TIDMPRSR
RNS Number : 1622B
PRS REIT PLC (The)
06 October 2020
6 October 2020
PRSR.L
The PRS REIT plc
("PRS REIT" or "the REIT" or "the Company" or "the Group")
Audited Full Year Results
for the year ended 30 June 2020
Good progress and well-positioned despite uncertainties
KEY POINTS
-- Good progress despite impact of COVID-19 pandemic - with 909
new rental homes added over FY2020 (2019: 768) to take portfolio at
year end to 2,082 completed homes (2019: 1,173), with a further
2,803 homes at various stages of the delivery process (30 June
2019: 3,196)
- national 'lockdown' and resultant delivery disruption is
estimated to have delayed the completion of a further 600 homes in
FY2020
- despite this, in Q1 2021, 552 new homes were added to take the
portfolio of completed homes at 30 September 2020 to 2,634, with
estimated rental value ("ERV") at GBP24.3m p.a. (see separate First
Quarter Update announcement issued today)
-- Rental income and demand for properties remained strong over the year and in Q1 of FY2021
-- Financial position is very robust, with net rental income
covering cost base, low gearing of 25% and headroom on committed
bank facilities
-- Total dividends paid, 4.0p per share (2019: 5p), in line with
revised strategy taking into account pandemic impact.
Financial
Year to Year to
30 June 30 June
2020 2019 Change
------------------------------ ------------------ --------- -------
Revenue GBP12.9m GBP6.0m +115%
Net rental income GBP10.2m GBP4.9m +108%
Operating profit GBP19.9m GBP14.6m +36%
Profit after tax GBP16.4m GBP14.6m +12%
Basic earnings per share 3.3p 2.9p +14%
Net assets at 30 June* GBP471m GBP474m -1%
95.1p
IFRS and EPRA NAV* per share (95.0p at 31 Dec
at 30 June 2019) 95.8p -1%
------------------------------ ------------------- --------- -------
*after dividend payments
Operational
At At
Q1 30 June 30 June Year-on-year
FY 2021 2020 2019 change
--------------------------------- ---------- --------- --------- -------------
Number of completed homes 2,634 2,082 1,173 +77%
Estimated rental value ("ERV") GBP19.1m GBP10.7m
p.a. GBP24.3m p.a. p.a. +79%
--------------------------------- ---------- --------- --------- -------------
Number of contracted homes 2,369 2,803 3,196 n/a
ERV GBP23.3m GBP27.4m GBP30.5m
p.a. p.a. p.a. n/a
Completed and contracted
sites 64 62 54 +24%
ERV of completed and contracted
sites GBP47.6m GBP46.6m GBP41.2m +13%
--------------------------------- ---------- --------- --------- -------------
Rent collected as a percentage
of total rent due 100% 98% 99% -1%
--------------------------------- ---------- --------- --------- -------------
Outlook
-- 96% of the Company's net funding has now been deployed, with
the portfolio now comprising 5,003 completed and contracted homes,
including sites under forward contracts for purchase
-- Rental values have remained strong, and at 30 September a
further 145 qualified applicants were due to take occupancy
-- Long-term opportunity is strong with family rental housing
market remaining critically undersupplied
Steve Smith, Chairman of the PRS REIT, commented:
"The PRS REIT plc continued to make good progress in its third
year of activity, despite the impact of the COVID-19 pandemic.
While construction was suspended in the fourth quarter, we reached
the milestone of our 2,000th completed rental home by mid-June, and
over the year as a whole added 909 new homes. We are now at 2,634
completed homes, with a further 2,369 homes under way as we
approach our target of 5,200 rental homes.
"There are significant macroeconomic uncertainties ahead but the
Company is well-positioned financially, and our risk-mitigated
model and the scale and geographic spread of our portfolio limits
our exposures. Demand for our properties remains strong and the
undersupply of good quality, well-located and professionally
managed homes is significant. We are therefore confident in
long-term prospects for The PRS REIT plc."
For further information, please contact:
The PRS REIT plc Tel: 020 3178 6378 (c/o
Steve Smith, Non-executive Chairman KTZ Communications)
Sigma PRS Management Limited Tel: 0333 999 9926
Graham Barnet, Mike McGill
N+1 Singer Tel: 020 7496 3000
James Maxwell, James Moat, Ben Farrow
G10 Capital Limited (part of the IQEQ Group Tel: 020 3745 2826
as AIFM)
Paul Turner
KTZ Communications Tel: 020 3178 6378
Katie Tzouliadis, Dan Mahoney
NOTES TO EDITORS
About The PRS REIT plc
( www.theprsreit.com )
The PRS REIT plc is a closed-ended real estate investment trust
established to invest in the Private Rented Sector and to provide
shareholders with an attractive level of income together with the
potential for capital and income growth. The Company is investing
GBP0.9bn in a portfolio of high quality homes for private rental
across the regions, having raised a total of GBP500m (gross)
through its Initial Public Offering, on 31 May 2017, and a
subsequent placing in February 2018. Both fundraisings were
supported by the UK Government's Homes England with direct
investments.
LEI: 21380037Q91HU97WZX58
Chairman's Statement
Introduction
I am pleased to present The PRS REIT plc's audited financial
results for the year ended 30 June 2020. While the year was
dominated by the impact of the COVID-19 pandemic, the Company made
good progress on housing delivery. In mid-June, the Company reached
the milestone of its 2,000th new rental home, a little over three
years since the launch of the PRS REIT in May 2017. At the
year-end, the portfolio stood at 2,082 homes, having added 909 new
homes over the year as a whole (2019: 768), including 465 homes in
the second half (2019: 398). The Company remains financially and
operationally well-positioned.
The delivery model provided significant downside protection when
construction activity across all sites was suspended between the
end of March and mid-May, as a result of the Government-imposed
restrictions. In particular, fixed price design and build contracts
limited financial exposure. The Company's financial position
continues to be robust, with increased cash flows year on year, net
rental income covering the cost base, and low gearing.
Demand for the PRS REIT's properties remained strong, and rental
income increased significantly over the year as new homes were
added to the portfolio. The amount of rent collected matched 98% of
rent invoiced, and rental rates since the reopening of the market
in May 2020 have reflected growth from new tenancies whilst rates
for renewals have been frozen at pre-pandemic levels.
Construction activity across all sites resumed by the end of
May, though social distancing and other safety measures adversely
affected the pace of delivery. The 909 new rental homes added to
the Company's portfolio during the year (2019: 768) took the number
of completed homes at the year-end to 2,082 (30 June 2019: 1,173),
increasing the portfolio's estimated rental value ("ERV") by GBP8.4
million per annum to GBP19.1 million per annum (30 June 2019:
GBP10.7 million). A further 2,803 homes, with an ERV of GBP27.4
million per annum, were at various stages of the delivery process
at 30 June 2020.
By the end of September, another 552 homes, with an ERV of
GBP4.4 million per annum, had been completed, taking the number of
completed homes at that point to 2,634 and the completed
portfolio's ERV to GBP24.3 million per annum. The number of homes
contracted at 30 September was 2,369. Once completed, they will
take the portfolio to 5,003 homes, providing an ERV of GBP47.6
million.
This delivery includes development sites that are under
forward-purchase agreements with the PRS REIT (125 homes with an
ERV of GBP1.6 million).
The Company's portfolio of assets is geographically widely
spread, across 69 sites throughout the major regions of England,
including the North West, North East, Yorkshire, the Midlands, the
South East (excluding London) and the East of England.
The total gross development cost ("GDC") of delivery by the year
end stood at GBP757 million (2019: GBP661 million). This figure
comprises the cost of the 21 completed sites in the portfolio and
the expected cost of the 46 sites that were at various stages of
progression at 30 June 2020. It also includes the nine
fully-developed and let sites that we have acquired to date.
Approximately 96% of the Company's net proceeds from its gross
funding of GBP900 million (comprising equity and debt), has been
deployed to date. The remainder of the Company's available resource
is expected to be deployed by the end of 2020.
Following full deployment of funds, the portfolio is expected to
comprise approximately 5,200 rental homes, with stabilisation
expected to be reached in the second half of calendar year
2022.
The Investment Adviser's report provides further commentary on
housing delivery and asset performance over the year.
Financial Results
Revenue increased to GBP12.9 million for the year to 30 June
2020 as more units were completed and let (2019: GBP6.0 million)
and entirely comprises rental income. After the deduction of
non-recoverable property costs, net rental income for the year was
GBP10.2 million (2019: GBP4.9 million).
Expenses in the year increased to GBP6.2 million (2019: GBP5.9
million), in particular independent valuation costs reflecting the
growth in the number of the Group's assets. The gain from the fair
value adjustment on investment property was slightly up on the
prior year at GBP15.8 million (2019: GBP15.6 million) due to the
delay to construction works during the lockdown period in the
current year. Operating profit increased to GBP19.9 million (2019:
GBP14.6 million) as a result of the increase in completed units
being let.
Finance income from short-term deposits was GBP0.2 million
(2019: GBP0.8 million). Finance costs in relation to bank loans
were GBP3.7 million (2019: GBP0.9 million). These reflect the
drawdown and utilisation of debt funding during the year.
Profit after taxation increased to GBP16.4 million (2019:
GBP14.6 million) and basic and diluted earnings per share rose to
3.3p (2019: 2.9p) on an IFRS basis.
The Group's net asset value ("NAV") per share at 30 June 2020,
on an IFRS basis, was 95.1p (2019: 31 December, 95.0p and 30 June
95.8p) as was the EPRA NAV per share (2019: 31 December, 95.0p and
30 June, 95.8p).
Net assets of the Group at 30 June 2020 stood at GBP471 million
(2019: GBP474 million) after paying dividends of GBP19.8 million in
the year.
Dividends
The Company's policy is to pay a quarterly dividend during the
development phase, even though it is not as yet fully covered by
rental income.
For the year to 30 June 2020, aggregate dividends of 4.0p per
share were paid to shareholders (2019: 5.0p per share), in line
with the revised strategy set by the Board following the
uncertainty and disruption caused by COVID-19.
The Board continues to target a minimum total dividend of 4.0*
pence per ordinary share for the current financial year ending 30
June 2021.
Corporate Social Responsibility
The creation of high-quality, well-located,
professionally-managed rental homes has a long-term social impact.
We take this responsibility seriously and the 'Simple Life' brand,
through which our properties are marketed and managed, directly
connects the Company to the families and individuals who rent its
properties, and to the local communities in which developments are
situated.
It is important to create homes that tenants will enjoy and in
which they feel that they can put down long-term roots. We aim to
achieve this through the quality of our properties, the care we
take in maintaining them, and through the high standard of customer
support provided.
The Investment Adviser's support for schools and institutions
close to the Company's developments continued over the financial
year. This included the Salford Foundation, a charity providing
opportunities for young people and adults in Greater Manchester and
the North West, Salford Loaves and Fishes, which helps homeless and
vulnerable people in Manchester, and Park Palace Ponies, an
inner-city starter riding school based in Liverpool. However, in
the second half, with the onset of the pandemic and lockdown, the
Investment Adviser directed additional support to certain charities
chosen by residents. Donations were made to Centre Point, which
helps homeless young people, Mind UK, the mental health charity,
Women's Aid, which combats domestic violence, and The Trussell
Trust, which supports a nationwide network of food banks. The
Investment Adviser also increased communications with tenants
during the lockdown and sought to identify and resolve any
financial issues supportively.
Our Investment Adviser will continue with these and other
valuable initiatives. We believe that such support fosters a
greater sense of community between residents and with the wider
neighbourhoods in which our developments are located.
Other Company Matters
At the time of its IPO and launch in May 2017, the Board stated
its intention in the medium term to move the Company to the premium
segment of the Official List should the Directors consider that
such a move would be in the best interests of the Company and its
shareholders as a whole. Given the Company's progress since then in
delivering an initial portfolio of completed rental homes, the
Board is commencing consideration of the benefits of migration to
the premium segment.
Outlook
The Company is now in its fourth year, and is very well advanced
in its target of creating an initial portfolio of 5,200
build-to-rent homes across most of the major regions of England,
excluding London.
While we anticipate that the COVID-19 pandemic will continue to
affect the Company's activities in the near term, both housing
delivery and lettings are progressing well, within the necessary
COVID-19 restrictions. A further 552 new homes were added to the
portfolio in the first quarter of the new financial year. This has
taken the total number of completed homes as at 30 September to
2,634, with 2,369 homes under way. When completed, this delivery
will take the total ERV of the portfolio to GBP47.6m per annum.
Trading performance has remained robust across the portfolio.
The number of units let and occupied now totals 2,337 with a rent
roll of GBP21.6m. In the latest quarter to 30 September 2020, the
rent collected matched the rent invoiced during the period.
Reservations over the first quarter of the new financial were
strong and at 30 September 2020, a further 145 qualified applicants
were due to take occupancy.
The underlying structural drivers of demand for the Company's
high-quality family rental homes remain strong, and we believe this
may have been strengthened by people reassessing their residential
needs post-lockdown. We have considered the proposals set out in
the Government's Planning White Paper, published in August, and do
not anticipate any adverse impact on the prospects or activities of
the PRS REIT. We continue to consult with the PRS REIT's advisers
and others and expect to provide further comments on the proposals
in due course.
We look forward to reporting continued progress, despite the
disruption caused by COVID-19, and will declare our next dividend
during October 2020.
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
KPI Explanation Performance
Year to Year to
30 June 2020 30 June 2019
---------------- ----------------
IFRS NAV Unadjusted net asset 95.1p per share 95.8p per share
(see note value
6)
-------------------------------- ---------------- ----------------
EPRA NAV Net asset value adjusted 95.1p per share 95.8p per share
(see note to include properties
6 ) 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 3.3p per share 2.9p per share
(see note per share
6)
-------------------------------- ---------------- ----------------
EPRA EPS Earnings per share excluding 0.1p profit per 0.2p loss per
(see note investment property share share
6) revaluations, gains
and losses on disposals,
changes in the fair
value of financial instruments
and associated close
out costs and their
related taxation
-------------------------------- ---------------- ----------------
Investment Adviser's Report
Sigma PRS Management Ltd ("Sigma PRS"), a wholly-owned
subsidiary of Sigma Capital Group plc, is the Company's Investment
Adviser, and is pleased to provide a report on the PRS REIT's
activities and progress for the year ending 30 June 2020.
Business Activities
The PRS REIT plc is a public limited company incorporated in
England on 24 February 2017. Together with its subsidiaries, it is
the first quoted Real Estate Investment Trust ("REIT") to focus on
the Private Rented Sector ("PRS").
The Company completed its IPO on 31 May 2017, raising initial
gross proceeds of GBP250 million through the issue of 250 million
ordinary shares of one pence each at an issue price of GBP1 each
and its shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange. The
Company has since raised additional funds, through a further
placing and through gearing, taking its total available resources
to GBP900 million (gross).
Investment Objective and Business Model
The PRS REIT is seeking to provide investors with an attractive
level of income, together with the prospect of income and capital
growth, through investment in newly-constructed residential private
rented sector sites of multiple units, comprising mainly family
homes. The homes are let on Assured Shorthold Tenancies (as defined
in the Housing Act 1988) to qualifying tenants.
The Company is investing in multiple sites in cities and towns
across the UK, mainly targeting the largest employment centres in
England predominantly the Midlands and North, but outside of
London. The locations closely follow the main rail and road
infrastructure, and rental homes, being newly-built, come with the
benefit of 10 year National House Building Council or equivalent
warranties.
The Company is concentrating on traditional housing, which has a
broad spectrum of demand, and differing house types for different
life stages, including smaller houses for young couples and
retirees, and larger houses for growing families. It also invests
in some low-rise flats in appropriate locations to broaden its
rental offering.
The PRS REIT is building its portfolio of PRS assets in two
ways:
-- by acquiring residential development opportunities, with
these development sites sourced and managed by Sigma PRS (or
another member of Sigma Capital Group plc acting as development
manager). When completed, homes on these sites are subsequently let
to individual qualifying tenants; and
-- by acquiring already completed and let PRS sites that fulfil
the Company's investment objectives, including appropriate return
and occupancy hurdles. Completed sites are acquired from Sigma
Capital Group plc, pursuant to a forward purchase agreement between
the PRS REIT and Sigma Capital Group plc and subject to an
independent valuation appraisal. Should the opportunity arise, the
PRS REIT may acquire newly-built PRS assets from third party
vendors. The Company has the ability to fund up to a maximum of one
third of new properties in this manner.
The PRS REIT retains the right of first refusal to acquire and
develop any sites sourced by Sigma PRS that meets its investment
objective and policy.
There are certain restrictions in the PRS REIT's investment
policy, for instance the PRS REIT will not invest in other
alternative investment funds or closed-end investment
companies.
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser is utilising Sigma Capital Group plc's
well-established PRS property delivery and management platform
("Sigma PRS Platform") to help the PRS REIT achieve scale and to
minimise development and operational risks. Specifically, the Sigma
PRS Platform facilitates the efficient sourcing and development of
investment opportunities.
The Sigma PRS Platform comprises relationships with construction
partners, central government, and local authorities. Key
construction partners include Countryside Properties, which is the
primary house building partner, Engie, Seddon and Vistry. 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 Capital Group plc and its partners, and development sites
will have an appropriate certificate of title, detailed planning
consent and a fixed price design and build contract with one of
Sigma Capital Group plc's housebuilding partners. During the
construction phase, many of the properties are pre-let and
subsequently occupied as they complete.
Through its wide network of relationships, the Sigma PRS
Platform represents a very good source of land for development
sites, and is able to deliver a variety of high-quality house types
efficiently and in volume. This underpins the PRS REIT's objective
to build at scale and across multiple geographies.
Multiple Geographies
By creating assets across multiple locations and regions, we aim
to minimise the PRS REIT's concentration risk.
We are targeting a mix of locations that demonstrate both higher
yielding profiles (predominantly those in the North of England) and
developments where there is greater potential for capital
appreciation (often in our Southern opportunities). Proximity to
good primary schools is also a key requirement as the Company is
focused on the family rental market.
In addition, no investment will be made in any single completed
PRS site or PRS development site that exceeds 20 per cent of the
aggregate value of the total assets of the Company at the time of
commitment.
'Simple Life' Brand
The PRS REIT's rental homes are marketed under the 'Simple Life'
brand. The brand has created an identity for the PRS REIT's product
and, over time, we would like it to be recognised as a 'gold
standard' for the tenant experience, providing a combination of a
high-quality, sensibly-priced product together with high customer
service levels.
The PRS REIT's long-term approach to the ownership of its assets
provides further reassurance to tenants, and the neighbourhood
initiatives that we sponsor also help to foster a sense of
community within our developments.
Financing Resource
Equity Placing Programme
Two tranches of equity have been raised to date, GBP250m (gross)
at the Company's IPO on 31 May 2017, and a further GBP250m (gross)
in February 2018. Homes England participated in both fundraisings,
taking its direct investment in the Company to a total of
approximately GBP30 million.
Debt Facilities
The Company is using gearing to enhance equity returns, and in
June 2019, agreed terms with Scottish Widows and Lloyds Banking
Group to increase its total debt facilities to GBP400 million.
Further details can be found in the 'Financial Results' segment of
this report. After the financial year end, the Company arranged a
further GBP50 million development debt facility with Barclays Bank
PLC. The PRS REIT's aggregate borrowings will always be subject to
an absolute maximum, calculated at the time of drawdown of the
relevant borrowings, of not more than 45 per cent of the value of
the assets.
Operational Review
Development Activity and Acquisitions
Delivery of new homes from the development pipeline remains the
key focus. However, during the second half of the financial year,
the COVID-19 pandemic interrupted delivery when the Government
implemented a national lockdown. Construction activity was
suspended for approximately six weeks, from the end of March to
early May. Sites were reopened with social distancing and other
safety measures in place, which has had the effect of slowing the
pace of delivery. We estimate that the shutdown and decrease in
productivity reduced unit delivery in the year by 600 homes.
Notwithstanding the disruption, a total of 909 homes were
completed in the year to 30 June 2020, compared with 768 in the
prior year. This reflected the significant increase in the number
of sites in the delivery programme and took the total number of
completed homes at the end of June 2020 to 2,082 (2019: 1,173)
across six of the eight major regions of England.
The Company also acquired one fully-developed and let site,
comprising 50 homes from Sigma Capital Group plc. As with previous
sites acquired from Sigma Capital Group plc, the site was
independently assessed by Savills before acquisition. The site is
located in the Wigan and provides an ERV of GBP0.48 million per
annum.
The estimated rental value of the portfolio at 30 June 2020
amounted to GBP19.1 million per annum, a 79% increase year-on-year
(30 June 2019: GBP10.7 million).
The table below provides further detail in summarised form of
our development activity in 2020 and 2019, including activity in
the first quarter of the new financial year.
At At At
30 September 30 June 30 June
2020 2020 2019
Number of completed homes 2,634 2,082 1,173
-------------- --------- ---------
Estimated rental value of GBP24.3m GBP19.1m GBP10.7m
completed homes p.a p.a. p.a.
-------------- --------- ---------
Completed sites 25 22 17
-------------- --------- ---------
Contracted sites 39 40 37
-------------- --------- ---------
Number of contracted homes 2,369 2,803 3,196
-------------- --------- ---------
ERV of contracted homes GBP23.3m GBP27.4m GBP30.5m
p.a. p.a. p.a.
-------------- --------- ---------
Construction Resource
The construction resource provided by the Sigma PRS Platform now
has national reach. It underpins the continued expansion of the
Company to key population centres in England, supporting the
creation of a geographically diverse portfolio.
There are many clear benefits for our construction partners in
partnering with us. These include strengthening their ability to
bid for land with local councils and improving operational
efficiencies with their own housing delivery. This partnership
approach is working well and the model we operate of using standard
family house types, fixed price design & build contracts, and
standardised specification, helps to ensure that developments are
built to budget and that our PRS assets can be maintained and
managed efficiently.
In our annual report last year we highlighted that we had
started to take delivery of homes produced by Countryside
Properties new sectional-building technology. We are delighted to
announce that over 530 of our new homes have now been constructed
using this system.
Financial Results
Income statement
The Group's revenue (which is wholly derived from rental income)
more than doubled over the year to GBP12.9 million (2019: GBP6.0
million). After the deduction of non-recoverable property costs,
the net rental income was GBP10.2 million (2019: GBP4.9 million).
Administration expenses were marginally higher at GBP6.2 million
(2019: GBP5.9 million). The gain from the fair value adjustment on
investment property was GBP15.8 million (2019: GBP15.6 million),
the small increase reflecting the delay to construction works
during the lockdown period in the current financial year. Operating
profit was GBP19.9 million (2018: GBP14.6 million). Finance income
for the period from short-term deposits was GBP0.2 million (2019:
GBP0.8 million), whilst finance costs were GBP3.7 million (2019:
GBP0.9 million) reflecting the debt utilisation during the year.
The profit after finance income and taxation was GBP16.4 million
(2019: GBP14.6 million).
The basic and fully diluted earnings per share on an IFRS basis
for the year was 3.3p (2019: 2.9p)
Dividends
The Company has declared and paid a total of 4.0p per ordinary
share for the year under review, which comprised the following:
-- On 31 October 2019, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 July 2019 to 30 September 2019, which was payable on 29
November 2019 to shareholders on the register as at 15 November
2019.
-- On 31 January 2020, the Company announced the declaration of
a dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 October 2019 to 31 December 2019, which was payable on 28
February 2020 to shareholders on the register as at 7 February
2020.
-- On 18 June 2020, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 January 2020 to 31 March 2020, which was payable on 17 July
2020 to shareholders on the register as at 26 June 2020.
-- On 7 August 2020, the Company announced the declaration of a
dividend of 1.0 pence per Ordinary Share in respect of the period
from 1 April 2020 to 30 June 2020, which was payable on 18
September 2020 to shareholders on the register as at 21 August
2020.
Balance Sheet
The principal items on the balance sheet are investment property
of GBP577.1 million (2019: GBP362.3 million), cash and cash
equivalents of GBP59.3 million (2019: GBP229.9 million), long-term
loans of GBP150.0 million (2019: GBP100.0 million) and trade and
other payables of GBP23.9 million (2019: GBP23.4 million).
The investment property includes completed assets and assets
under construction at fair value. Trade and other payables includes
GBP8.0 million of development expenditure that was paid in July
2020.
Debt Financing
The PRS REIT has the following debt facilities:
-- GBP150 million revolving credit facility with Lloyds Banking
Group / RBS for an initial term of two years, which can be extended
further for up to two years. Interest is based on three month LIBOR
plus applicable margin and the loan is secured over assets
allocated to Lloyds Banking Group. This was undrawn at 30 June 2020
but drawdown commenced shortly after the year-end;
-- GBP100 million term loan of 15 years with Scottish Widows,
which was drawn in two equal instalments in March and April 2019.
Interest is fixed at the 15 year swap rate of 1.588% plus
applicable margin and the loan is secured over assets allocated to
Scottish Widows;
-- GBP150 million term loan for 25 years with Scottish Widows of
which GBP50 million was drawn in April 2020, a further GBP60
million was drawn in July 2020 and the remaining instalment is due
to be drawn in October 2020. Interest was fixed at the relevant
swap rate of 1.164% plus applicable margin and is secured over
assets allocated to Scottish Widows; and
-- Subsequent to 30 June 2020, the Company arranged a further
GBP50 million development debt facility with Barclays Bank PLC.
Interest is based on three month LIBOR plus applicable margin and
the loan is secured over assets allocated to Barclays Bank PLC.
Key performance indicators
The Group's key performance indicators ("KPI") include:
KPI June 2020 June 2019
Rental income (gross) GBP12.9m GBP6.0m
---------- ----------
Average rent per month per tenant GBP766 GBP760
---------- ----------
Non-recoverable property costs as a
percentage of gross rent (gross to net) 21.1% 17.5%
---------- ----------
Fair value uplift on investment property GBP15.8m GBP15.6m
---------- ----------
Operating profit GBP 19.9m GBP 14.6m
---------- ----------
Dividends paid per share in relation
to the period 4.0p 5.0p
---------- ----------
Number of properties available to rent 2,082 1,173
---------- ----------
All the KPIs are in line with management expectations. Increases
in rental income, non-recoverable property costs, operating profit,
and the number of properties available to rent reflect the
increased size of the portfolio and the progression of development
sites.
Market Overview
New housing delivery over the course of 2019/20 continued to
fall short of annual government targets of between 240,000 and
340,000 new homes per annum. It is estimated that the deficit over
the year was a minimum of 70,000 new dwellings. The COVID-19 crisis
of 2020, which saw the shutdown of all building sites for at least
six weeks and reduced activity levels thereafter, has further
dampened unit output.
The supply of rented properties has also reduced following
tighter regulation and increased tax burdens, which caused large
outflows from the 'Buy-to-let' sector. According to Savills, in
2010, 78% of landlords in the private rented sector owned more than
one property, but by 2018, this had reduced to 45%. This represents
a gross loss of over 40,000 buy to let homes per annum in each of
the last three years.
With the average home in the UK now a multiple of 7.7 times
gross average salary, the choices available to those who are too
economically active to qualify for affordable housing but without
sufficient savings to pay for a minimum deposit (including to
qualify for "Help to Buy"), are increasingly limited. The
Build-to-Rent ("BTR") sector can absorb some of this demand,
although currently there are only 43,000 operational homes, and
just 33,500 under construction.
BTR currently accounts for just 1% of all private rented homes
in the UK, which when compared to 45% in the US and 35% in Germany,
indicates the sector's potential growth. Savills estimates that the
sector, currently estimated to be worth GBP10 billion, could expand
to nearer GBP550 billion at full maturity.
The UK market continues to focus on high-density flatted
developments in city centre locations whilst the PRS REIT has
maintained its focus on regional family homes. The relevance of the
PRS REIT's housing model has been brought into sharp relief this
year with COVID-19 and home-working causing tenants to rethink
their space requirements and the need for private outdoor
space.
Post Period Review
Progress since the start of the new financial year has continued
positively, in line with management expectations.
Over the first quarter of the new financial year, 552 new homes
were added to the portfolio, taking the number of completed homes
at 30 September 2020 to 2,634, providing an ERV of GBP24.3m. The
development pipeline also grew over the first quarter with a number
of acquisitions of additional plots from existing sites and further
commitments to new sites, including at Hexthorpe in Yorkshire. This
increased the development pipeline by a further 124 homes at the
end of September 2020, taking contracted homes to 2,369 homes, with
an ERV of GBP23.3 million per annum. The total ERV of contracted
and completed homes at 30 September amounted to GBP47.6
million.
Approximately 96% of the Company's total net funding has now
been deployed and the balance is expected to be contracted over the
coming months. The total portfolio is anticipated to comprise
approximately 5,200 new family homes.
The table below provides further information of delivery
activity over the first quarter of the new financial year.
At 30 September At 30 June
2020 2020
Number of completed PRS homes 2,634 2,082
---------------- -----------
ERV of completed homes GBP24.3m p.a GBP19.1m
p.a
---------------- -----------
Completed sites 25 22
---------------- -----------
Number of contracted homes 2,369 2,803
---------------- -----------
ERV of contracted homes GBP23.3m p.a. GBP27.4m
p.a.
---------------- -----------
Summary and Outlook
The growth opportunity available to the PRS REIT remains
substantial, driven by the strong underlying supply and demand
fundamentals in the housing market. We also believe that PRS
housing (at scale) can play a part in accelerating the overall
delivery of new homes, a key agenda with local authorities and
Central Government.
In addition, the track record that we have established in
delivering high quality new homes over multiple sites through our
efficient supply chain platform places the Company in a strong
position in the PRS market.
Notwithstanding current political uncertainties, we believe that
the Company remains firmly on track to invest its full available
capital and associated gearing to time and budget.
COVID-19 and Going Concern review
COVID-19 and Going Concern
This going concern review summarises the risks that the COVID-19
pandemic continues to pose to the Group and the parent Company of
the PRS REIT, together with actions we have taken to ensure that
the business is well-placed to emerge from the crisis in a position
of financial strength.
During the period of the lockdown imposed by the Government from
the end of March, house building and letting activity effectively
ceased, resulting in delays to homes being completed, let and
occupied. The Group's contractual obligations only provide for
payment to house builders in respect of work undertaken and
independently certified. Accordingly, development expenditure and
associated cash outflows during lockdown reduced significantly.
However, the knock-on impact of the disruption is that practical
completion dates for construction and subsequent letting activity
have all been delayed in comparison to original schedules.
The pandemic reduced planned construction activity by
approximately 60% during the four month period ended 30 June 2020
reflecting actual construction spend of approximately GBP40 million
during this period. As a result, the 2,000th completed home was not
delivered until June 2020 instead of March. Compared to forecasts
prior to the pandemic this reflects a reduction of over 600 units
which will not be caught up until June 2022, a year later than
previously planned.
Although lockdown restrictions began to ease in May,
construction activity only began to resume comprehensively from the
beginning of June. Even allowing for this, continuing requirements
for social distancing and guidance around using public transport
mean that construction activity has not fully returned to
pre-lockdown levels.
A further complication has been the introduction of localised
lockdown restrictions in response to outbreaks of COVID-19 in
particular areas.
COVID-19 continues to have the potential to impact the Group and
Company as a result of the Government introducing or re-introducing
restrictions limiting, either wholly or partly, construction and
letting activity on a regional or national basis. This has the
potential to impact the Company and Group in the following
areas:
Risk factor Mitigating actions
House builders unable to continue The PRS REIT has spent time with
with construction work on sites its construction partners ensuring
or forced to limit construction that their health and safety assessments
work on sites due to adherence are correctly applying and complying
to social distancing or other with the Government's social distancing
requirements and staff unable rules. These new measures mean
to work or are absent from work. that work on development sites
can continue although at a slower
rate than before the crisis. This
has reduced the Group and Company's
cash outflows during this period
but has also delayed practical
completion and subsequent letting
of units. Continual review of the
situation in conjunction with house
building partners is in place to
monitor the situation on a site-by-site
basis.
------------------------------------------
Letting agents unable to progress The Group has worked with its lettings
activities in respect of lettings, agents to ensure that the Government's
repairs and maintenance. This social distancing rules are adhered
could arise as a result of tenant to. As lockdown restrictions have
and/or, maintenance company issues eased, lettings activity has resumed
or because lettings staff are as have all repair and maintenance
unable to work or absent from services. Weekly reviews of lettings
work. activities are in place.
------------------------------------------
Income reduction and potential The Group carefully vets prospective
bad debt resulting from tenants' tenants and typically obtains insurance
financial difficulties because for at least the first year of
of a loss of income due to individuals new lettings. To date, COVID-19
being without work, unable to related arrears are being managed
work or absent from work. by agreeing payment plans with
tenants encountering difficulties.
The insurer has been notified of
this in order to preserve rights
of claim but policies will ultimately
pay out in the event that arrears
are not recovered through payment
plans. This, together with the
geographic spread of multiple sites
will help mitigate against bad
debts. We are working with letting
agents to assist and support those
tenants encountering difficulty
in a responsible and reasonable
manner. The adaptation of our technology
has meant that tenant interaction
and engagement can continue through
a variety of channels, including
telephone, e-mail and social media.
------------------------------------------
Disruption to the supply chain Significant efforts and contingencies
in the event of raw materials have already been put in place
and construction products not in respect of Brexit, and additional
being produced or imported. inventory, including timber has
been secured. To date, production
and shipment difficulties have
not been encountered partly reflecting
the reduction in construction activity
during the lockdown period.
------------------------------------------
General disruption to employees, All of our suppliers have worked
house builders, letting agents quickly to adapt to new ways of
and the supply chain due to restrictions working in accordance with government
on the movement of goods and guidelines to enable all areas
people. of the business to continue, although
at a slower rate than before.
------------------------------------------
Impact of the virus on the economy During August, announcements indicated
and market sentiment. that the UK has technically entered
a severe recession as a result
of two successive quarters of negative
GDP growth. However, there is a
structural under supply of new
family homes in the UK and indications
suggest that the pandemic and recession
may have increased demand for the
Group's high quality but affordable
product across multiple regions.
------------------------------------------
Valuations reduced due to changes Independent valuers are advising
in rental levels, bad and doubtful that the sector is viewed as stable
debt risk and sector attractiveness and attractive, tenant demand remains
impacting yields. strong and may even be increasing
due to changes in consumer requirements
for housing during the pandemic,
low level of bad and doubtful debts
reflecting the procedures surrounding
tenant vetting, deposits and insurance.
------------------------------------------
A second wave of the COVID-19 Having experienced the first lockdown,
and potential for another national the Group and Company has a good
lockdown. understanding of how to react quickly
to adapt to further lockdowns.
New systems are in place, which
enable the Company to better support
tenants e.g. with online repairs
and maintenance assistance. It
presently appears that lockdown
measures are more likely to be
imposed on a localised basis in
response to regional outbreaks
of the virus rather than on a national
level. Given the geographic spread
of sites, the Group is likely to
be able to continue construction
and lettings activity in those
regions unaffected by restrictions.
As mentioned above, cessation of
construction work on development
sites would reduce short-term cash
outflows although practical completion
and lettings schedules would be
delayed.
------------------------------------------
COVID-19 Stress Test
In light of the above, the Group and the parent Company of the
PRS REIT have performed a prudent financial stress test geared
towards ensuring that it has sufficient cash resources to weather
the pandemic and subsequently emerge in a robust condition to
continue to implement its build-to-rent strategy. The stress test
incorporated the following sensitivities:
- availability of funds pursuant to the terms and conditions of
the Group's existing borrowing facilities with Scottish Widows,
Lloyds Banking Group / RBS and Barclays Bank PLC;
- cessation of construction activities across all sites for a
period of four months from the beginning of October 2020 to the end
of January 2021 reflecting the risk of a second lockdown;
- absence of development management fees, which are payable to
the Development Manager with reference to independently assessed
construction activities during the four month period of the
lockdown;
- absence of further asset purchases during this period, in
particular aborting the purchase of completed asset sites from both
Sigma Capital Group plc ("Sigma") and third parties;
- loss of 15% of rental income in relation to increased hardship
and redundancy levels affecting tenant occupancy rates and arrears
levels for a period of eight months from October 2020 to the end of
May 2021;
- inclusion of only contracted revenue from existing tenancies
and exclusion of any additional revenue from new potential
sources;
- inability to progress with lettings activity during the four
month period from October 2020 to the end of January 2021;
- maintenance of the Group and Company's existing administrative
overhead base of c.GBP6 million per annum, comprising GBP4 million
of investment advisory fees and GBP2 million of other overheads,
without reduction from cost saving initiatives or mitigating
action; and
- continuation of the Company's stated dividend policy of a
minimum of 1.0p per quarter and 4.0p per annum.
Conclusion of COVID-19 Stress Test
The conclusion of our stress test is that the parent Company of
the PRS REIT and the Group have more than adequate cash resources
to sustain an extended cessation of construction and letting
activity lasting at least four months together with a longer period
of income reduction from tenant hardship resulting from an economic
downturn. The Group and Company also has the flexibility to reduce
further asset acquisitions from Sigma should it have insufficient
funds to complete planned asset purchases.
The Directors therefore believe the parent Company of the PRS
REIT and Group are well placed to manage its business risks
successfully and have a reasonable expectation that both will have
adequate resources to continue in operational existence for the
foreseeable future and for a period of at least 12 months from the
date of the approval of the Group and parent Company of the PRS
REIT's financial statements for the year ended 30 June 2020. The
Board is therefore of the opinion that the going concern basis
adopted in the preparation of the consolidated and parent Company
financial statements for the year ended 30 June 2020 is
appropriate.
COVID-19 Conclusion
Overall, COVID-19 remains a risk that requires careful
monitoring and management in conjunction with our house building
partners and letting agents in order to mitigate the potential
issues pending the restoration of a more normal working and living
environment. The Group and the parent Company of the PRS REIT will
continue to review and assess objectively the impact of the
COVID-19 outbreak and government response on both its strategy and
focus of activities.
Portfolio Analysis
As at 30 June 2020, the valuation of the Group's property
portfolio was GBP577 million (2019: GBP362 million) and the
investment value of all sites under way at that date was GBP722
million on completion (2019: GBP552 million) with their ERV on
completion at GBP42 million (2019: GBP33 million).
Property Portfolio by Regional Split - at 30 June 2020
-- The regional split by investment value was - North West (NW)
56% (2019: 70%), West Midlands (WM) 20% (2019: 20%), South East
(SE) 13% (2019: nil), Yorkshire (Y) 7% (2019: 10%), North East (NE)
3% (2019: nil) and East Midlands (EM) 1% (2019: nil).
-- The majority of the portfolio is located in the North West
with units in the West Midlands and South East accounting for a
growing proportion.
Other Metrics - at 30 June 2020
-- The rent roll at 30 June 2020 was GBP19.1m (2019: GBP10.7m)
and the average rent was GBP9,175 per annum or GBP765 per month
(2019: GBP9,120 per annum or GBP760 per month).
-- Forecast average rent across the current portfolio when
complete is GBP9,514 per annum or GBP792 per month (2019: GBP8,953
per annum or GBP746 per month).
-- The average size of site was 83 (2019: 85) housing units.
-- The split between 1, 2, 3 and 4 bed properties was
approximately 4%, 26%, 61% and 9% respectively (2019: 5%, 25%, 60%
and 10% respectively).
-- Contractor split was - Countryside 86%; Engie 10%; Vistry
(formerly Galliford Try) 3%; and Seddon 1% (2019: Countryside 84%;
Engie 11%; Keepmoat Homes 4% and Vistry (formerly Galliford Try)
1%).
-- The deduction from gross to net rent across the portfolio for
the year ended 30 June 2020 was 21.1% (2019: 17.6%).
-- Bad debt expense stood at GBP24,000 (2019: GBP13,000) and bad
debt provision was GBP35,000 (2019: GBP13,000).
Age Groupings
The percentage split by age of tenants was consistent with the
same point in the prior year. The 26-35 age bracket still accounted
for around 42% of tenants, which demonstrates the Company's young
family demographic. There was a small increase in the under 25 age
bracket, and a small increase in tenants aged 56 years and
over.
Age 2020 2019
--------- ----- -----
Under 25 24% 22%
26-35 42% 43%
36-45 17% 19%
46-55 9% 10%
56-65 6% 5%
65+ 2% 1%
--------- ----- -----
Household Income Bracket
The household income profile remained consistent year-on-year.
Households with an income of above GBP35,000 per year (an increase
of about 2%) accounted for 54% of total households, with the
balance having an income lower than GBP35,000. The proportion of
households earning under GBP25,000 has decreased to 23% (2019:
26%). The figures below indicate the wide range of customers.
Household 2020 2019
Income
---------------- ----- -----
Under GBP25k 23% 26%
GBP25k-GBP35k 23% 22%
GBP35k- GBP45K 22% 20%
GBP45k-55K 14% 14%
GBP55k-GBP65K 7% 8%
GBP65+ 11% 10%
---------------- ----- -----
Tenancies with Children
Over the financial year, the number of tenant households without
children increased significantly (58%, compared with 43% last
year). This could be attributed to the completion of new apartment
schemes within the past 12 months. There was an increase in
tenancies with 4+ children (7% last year, compared to 13% this
year).
Tenancies 2020 2019
with Children
---------------- ----- -----
None 58% 43%
One child 8% 20%
Two children 18% 21%
Three children 3% 9%
4+ children 13% 7%
---------------- ----- -----
Distance Travelled
The data showing distanced travelled from previous address is
broadly consistent with the prior year across the segments. Around
30% of households previously lived locally (less than 3 miles away)
(2019: 28%) and approximately 17% previously lived over 50 miles
away (2019: 19%).
Distance 2020 2019
Travelled
--------------- ----- -----
Over 3 miles 30% 28%
3-10 miles 30% 30%
10-50 miles 23% 23%
Over 50 miles 17% 19%
--------------- ----- -----
All 2020 statistics are based on new applicant data between July
2019 and June 2020 and include sites acquired from Sigma. The prior
year's statistics are based on all successful 'Simple Life'
applications referenced between June 2018 and June 2019.
Investment Strategy and Business Model
AWARDS
Northern Marketing Awards Property Management Awards
Property and Construction Campaign Build to Rent Provider of the Year
2019 2019
(Shortlisted) (Winner)
Inside Housing Awards North West Residential Property
Best Partnership 2019 Awards
(Shortlisted) Social Impact Award 2020
(Shortlisted)
Property Week RESI Awards
Landlord of the Year 2020 Yorkshire Insider Property Awards
(Shortlisted - winner to be announced) Public Private Partnership 2020
(Shortlisted - winner to be announced)
Yorkshire Insider Property Awards
Large Development of the Year 2020 (Shortlisted - winner to be
announced)
Business Model
Demand for homes continues to outstrip supply in the UK and
while the delivery of new homes reached a 13-year high in 2019 at
160,000, the annual construction of new homes remains significantly
short of the Government's target of 300,000 new homes per annum.
Demand continues to grow, assisted by historically low levels of
interest rates (for those with deposits) and a change in household
formation. This has further exacerbated house price growth, which
has outstripped wage inflation and pushed home ownership out of
reach for many.
In the private rental sector itself, where those unable to buy
would usually find housing, the number of homes owned by small
scale and amateur landlords is falling as changes to taxation make
'buy-to-let' a less attractive investment proposition without
scale. It is within this context that the Company is providing a
professionally-managed alternative tenure with the creation of
accessible, quality family homes to rent.
The Company has developed a scalable business model, which
delivers brand new houses across multiple geographies and sites,
utilising the Investment Adviser's PRS property platform. New home
designs are carefully selected from house builders' standard range
of house types and have a consistent specification together with
fully costed delivery metrics, including above ground cost and
construction time. By standardising the housing types at a
portfolio level and the internal specification at the dwelling
level, predictability of total delivery cost is improved and the
cost of managing assets over the long-term is reduced.
The Company's exposure to development risk has been minimised
through the use of fixed price design and build contracts and the
acquisition of sites that have detailed planning consent already in
place. House building partners, meanwhile, look to maximise their
return on capital by building the Company's homes at construction
pace rather than 'for sale' pace. This is at least four times
quicker, so generating income flows for partners much more quickly
than a traditional build-out of a purely 'for sale' construction
site. The modern methods of construction now employed by some of
the construction partners further speeds up delivery. At a time of
low housing delivery, this delivery methodology is extremely
attractive to councils and local authorities, not only because it
accelerates council tax receipts, income from 'New Homes Bonus'
scheme, and regeneration, but also because it provides a new
managed tenure for constituents.
The active management of developments and the creation of
communities is key to the long-term success of the Company and all
its homes are managed under the 'Simple Life' brand. As the
portfolio grows, 'Simple Life' is becoming increasingly familiar to
the wider market, and its identity is becoming defined by the
Company's high quality properties and professional customer
service. Regular communication and customer events foster the
creation of thriving neighbourhoods and a satisfied customer base,
thereby promoting longer term tenancies.
When planning developments, research drives decisions on the mix
and types of houses, and the Company's seeks to create developments
that will appeal to a wide range of potential customers, as well as
its main demographic of young families. This diversification helps
to create a mixed community of ages and mitigates against letting
and void risk.
The Company's scale and approach to site locations as well as
its focus on houses, rather than apartment blocks, mitigates
further risks. By creating a portfolio with geographic diversity
and multiple locations the Company's minimises the risks from local
factors, such as the failure of major employers. Individual
developments are relatively small by comparison to the overall size
of the portfolio, and the Company's large and growing customer base
also offsets overall income volatility, especially as average
tenancy terms are expected be three years. Furthermore, the
targeted expansion of the Company's geography creates a good mix of
sites which, once built, demonstrate both higher yielding profiles
(predominantly those in the north) and developments where there is
significant headroom between the delivery cost and market
value.
This approach has created a robust business which meets an
important social need and provides investors with an attractive
level of income and the potential for capital growth.
Investment Objectives
The Company seeks to provide investors with an attractive level
of income together with the prospect of income and capital growth
through investment in a portfolio of newly constructed residential
private rented sector sites of multiple units ("PRS units")
comprising mainly family homes, to be let on Assured Shorthold
Tenancies (as defined in the Housing Act 1988) to qualifying
tenants.
Investment Policy
The Company's investment policy is to pursue its investment
objective by investing in PRS units in or near towns and cities in
the UK predominantly the Midlands and the North.
The Company is creating a portfolio of homes targeted at the
family market, the largest cohort within the private rented sector,
and therefore is investing predominantly in housing with the
addition of some low rise apartments to provide both choice and
wider market appeal, in the major conurbations and larger
employment centres in the UK, predominantly England, outside
London. The locations are chosen for their accessibility, in that
they are situated on the main road and rail links, with access to
good primary schooling and economic activity, promoting long term
employment prospects and thereby a strong need for housing. 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) as well as
manufacturers warranties, providing for a low level of capital
expenditure allied to a predictable and low cost maintenance
regime.
The sourcing of assets is undertaken by the Investment Adviser
("Sigma PRS") and is done so by two principal methods. In the first
instance, development sites ('PRS development sites') are selected
and assessed, detailed planning permission achieved and a fixed
price design and build contract signed with one of the Sigma PRS's
construction partners and the delivery process is managed on behalf
of the Company by Sigma PRS. As the assets are acquired with
detailed planning consent and fixed price design and build
contracts, the Company is exposed to minimal development risk. The
construction risk is mitigated with standard design and build
contracts containing liquidated damages clauses for
non-performance, financial retentions for one year post completion
and a parent company guarantee ensuring the satisfactory
performance by the contractor and providing an indemnity for losses
incurred. The Company will source approximately two thirds of its
assets in this way.
To expedite the growth of the Company, the balance of assets are
acquired by entering into forward purchase agreements with the
Sigma Capital Group plc ("Sigma"), the ultimate holding company of
Sigma PRS, which are acquired as completed and stabilised
developments using the same construction partners and supply chain,
thereby ensuring homogeneity of the housing stock. A variation on
this method is the purchase of completed and stabilised
developments from third parties using approved construction
partners.
Investment Restrictions
The Group is aiming to create a high quality, diversified
portfolio and the following investment restrictions are
observed:
-- the Group is only investing in private rented residential
houses and apartments located in the UK (predominantly in
England);
-- no investment in the Group in any completed PRS site or PRS
development site will exceed 20 percent of the aggregate 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'); and
-- the Group is not investing in other alternative investment
funds or closed ended investment companies.
Debt Financing and Gearing
The PRS REIT is using gearing to enhance equity returns. The
level of borrowing will be on a prudent basis 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, Homes England and the
capital markets. The aggregate borrowings of the Group is 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 PRS
portfolio.
At the end of June 2019, the Group agreed term debt facilities
of GBP150 million with Scottish Widows in addition to the previous
term debt facility of GBP100 million with Scottish Widows. The
GBP150 million facility is a 25 year fixed rate term loan. Interest
is fixed at 1.164% plus a margin. It was drawn on fixed dates
between April and October 2020.
The total facilities available to the Group at 30 June 2020
comprise a GBP150 million revolving credit facility with Lloyds
Banking Group / RBS; and two fixed rate term loans with Scottish
Widows for GBP100 million and GBP150 million respectively.
Following the year end, the Company entered into a GBP50 million
development debt facility with Barclays Bank PLC.
Although the aggregate debt facilities total GBP450 million,
GBP75 million of the Lloyds Banking Group / RBS facility and the
GBP50 million Barclays Bank PLC debt facility can be drawn as
development debt facilities 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.
Derivatives
The PRS REIT may utilise 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.
REIT Status
The Company will at all times 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).
THE PRS REIT PLC
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
30 June 30 June
2020 2019
Notes GBP'000 GBP'000
Rental income 12,945 5,970
Non-recoverable property costs (2,728) (1,054)
--------- ---------
Net rental income 10,217 4,916
Administrative expenses
Directors' remuneration (140) (123)
Investment advisory fee (4,339) (4,402)
Other administrative expenses (1,681) (1,354)
--------- ---------
Total administrative expenses (6,160) (5,879)
Unrealised gain from fair value adjustment
on investment property 15,806 15,609
--------- ---------
Operating profit 19,863 14,646
Finance income 220 789
Finance cost (3,676) (864)
--------- ---------
Profit before taxation 16,407 14,571
Taxation - -
--------- ---------
Total comprehensive income for the year
attributable to the equity holders of
the Company 16,407 14,571
========= =========
Earnings per share attributable to the
equity holders of the Company:
IFRS earnings per share (basic and diluted) 4 3.3p 2.9p
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.
THE PRS REIT PLC
Consolidated Statement of Financial Position
As at 30 June 2020
2020 2019
Notes GBP'000 GBP'000
ASSETS
Non-current assets
Investment property 577,119 362,275
--------- ---------
577,119 362,275
--------- ---------
Current assets
Trade receivables 191 89
Other receivables 3,463 5,379
Cash and cash equivalents 59,304 229,946
--------- ---------
62,958 235,414
--------- ---------
Total assets 640,077 597,689
--------- ---------
LIABILITIES
Non-current liabilities
Accruals and deferred income 4,598 2,954
Interest bearing loans and borrowings 145,244 100,000
149,842 102,954
Current liabilities
Trade and other payables 19,314 20,410
--------- ---------
Total liabilities 169,156 123,364
--------- ---------
Net assets 470,921 474,325
========= =========
EQUITY
Called up share capital 4,953 4,953
Share premium account 245,005 245,005
Capital reduction reserve 186,748 206,559
Retained earnings 34,215 17,808
--------- ---------
Total equity attributable to the equity
holders of the Company 470,921 474,325
========= =========
IFRS net asset value per share (basic
and diluted) 6 95.1p 95.8p
As at 30 June 2020, there is no difference between IFRS NAV per
share and the EPRA NAV per share.
These consolidated group financial statements were approved by
the Board of Directors and authorised for issue on 5 October 2020
and signed on its behalf by:
Steve Smith
Chairman
THE PRS REIT PLC
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
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 2018 4,943 244,025 233,800 3,237 486,005
Profit for the
year - - - 14,571 14,571
Share capital
issued 10 961 - - 971
Share capital
issue credit - 19 - - 19
Dividend paid - - (27,241) - (27,241)
At 30 June 2019 4,953 245,005 206,559 17,808 474,325
========= ========= =========== ========== =========
Profit for the
year - - - 16,407 16,407
Dividend paid - - (19,811) - (19,811)
At 30 June 2020 4,953 245,005 186,748 34,215 470,921
========= ========= =========== ========== =========
THE PRS REIT PLC
Consolidated Statement of Cash Flows
For the year ended 30 June 2020
30 June 30 June
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Profit before tax 16,407 14,571
Finance income (220) (789)
Finance costs 3,676 864
Fair value adjustment on investment
property (15,806) (15,609)
---------- ----------
Cash generated by / (used in) operations 4,057 (963)
Increase in trade and other receivables (1,680) (1,684)
(Decrease) / Increase in trade and other
payables (3,677) 3,026
Net cash (used in) / generated from
operating activities (1,300) 379
---------- ----------
Cash flows from investing activities
Purchase of investment property at fair
value through profit and loss (193,772) (216,292)
Finance income 236 823
Net cash used in investing activities (193,536) (215,469)
---------- ----------
Cash flows from financing activities
Bank and other loans 50,000 100,000
Finance costs (5,995) (2,877)
Issue of shares - 971
Cost of share issue - (156)
Dividends paid (19,811) (27,241)
---------- ----------
Net cash generated from financing activities 24,194 70,697
---------- ----------
Net decrease in cash and cash equivalents (170,642) (144,393)
Cash and cash equivalents at beginning
of year 229,946 374,339
---------- ----------
Cash and cash equivalents at end of
year 59,304 229,946
========== ==========
The accompanying notes are an integral part of this cash flow
statement.
Notes to the Financial Statements
1. General information
This final results announcement was approved for issue by a duly
appointed and authorised committee of the Board of Directors on 5
October 2020.
2. Basis of preparation
The financial information set out in this announcement does not
constitute statutory financial statements for the year ended 30
June 2020 and year ended 30 June 2019. The financial information in
this announcement has been derived from the statutory accounts for
the year ending 30 June 2020 and year ending 30 June 2019.The
report of the auditor on the statutory financial statements for the
year ended 30 June 2020 and year ended 30 June 2019 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 2019 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting. The statutory accounts for the year ending
30 June 2019 have been delivered to the Registrar of Companies.
3. Taxation
As a UK REIT, the Group is exempt from corporation tax on the
profits and gains from its property investment business, provided
it meets certain conditions as set out in the UK REIT regulations.
For the year ended 30 June 2020 and the year ended 30 June 2019,
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 as it is not
anticipated that sufficient residual profits will be generated in
the future.
4. Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period. As there are no dilutive instruments, only
basic earnings per share is quoted below.
The calculation of basic and diluted earnings per share is based
on the following:
2020 2019
GBP'000 GBP'000
Net profit attributable to ordinary
shareholders 16,407 14,571
EPRA adjustments:
Changes in value of investment properties (15,806) (15,609)
------------ ------------
EPRA Net profit / (loss) attributable
to ordinary shareholders 601 (1,038)
Weighted average number of ordinary
shares 495,277,294 495,180,547
Earnings per share (pence) 3.3 2.9
EPRA profit / (loss) per share (pence) 0.1 (0.2)
5. Dividends
The following dividends were paid during the current year and
prior year:
2020 2019
GBP'000 GBP'000
Dividends on ordinary shares declared
and paid:
Dividend of 2.5p for the 3 months to
30 June 2018 - 12,382
Dividend of 1.0p for the 3 months to
30 September 2018 - 4,953
Dividend of 1.0p for the 3 months to
31 December 2018 - 4,953
Dividend of 1.0p for the 3 months to
31 March 2019 - 4,953
Dividend of 2.0p for the 3 months to 9,905 -
30 June 2019
Dividend of 1.0p for the 3 months to 4,953 -
30 September 2019
Dividend of 1.0p for the 3 months to 4,953 -
31 December 2019
19,811 27,241
======== ========
Proposed dividends on ordinary shares:
3 months to 30 June 2019: 2.0p per
share - 9,905
3 months to 31 March 2020: 1.0p per 4,953 -
share
3 months to 30 June 2020: 1.0p per 4,953 -
share
----------- -----------
9,906 9,905
=========== ===========
6. IFRS Net Asset Value per share
Basic 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:
2020 2019
Net assets at end of year (GBP'000) 470,921 474,325
Shares in issue at end of year 495,277,294 495,277,294
Basic IFRS NAV per share (pence) 95.1 95.8
============ ============
The NAV per share calculated on an EPRA basis is the same as the
IFRS NAV per share for the year ended 30 June 2020 and the year
ended 30 June 2019.
7. Availability of statutory financial statements
Copies of the full statutory financial statements will be
available no later than 9 November 2020 and will be available on
the Company's website at www.theprsreit.com .
8. Annual General Meeting
The Annual General Meeting of the Company will be held on
Thursday 10 December 2020 commencing at 2.00 pm. This year's AGM
will unfortunately not allow the usual level of engagement between
the Board and shareholders at an open meeting because of the
restrictions in place as a result of COVID-19, but we would urge
you still to cast your vote by appointing the Chairman of the
meeting as your proxy.
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END
FR UVVKRRNURRAA
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