial assets and
liabilities valued at fair value. These are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or
indirectly; and
Level 3 unobservable inputs for the asset or liability.
Investment property falls within Level 3. The investment
valuations provided by the external valuation expert are based on
RICS Professional Valuation Standards, but include a number of
unobservable inputs and other valuation assumptions. The
significant unobservable inputs and the range of values used
are:
Completed assets:
Type Range
ERV per property GBP9k - GBP22k
Investment yield 4.00% - 4.75%
(net)
Gross to net assumption 22.50% - 25.00%
6. I nterest bearing loans and borrowings
GBP'000
Current liabilities
Bank loans at 1 July 2022 99,941
Loans advanced in the period 47,818
Loans repaid in the period (33,998)
Capitalised loan costs (1,084)
---------
Bank loans at 31 December 2022 112,677
Lease liability 32
---------
Total loans and borrowings 112,709
=========
Non-current liabilities
Bank loans at 1 July 2022 245,684
Loans advanced in the year -
Capitalised loan costs 1,943
---------
Bank loans at 31 December 2022 247,627
Lease liability 1,004
---------
Total loans and borrowings 248,631
=========
The Group's borrowing facilities are with Scottish Widows,
Lloyds Banking Group plc / RBS plc and Barclays Bank PLC. At 31
December 2022, these comprised the following:
Lender Loan Balance Loan Interest
facility drawn period rate Maturity
30 June (all in)
2022
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 GBP106.5 3 5.03% Variable July 2023
Banking million million years
Group
plc
/RBS
-------------------- -------------------- ------------------ -------------------- -------------------- ---------------------
Barclays GBP40 GBP8.0 3 6.78% Variable August
Bank million million years 2025
PLC
-------------------- -------------------- ------------------ -------------------- -------------------- ---------------------
The loans are all compliant with the banks covenant of 55% loan
to value and within the Company's Investment Policy limit of a
maximum 45% loan to value.
7. Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period. As there are no dilutive instruments, only
basic EPS are quoted below.
The calculation of basic and diluted earnings per share is based
on the following:
31 December 31 December 30 June
2022 2021 2022
GBP'000 GBP'000 GBP'000
Earnings per IFRS income statement 14,713 38,550 115,889
Adjustments to calculate EPRA
Earnings:
Changes in value of investment
properties (5,816) (31,100) (99,727)
------------ -------------- ------------
EPRA Earnings: 8,897 7,450 16,162
============ ============== ============
Weighted average number of ordinary
shares 549,251,458 521,374,692 535,203,388
IFRS EPS (pence) 2.7 7.4 21.4
EPRA EPS (pence) 1.6 1.4 3.0
8. Net Asset Value per share
The Group adopted the EPRA issued new best practice guidelines
in the year ended 30 June 2021. EPRA Net Tangible Assets ("NTA"),
is considered to be the most relevant measure for the Group and
replaces the previously reported EPRA NAV. The underlying
assumption behind the EPRA NTA calculation assumes entities buy and
sell assets, thereby crystallising certain levels of deferred tax
liability. Due to the PRS REIT's tax status, deferred tax is not
applicable and therefore there is no difference between IFRS NAV
and EPRA NTA.
Basic IFRS NAV per share is calculated by dividing net assets in
the Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares outstanding
at the end of the period. As there are no dilutive instruments,
only basic NAV per share is quoted below.
Net asset values have been calculated as follows:
As at As at As at
31 December 31 December 30 June
2022 2021 2022
IFRS Net assets (GBP'000) 642,966 572,883 639,238
EPRA adjustments to NTA (GBP'000) - - -
--------------- ------------- -------------
EPRA NTA (GBP'000) 642,966 572,883 639,238
--------------- ------------- -------------
Shares in issue at end of period 549,251,458 549,251,458 549,251,458
Basic IFRS NAV per share (pence) 117.1 104.3 116.4
=============== ============= =============
EPRA NTA per share (pence) 117.1 104.3 116.4
=============== ============= =============
The NTA per share calculated on an EPRA basis is the same as the
IFRS NAV per share for all period ends.
9. Capital commitments
The Group has entered into contracts with unrelated parties for
the construction of residential housing with a total value of
GBP712.6 million (30 June 2022: GBP 689.8 million, 31 December
2021: GBP671.4 million) . As at 31 December 2022, GBP44.6 million
(30 June 2022: GBP 50.2 million, 31 December 2021: GBP54.8 million)
of such commitments remained outstanding.
10. Transactions with Investment Adviser
On 31 March 2017, Sigma PRS Management Ltd ("Sigma PRS") was
appointed as the Investment Adviser ("IA") of the Company.
For the period from 1 July 2022 to 31 December 2022, fees of GBP
2.9 million (1 July 2021 to 31 December 2021: GBP2.5 million) were
incurred and payable to Sigma PRS in respect of investment advisory
services. At 31 December 2022, GBP 0.5 million remained unpaid (30
June 2022: GBP0.9 million, 31 December 2021: GBP0.5 million).
For the period from 1 July 2022 to 31 December 2022, development
fees of GBP 1.3 million (1 July 2021 to 31 December 2021: GBP1.6
million) were incurred and payable to Sigma PRS. At 31 December
2022, GBP 0.1 million (30 June 2022: GBP0.1 million, 31 December
2021: GBP0.2 million) remained unpaid.
11. Dividends paid and proposed
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2022 (unaudited) 2021 (unaudited) 2022 (audited)
GBP'000 GBP'000 GBP'000
Dividends on
ordinary shares
declared
and paid:
3 months to 30
June 2021: 1.0p
per share - 4,953 4,953
3 months to 30
September 2021:
1.0p per share - 5,492 5,492
3 months to 31
December 2021:
1.0p
per share - - 5,492
3 months to 31
March 2022: 1.0p
per share - - 5,493
3 months to 30 5,493 - -
June 2022: 1.0p
per share
3 months to 30 5,492 - -
September 2022:
1.0p per share
10,985 10,445 21,430
============================ ============================ ===========================
Proposed
dividends on
ordinary
shares:
3 months to 31 - 5,492 -
December 2021:
1.0p
per share
3 months to 30
June 2022: 2.0p
per share - - 5,493
3 months to 31 5,492 - -
December 2022:
1.0p
per share
5,492 5,492 4,953
============================ ============================ ===========================
The proposed dividend was paid on 3 March 2023, to shareholders
on the register at 17 February 2023.
12. Post balance sheet events
Dividends
On 7 February 2023, the Company declared a dividend of 1.0p per
ordinary share in respect of the second quarter of the current
financial year. The dividend was paid on 3 March 2023, to
shareholders on the register as at 17 February 2023.
SUPPLEMENTARY INFORMATION
I. EPRA PERFORMANCE MEASURES SUMMARY
31 December 31 December 30 June
2022 2021 2022
EPRA earnings per share 1.6p 1.4p 3.0p
EPRA net tangible asset value
(EPRA NTA) 117.1p 104.3p 116.4p
The Group considers EPRA NTA to be the most relevant measure for
its operating activities and has therefore adopted this as the
Group's primary measure of net asset value.
II. INCOME STATEMENT 31 December 31 December 30 June
2022 2021 2022
GBP'000 GBP'000 GBP'000
Rental income 24,171 19,865 41,963
Non-recoverable property costs (4,548) (3,493) (7,635)
------------ ------------ --------------
Net rental income 19,623 16,372 34,328
Other income 1,335 295 470
Administrative expenses (4,086) (3,803) (7,511)
Operating profit before interest
and tax 16,872 12,864 27,287
Net finance costs (7,975) (5,414) (11,125)
------------ ------------ --------------
Profit before taxation 8,897 7,450 16,162
Taxation on EPRA earnings - - -
------------ ------------ --------------
EPRA earnings 8,897 7,450 16,162
------------ ------------ --------------
Weighted average number of Ordinary
Shares 549,251,458 521,374,692 535,203,388
EPRA earnings per share 1.6p 1.4p 3.0p
III. STATEMENT OF FINANCIAL POSITION
31 December 31 December 30 June
2022 2021 2022
GBP'000 GBP'000 GBP'000
Investment properties 998,184 859,485 961,915
Other net assets 6,122 35,496 23,983
Borrowings (361,340) (322,098) (346,660)
------------ ------------ ------------
Total shareholders' equity 642,966 572,883 639,238
Adjustments to calculate EPRA
NTA:
- - -
------------ ------------ ------------
EPRA net tangible assets 642,966 572,883 639,238
------------ ------------ ------------
Ordinary Shares in issue at
year end 549,251,458 549,251,458 549,251,458
EPRA NTA per share 117.1p 104.3p 116.4p
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