Full Year Results

PRS REIT PLC (The)

10 October 2023

 

PRSR.L

The PRS REIT plc

("PRS REIT" or "the Company" or "the Group")

Audited Full Year Results

for the year ended 30 June 2023 & First Quarter Update

Portfolio now at 5,129 completed homes.

Assets are performing strongly, and rental demand continues to grow

Key points

Financial

	Year to 30 June  2023	Year to 30 June  2022	Change
Revenue	£49.7m	£42.0m	+18%
Net rental income	£40.2m	£34.3m	+17%
Operating profit	£58.9m	£127.0m	-54%
Profit after tax	£42.5m	£115.9m	-63%
Basic earnings per share	7.7p	21.4p	-64%
EPRA earnings per share[1]	3.1p	3.0p	+3%
Adjusted earnings per share excluding amortised debt costs[2]	3.5p	3.4p	+3%
Net assets at 30 June	£660m	£639m	+3%
IFRS NAV and EPRA NTA per share[3]	120.1p	116.4p	+3%

Operational

	At 30 Sept 2023	At 30 June 2023	At 30 June 2022	Year-on-year change
Number of completed homes	5,129	5,080	4,786	+6%
Estimated rental value ("ERV") per annum	£57.6m	£55.0m	£47.8m	+15%
Number of contracted homes	395	444	693	-36%
ERV per annum	£3.1m	£3.8m	£7.2m	-47%
Completed and contracted sites	71	71	68	+4%
ERV per annum of completed and contracted sites*	£60.7m	£58.8m	£55.0m	+7%
Rent collected (as a percentage of total rent invoiced for the period)	98%	99%	99%	-

*based on all completed units being occupied/income producing

·      Net asset value increased to £660m/120.1p per share at 30 June 2023 (2022: £639m/116.4p per share), underpinned by strong ERV growth

-     as at 30 June 2023, ERV was estimated to be £5.1m higher than passing rent (2022: £2.7m higher), another indicator of the strong rental market

-     EPRA NTA increased by 3% to 120.1p per share (2022: 116.4p)

·      Portfolio grew by 294 homes over the year to 5,080 completed homes at 30 June 2023, up 6% (2022: 802 new homes added; 4,786 completed homes)

-     ERV of the 5,080 homes is up to £55.0m p.a. (2022: 4,786 homes with ERV of £47.8m)

-     further 444 homes with an ERV of £3.8m p.a. were under way at 30 June 2023 

·      As at 30 September 2023 the ERV of the completed and contracted homes was £60.7m p.a.

·      Decrease in operating profit to £58.9m (2022: £127.0m) reflects the lower gains from fair value adjustments on investment property compared to the prior year - £25.4m vs. £99.7m

-     ERV continued to grow strongly in FY23

-     yields softened in FY23 to 4.47% from 4.13% while FY22 saw yields tighten from 4.3% to 4.13%

-     yield movements in FY23 have however been more than offset by the increase in ERV

·      Completed assets continued to perform strongly over the year:

-     rent collection at 99% for FY 2023 (2022: 99%)

-     occupancy at 97% at 30 June 2023 (2022: 98%) 

-     gross arrears at £1.0m at 30 June 2023 (30 June 2022: £0.6m)

-     like-for-like blended rental growth^[4] of c.7% over the year on stabilised sites (where all units were completed and either all, or nearly all, had been let at the end of the comparative period)

o  re-lets to new tenants achieved c.12% rental growth (2022: c.10%)

-     affordability (average rent as a proportion of gross household income) very strong at 22% as at 30 June 2023 (2022: 25%)

-     continued high levels of customer satisfaction - 98% of tenants surveyed six months into their tenancy stated they were happy with their home (2022: 95%)

-     property costs were well managed - small increase to 19.1% (2022: 18.2%) mainly reflected the increased number of assets out of warranty and the slightly older age of the portfolio

·       Average net investment yield on the portfolio softened to 4.47% (30 June 2022: 4.13%)

·      EPRA loan to value ('LTV') on portfolio low at 37% (2022: 34%)

·      Approx. 82% of the current £427m of investment debt is fixed at an average interest rate of 3.8% (post July 2023 re-financing)

·      Adjusted EPS, excluding amortised debt costs but including non-utilisation fees, was 3.5p (2022: 3.4p)

·      Total dividends of 4.0p per share declared (2022: 4.0p)

Outlook

·      Target dividend of 4.0p per share for FY24; this is expected to be covered on a run-rate basis during FY24 with YTD coverage at a run rate of 90%

·      Q1 FY24 (three months to 30 September 2023 - portfolio performance remains very strong

-     portfolio expanded to 5,129 completed homes, with  ERV of  £57.6m p.a. at 30 September 2023

-     further 395 homes with an ERV of £3.1m p.a. under way

-     occupancy high at 98%

-     rent collection very strong at 98%

-     like-for-like rental growth of 9.8%

-     affordability (average rent as a proportion of gross household income) excellent at 22%

·      Once all the existing sites are completed and homes let, the portfolio will comprise over 5,500 homes, with ERV of £60.7m p.a.

·      Prospects remain very positive

-     supported by structural shortage of quality family rental homes in the UK; the number of properties available to rent is at a 14-year low^[5] 

-     under supply exacerbated by private landlords exiting rental market, weak sales market and rising rental demand

-     Propertymark reported in September 2023 that the number of new applicants registered in August per member branch was up by 32% year-on-year and that the number of properties available to rent per member branch in August was an average of 11, unchanged on the same month a year ago

-     British Property Federation reported in July 2023 that only c.9,200 suburban built-to-rent homes were in planning and c.9,100 units were under construction

Steve Smith, Chairman of the PRS REIT, commented:

"The PRS REIT remains a leader in the single-family rental sector. Almost 300 new rental family homes were added to the portfolio during the financial year, with a further 49 added over the first quarter of the new financial year. This has taken the number of completed homes in the portfolio at the end of September to 5,129. 

"Our homes continue to rent extremely strongly. Our developments are attractive places in which to live, and are well-located. They are affordable - tenants' average spend on rent is currently 22% of gross household income, and we pay significant attention to customer service.

"We are well-advanced in the delivery of an initial portfolio of around 5,500 homes, providing over £1 billion of assets with an anticipated rental income stream of over £60 million a year.

"Our model is highly resilient. Following our debt refinancing in July, more than 80% of our long-term investment debt is at favourable fixed rates for an average 16 years, and the portfolio gearing is low at 37%.

"Prospects are very positive. The structural shortage of high-quality rental homes in the UK and rising demand place the Company in a strong position. Our high-quality, professionally-managed, single-family rental homes are helping to fix an urgent social problem."

For further information, please contact:

The PRS REIT plc Steve Smith, Non-executive Chairman	Tel: [phone] (c/o KTZ Communications)
Sigma PRS Management Limited Graham Barnet, Mike McGill	Tel: [phone]
Singer Capital Markets Securities Limited James Maxwell, Asha Chotai (Investment Banking) Alan Geeves, James Waterlow, Sam Greatrex (Sales)	Tel: [phone]
Jefferies International Limited Gaudi Le Roux, Tom Yeadon Harry Randall, Ollie Nott	Tel: [phone]
G10 Capital Limited (part of the IQEQ Group as AIFM) Paul Turner	Tel: [phone]
KTZ Communications Katie Tzouliadis, Robert Morton	Tel: [phone]

NOTES TO EDITORS

About The PRS REIT plc
www.theprsreit.com    

The PRS REIT plc is a closed-ended real estate investment trust established to invest in the Private Rented Sector ("PRS") and to provide shareholders with an attractive level of income together with the potential for capital and income growth. The Company has investment of over £1bn in a portfolio of high-quality homes for private rental across the regions, having raised a total of £0.56bn (gross) through its Initial Public Offering, on 31 May 2017 and subsequent fundraisings in February 2018 and September 2021. The UK Government's Homes England has supported the Company with direct investments. On 2 March 2021, the Company transferred its entire issued share capital to the premium listing segment of the Official List of the FCA and to the London Stock Exchange's premium segment of the Main Market. Now comprising over 5,000 build-to-rent homes, the Company believes its portfolio is the largest build-to-rent single-family rental portfolio in the UK.

LEI:  21380037Q91HU97WZX58

About Sigma Capital Group Limited
www.sigmacapital.co.uk

Sigma Capital Group Limited ("Sigma") is a PRS, residential development, and urban regeneration specialist, with offices in Edinburgh, Manchester and London. Sigma's principal focus is on the delivery of large-scale housing schemes for the private rented sector. The Company has a well-established track record in assisting with property related regeneration projects in the public sector, acting as a bridge between the public and private sectors.

Sigma has created an excellent property procurement and management platform, which sources sites and brings together construction resource to develop them, enabling Sigma to deliver an integrated solution to partners. As well as sourcing sites and managing all stages of the planning and development process, Sigma manages the rental of completed homes through its award-winning rental brand 'Simple Life'. The Company's subsidiary, Sigma PRS Management Limited, is Investment Adviser to The PRS REIT plc.

About Sigma PRS Management Limited

Sigma PRS Management Limited is a wholly-owned subsidiary of Sigma Capital Group Limited and is Investment Adviser to The PRS REIT plc. It sources investments and operationally manages the assets of The PRS REIT plc and advises the Alternative Investment Fund Manager ("AIFM") and The PRS REIT plc on a day-to-day basis in accordance with The PRS REIT plc's Investment Policy. The AIFM is G10 Capital Limited. Sigma PRS Management Ltd is an appointed representative of G10 Capital Limited, which is authorised and regulated by the Financial Conduct Authority (FRN:648953).

Chairman's Statement

Introduction

I am pleased to present The PRS REIT plc's (the "PRS REIT", or the "Company" or the "Group") audited financial results for the year ended 30 June 2023. The Company's portfolio of completed rental homes continues to perform very well and, in the second half of the financial year, passed the milestone of 5,000 homes. The Group is now over 90% through its current delivery programme.

Largest portfolio of single-family rental homes in the UK

The PRS REIT's portfolio remains the largest portfolio of single-family rental homes in the UK. During the year, a total of 294 new rental homes were added to the portfolio, taking the number of completed homes by the financial year-end to 5,080 (30 June 2022: 4,786 completed homes), a 6% increase. A further 444 homes were contracted at that date and were at varying stages of the construction process.

The estimated rental value ("ERV") of the 5,080 completed homes is £55.0 million per annum (30 June 2022: £47.8 million per annum on 4,786 completed home), a 15% rise. The percentage increase in rental value over the year compared to the percentage increase in the number of completed homes over the same period mainly reflects rental growth over the period. The 444 homes under way have an ERV of £3.8 million per annum.

The portfolio's assets are predominantly spread across the major regions of England. At 30 June 2023, there were 71 sites in total (2022: 68 sites) ranged across the North-West, North-East, Yorkshire, the Midlands, the South-East (excluding London) and East of England, with one site in North Wales and another in Central Scotland.

The ERV of our portfolio, some 5,500 homes in total, including those still in the delivery process, is around £60.7 million per annum. 

Strong asset performance

The PRS REIT's assets performed extremely strongly throughout the financial year. Occupancy and rent collection (measured as rent collected relative to rent invoiced in any given period) remained high, with rent collection at 99% (2022: 99%) and occupancy at 97% at 30 June 2023 (2022: 98%), with 4,932 homes occupied out of 5,080 completed homes. Including those homes where a letting had been agreed, but occupancy had not commenced, occupancy was 98% (2022: 99%). 

Like-for-like rental growth over the year on stabilised sites (where all units were completed and let, or nearly all let at the end of the comparative period) was 7.5%. This reflects a blended growth rate of c.12% on re-lets to new tenants and c.7% on renewals with existing tenants. Gross rent arrears remained modest despite the growth in the portfolio, standing at £1.0 million at 30 June 2023 (2022: £0.6 million). 

Homes remain very affordable. The portfolio's affordability ratio, measured as average rent as a proportion of gross household income, is currently at 22% (2022: 25%). This is significantly better than Homes England's guidance that rent should be less than 35% of tenants' gross household income. It reflects both the strong tenant base and wage increases. 

Net rental income over the financial year increased by 17% to £40.2 million (2022: £34.3 million). The rise was driven by a combination of a full year's rental income on properties that had been completed and let part-way through the prior financial year, increased unit numbers and rental growth. 

The portfolio's outstanding asset performance to date demonstrates the continuing market need for high-quality family rental homes. Supply side issues have worsened over the year, with private landlords continuing to exit the market, while demand has been further fuelled by rising interest rates and general economic uncertainty. These factors have put further obstacles in place for potential homeowners.

In its latest Housing Insight Report, published in September 2023, Propertymark, the leading professional body for estate and letting agents, commercial agents, auctioneers, valuers and inventory providers, stated that the number of new applicants registered in August 2023 per member branch was up by 32% year-on-year, and that the number of properties available to rent per member branch in August was an average of 11, unchanged from August 2022. This "remains drastically below what is needed to keep up with current demand". Propertymark expects this gap to widen as more people come to the market to look for a home with very few properties available to rent. Research by TwentyCi, which provides UK residential property data, shows that the number of UK homes available to rent has dropped to a 14-year low. The Company's experience of tenants bidding above asking prices to secure rental property reflects this mismatch of supply versus demand.

The Company's Investment Adviser's Report provides further commentary on housing delivery and asset performance over the year.

Financial Results

Revenue, which is generated wholly from rental income, increased by 18% year-on-year to £49.7 million (2022: £42.0 million). This reflected a combination of the increase in the portfolio and strong rental growth. Non-recoverable property costs rose slightly to 19.1% of revenue (2022: 18.2%), mainly reflecting the increasing number of assets out of warranty and marginally increased maintenance costs. After these were deducted, net rental income for the financial year was £40.2 million (2022: £34.3 million), an increase of 17% year-on-year. 

Expenses in the year rose to £8.3 million (2022: £7.5 million) as the portfolio grew, with the increase also reflecting some cost inflation.

The gain from the fair value adjustment on investment property reduced significantly, as expected, to £25.4 million (2022: £99.7 million) and reflects the combined impact of ERV and average net investment yield movements.

ERV on completed and let properties at 30 June 2023 was approximately £5.1 million (2022: £2.7 million) higher than passing rent, and reflects continuing demand for the Company's product. The fair value of investment property is based on the valuer's estimate of ERV rather than actual passing rent.

Operating profit decreased by 54% to £58.9 million (2022: £127.0 million), which reflected the expected decrease in gains from fair value adjustments on investment property. These gains are non-cash items.

Finance costs were higher at £16.5 million (2022: £11.1 million) as the Company drew down and utilised the variable rate LBG / RBS investment debt facility during the year. The movement in interest rates over the period of 3.75% (from 1.25% in June 2022 to 5.0% in June 2023) applied to the average balance of floating rate investment debt drawn, resulted in an increase in the interest expense of c.£2 million, which negatively affected EPS by 0.4p. The impact of the increase in interest rates in the period was mitigated by the quantum of lower cost fixed rate investment debt with Scottish Widows. Finance income from short-term deposits in the year was £49,000 (2022: £4,000), again reflecting the increase in interest rates during the financial year.

Profit after taxation decreased by £73.4 million or 63% to £42.5 million (2022: £115.9 million) while basic and diluted earnings per share reduced by the same proportion to 7.7p (2022: 21.4p) on an IFRS basis.

The Group's IFRS net asset value ("NAV") per share and EPRA net tangible asset ("NTA") per share at 30 June 2023, both increased to 120.1p (31 December 2022: 117.1p and 30 June 2022: 116.4p). This is a year-on-year increase of 3% and a 3% increase over the prior six months. 

Net assets at 30 June 2023 were 3% higher year-on-year at £660 million (30 June 2022: £639 million).  This is after paying dividends of £22.0 million in the year (2022: £21.4 million).  

Dividends

For the year to 30 June 2023, aggregate dividends of 4.0p per share were declared and paid to shareholders (2022: 4.0p per share). Including the dividend paid on 1 September 2023, total dividends paid since the Company's inception in May 2017 amount to 26.0p per share.

The year's dividend of 4.0p was almost fully covered on a run-rate EPRA EPS basis at the end of the financial year. Dividend cover will continue to grow as construction, completions and lettings advance. The Company is targeting a dividend of 4.0p per share for the new financial year ending 30 June 2024. This is expected to be covered on a run-rate basis during FY24.

Debt Facilities

The Company had £440 million of committed debt facilities available for utilisation as at 30 June 2023.  This comprised £400 million of investment debt facilities and £40 million of development debt facilities. Just after the financial year-end, the total was increased to £460 million (£427 million of investment debt facilities and £33 million of development debt facilities) following a debt refinancing process, which is detailed below.

Debt refinancing

At the beginning of July 2023, the Company completed the refinancing of its £150 million revolving credit facility ("RCF") provided by The Royal Bank of Scotland plc ("RBS") and Lloyds Banking Group plc. A £102 million fixed-rate debt facility was agreed for 15 years with Legal and General Investment Management and a £75 million floating-rate debt facility was agreed for two years with RBS. The latter facility provides the Company with the flexibility to refinance this element at a potentially lower rate over the two-year term of the loan. An interest rate cap was also put in place on the floating rate debt in order to hedge against downside risk on further interest rate movements.

Approximately two-thirds (£115 million) of the total debt of £177 million was immediately deployed, specifically the entire £102 million fixed-rate facility and £13 million of the floating-rate facility, to fund already completed and stabilised sites. The balance of floating-rate debt (£62 million) is expected to be drawn down to fund sites completing and stabilising before the end of calendar year 2024.   

Separately, the Barclays Bank PLC development debt facility of £40 million was reduced to £33 million in September 2023.

The PRS REIT now has total fixed long-term debt facilities of £352 million, with an average blended interest rate of 3.8%. This compares favourably with the average net investment yield of 4.47% as at 30 June 2023.   

·       Approximately 82% of the Company's overall debt is now covered by long-term facilities, which have an average term of 16 years. This compared to 63% of overall debt previously covered by long-term facilities, with an average term of 17 years.

·       The two new facilities have significantly lengthened the maturity of the Company's overall debt facilities.

·      The average term for all debt has increased to 13.7 years at 30 June 2023, from 10.9 years at 31 December 2022.

·       Future annual debt amortisation costs will also reduce, reflecting lower arrangement fees and a longer period of amortisation.

Following the refinancing, 82% of the £427 million of investment debt is fixed rate at an average of 3.8%.

Approximately £390 million of debt facilities have been drawn to date, with the remainder presently forecast to be utilised over the next 18 months as the current phase of construction finishes and homes are let.

The portfolio's gearing remains low at 37% EPRA LTV (2022: 34%), and, as determined by the Company's Investment Policy, the debt facilities are subject to the maximum gearing ratio of 45% of gross asset value. Our lending partners are: Scottish Widows (£250 million); Legal and General Investment Management (£102 million); The Royal Bank of Scotland plc (£75 million); and Barclays Bank PLC (£33 million). The latter £33 million debt facility is available to be drawn as development debt, which enables multiple sites to be developed simultaneously.

Environmental, Social and Governance ("ESG") Practices

The PRS REIT is a member of the UK Association of Investment Companies and applies its Code of Corporate Governance to ensure best practice in governance.

The Board is responsible for determining the Company's investment objectives and policy and has overall responsibility for the Company's activities. This includes the review of investment activity and performance.

The Board delegates the day-to-day management of the business, including the management of ESG matters, to the Investment Adviser, Sigma PRS Management Ltd ("Sigma PRS"), which is also a signatory and participant of the United Nations Global Compact. Sigma PRS is a subsidiary of Sigma, part of PineBridge Investments, a private, global asset manager with over US$140bn in assets under management at June 2023.

Details of ESG policies and activities are contained in the Investment Adviser's Report.

Board Changes

We are delighted to announce the appointment of Karima Fahmy as an Independent Non-Executive Director. She succeeds Jim Prower, who will be retiring from the Company at the forthcoming Annual General Meeting on 4 December 2023. On behalf of the Board, I am pleased to welcome Karima and to thank Jim for his valuable contribution over his tenure as a non-executive director.

Karima is a corporate lawyer with extensive experience of the UK property market. She worked at Grosvenor Group ("Grosvenor"), the international property group, latterly as General Counsel until 2020. She was a member of Grosvenor's UK Executive Committee, and was involved in all aspects of Grosvenor's property business, advising on a range of ventures, including  new community schemes and placemaking projects. Prior to that, she worked  at Hogan Lovells, the global law firm, advising both listed and unlisted companies. She is also Non-executive Director of Latimer Developments Limited and of BCP FuturePlaces Limited.  Latimer Developments Limited is the development arm of the Clarion Housing Group, the UK's largest housing association,  and BCP FuturePlaces Limited is the urban regeneration company created by Bournemouth, Christchurch and Poole (BCP) Council. 

In addition, Karima is an Independent Board Member of University of Cambridge Property Board and Non-executive Director of Bournemouth University. She is a trustee of United Learning Trust, a schools group, a trustee of Clarion Futures, Clarion Housing Group's charitable foundation, and trustee of Great Ormond Street Hospital's Children's Charity, where she is also a Member of its Property & Development Committee.

On 21 March 2023, the Board was pleased to appoint Geeta Nanda, an existing non-executive director as Senior Independent Non-executive Director.

Outlook

During the first quarter of the new financial year, 49 new homes were added to the portfolio, taking the total number of completed homes at 30 September 2023 to 5,129. The ERV of completed homes has increased accordingly to £57.6 million per annum (30 September 2022: 4,856 completed homes with an ERV of £49.4 million per annum).

Asset performance remains strong. Rent collection in the first quarter was 98% (2022: 99%) and total occupancy was at 98% at the end of September (30 September 2022: 98%), with 4,995 homes occupied out of the total of 5,129. A further 68 homes were reserved for applicants who had passed referencing and paid rental deposits. Total arrears at 30 September 2023 were low at £1.1 million. Like-for-like blended rental growth on stabilised sites was 9.8%.

We are targeting a total dividend of 4.0p per share* for the new financial year, and will declare the interim dividend for the first quarter of the financial year in November 2023.

As ever, my fellow Directors and I would like to express our thanks to all involved in the creation and management of this pioneering venture in the single-family homes rental market. This includes our investors, housebuilding partners, financiers and supporters in government. The PRS REIT is providing much needed housing for families and individuals and forging a new direction for the UK's housing market. 

As we have said previously, the business model remains firmly supported by market fundamentals.  Population growth, changing household formations and low new housing volumes continue to drive demand. Our homes are built to be attractive and comfortable and are well-located and professionally managed. We expect them to continue to rent very well into the future. The July debt refinancing has provided a high degree of certainty over financing costs.

The PRS REIT is a market leader and the Board remains confident about prospects, with affordability - average rent as a proportion of gross household income - and asset performance both very strong.

Steve Smith

Chairman

*This is a target only and there can be no assurance that the target can or will be met and should not be taken as an indication of the Company's expected or actual future results. Accordingly, potential investors should not place any reliance on this target in deciding whether or not to invest in the Company or assume that the company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable.

IFRS and EPRA Performance Measures

Under the European Real Estate Association ("EPRA") best practice recommendations ("BPR") for financial disclosures by public real estate companies, three measures for reporting net asset value are available, EPRA Net Tangible Assets ("NTA"), EPRA Net Reinstatement Value ("NRV"), and EPRA Net Disposal Value ("NDV").

The Group considers EPRA NTA to be the most relevant measure for its operating activities, and has adopted this as the Group's primary measure of net asset value.

EPRA NRV is not considered an appropriate disclosure measure for the PRS REIT as the Group has acquired, constructed and developed the vast majority of assets and this would therefore equate to adjusted historic construction cost.

The valuation of the Group's assets is undertaken in accordance with RICS guidance. However, this does not include any adjustment to reflect the size and scale of the Group's overall portfolio of assets. The Board's view is that collective marketing of the portfolio would attract a higher valuation reflecting yield compression attributable to the size and scale of the overall portfolio. In the absence of comparable market evidence for such a portfolio, EPRA NDV is not considered an appropriate measure.

KPI	Explanation	Performance
		Year to 30 June 2023	Year to 30 June 2022
IFRS NAV (see note 9)	Unadjusted net asset value.	120.1p per share	116.4p per share
EPRA NTA (see note 9)	EPRA Net Tangible Asset is net asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term property business model.	120.1p per share	116.4p per share
IFRS EPS (see note 5)	Unadjusted earnings per share.	7.7p per share	21.4p per share
EPRA EPS (see note 5)	Earnings per share excluding investment property revaluations, gains and losses on disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation.	3.1p per share	3.0p per share
EPRA Earnings (see note 5)	EPRA Earnings is a measure of operational performance and represents the net income generated from the operational activities excluding changes in value of investment properties.	£'000 17,099	£'000 16,162

Market Dynamics

The growth opportunity available in the UK Build-to-Rent ("BTR") sector is significant. While the market continues to grow, the total number of BTR homes built in the UK remains very modest. In a report on UK BTR published in September 2021^[6], JLL, a global commercial real estate and investment management company, concluded that the sector has potential to increase 10 times in size if it achieves equivalence with the US market.

The British Property Federation in July 2023^[7] reported that the number of BTR homes in the UK, completed, under construction or in planning, stood at 253,402 at 30 June 2023.  This represented an increase of 12% on 2022. Of these 253,402 BTR homes at 30 June 2023, around 35% (c.88,100) were built, 21% (c.53,500) were under construction, and 44% (c.111,800) were in planning.

In addition, the report showed that the overwhelming number of BTR homes built remains in urban, rather than suburban settings, and are flatted rather than single-family homes, which is the PRS REIT's focus. The number of urban BTR homes in planning stood at around 103,000 against around 9,200 suburban BTR homes in planning. The report also showed that the UK single-family rented housing sector is growing but that numbers are small, with nearly c.28,000 homes at the end of June 2023, of which c.9,600 were complete, c.9,100 units under construction and c.9,200 in the planning pipeline.

The total number of rental properties in the UK has not increased significantly since 2016 although demand for rental accommodation continues to rise. According to Zoopla, a leading UK aggregator of property listings, the ongoing chronic imbalance between supply and demand has pushed rents higher across all parts of the UK. It forecasts continued demand and rental inflation into H2 2023^[8].

Landlords in the buy-to-let sector, still the largest provider of rental properties in the UK, have been under greater pressures and confidence is low, according to the National Landlords Association. Its Landlord Confidence Index in Q1 2023^[9] showed landlord confidence at -28 (the negative number indicating more landlords are negative about the next twelve months than are positive). It stated that the record proportion of landlords who had increased rents in the last twelve months are doing so for negative reasons, including the pipeline of regulatory changes and in response to cost inflation and rising interest rates.

Private landlords have faced greater pressures since 2016, when an extra 3% was added on stamp duty for additional home purchases. This was followed by reform on mortgage interest rate relief. Proposed rental reform measures in the Government's Renters (Reform) Bill have further added to pressures on private landlords. These include the proposed abolition of fixed-term tenancies and reform of the grounds for repossession. The Government's proposed change to increase the minimum energy efficiency standard that a rental property must reach before it can be legally let, from EPC E to EPC C, and higher interest rates gave further cause for concern for private landlords, although the minimum energy efficiency standard proposal was subsequently dropped in September 2023.

According to the National Landlords Association^[10], even though rental demand is high, the proportion of landlords looking to reduce their portfolio over the next twelve months continues to rise and landlords "planning to sell" are now at record highs, with 30% planning to cut the size of their portfolios. Hamptons, the property consultancy, reports that 140,000 landlords left the sector last year and expects the run-rate of landlords leaving the sector to be 100,000 per year for the next five years.

Challenges to home ownership have not eased, further fuelling rental demand. Increased interest rates have created new pressures for prospective homeowners wishing to purchase their first home and for homeowners with mortgages due for renewal. The median house price to income ratio, according to the Office for National Statistics^[11]  is currently 8.16, and on 4 August 2023, the average interest rate on a two-year fixed mortgage was 6.85% according to financial data provider, Moneyfacts, with the average rate on a five-year fixed mortgage at 6.35%. By comparison, the PRS REIT's homes remain very affordable. At 30 September 2023, the average household income of a PRS REIT tenant was £51,000 (30 September 2022: £41,000) and the average rent was £934 per calendar month (2022: £849), meaning that rent as a proportion of household income was 22% (2022: 25%). We believe that it is reasonable to assume this improvement reflects a combination of wage inflation and the emergence of a wealthier cohort of disenfranchised would-be home buyers.

In summary, it is clear that the market opportunity in BTR remains significant and that the sector remains an important means of fulfilling a social need and meeting demand for high-quality, well-managed rental housing in the UK.

Private Rented Sector Reform

In June 2022, the Government published a policy paper, which set out its long-term vision for the private rented sector. Titled "A fairer private rented sector"^[12], it contained plans to fundamentally reform the private rented sector in the country and level up housing quality. Subsequently, in May 2023, the Government introduced the Renters (Reform) Bill to Parliament.  

The Bill is little changed from the 2022 policy paper, which we reported on in June 2022. We are in favour of proposals that support the rights of tenants to a decent home while also supporting responsible landlords. As a professional landlord, the PRS REIT is in the market for the long-term and does not view the Bill as likely to impact adversely the Company's operations.

Portfolio Analysis

As at 30 June 2023, the value of the Group's completed property portfolio was £1 billion (2022: £962 million). The investment value of all sites at that date was £1.1 billion on completion (2022: £1 billion) with their current ERV at £58.8 million (2022: £55 million).

Property Portfolio by Regional Split - at 30 June 2023

The portfolio is geographically diversified and the regional split by investment value at 30 June 2023 was as follows:

·      North West 51% (2022: 52%);

·      West Midlands 21% (2022: 21%);

·      South East 11% (2022: 12%);

·      Yorkshire 11% (2022: 9%);

·      North East 3% (2022: 3%);

·      Wales 2% (2022: 2%); and

·      Scotland 1% (2022: 1%).

Other Metrics - at 30 June 2023

·      Rent roll: the rent roll at 30 June 2023 was £55.0 million (2022: £47.8 million) and the average rent was £10,831 per annum or £903 per month (2022: £10,004 per annum or £834 per month).

·      Average size of site: the average size of site was 74 (2022: 78) housing units.

·      Properties by bedroom number: the split between 1, 2, 3 and 4-bed properties was approximately 3%, 26%, 62% and 9% respectively (2022: 3%, 26%, 62% and 9% respectively).

·      Housebuilder relationships: the split for units under construction was - Countryside 96%, Vistry 3%, and Seddon 1% (2022: Countryside 86%, Vistry 8%, Seddon 5%, and EQUANS (formerly Engie) 1%). 

·      Gross-to-net: the deduction from gross to net rent across the portfolio for the year ended 30 June 2023 was 19.1% (2022: 18.2%).

·      Bad debt: bad debts expense for the year was £0.2 million (2022: £0.4 million) and the bad debt provision at the year-end was £0.5 million (2022: £0.3 million) reflecting a prudent approach in the current economic climate.

Age Groupings

The largest age grouping across the customer base at the time of sampling on 30 June 2023 was 26-35 years.  This age group represented 47% of the total customer base, and was also the largest group in 2022 although it accounted for a lower proportion of the total customer base at 38%. All other age groups are broadly in line with 2022, with the exception of those aged 65 years and over, where the proportion of residents has reduced by almost half from a low percentage.

Age	2023	2022
Under 25	22%	23%
26-35	47%	38%
36-45	18%	21%
46-55	8%	10%
56-65	4%	6%
65+	1%	2%

Household Income Bracket

Across the mid ranges of household incomes, 2023 groupings are similar to 2022, although there is a notable rise in households above the £45,000 gross income bracket.

The greatest changes between 2023 and 2022 are in the lowest and highest income brackets. There has been a decrease of c.50% in the lowest income households, earning £25,000 or less. This grouping has reduced to 12% of households over the course of the year. We assume that rising rents have impacted those on the lowest incomes. Households with income of £65,000 and over have increased to over a quarter of the customer base and households in the income bracket £55,000 - £65,000 have also risen sharply year-on-year. We believe that this reflects would-be home buyers turning to the rental market as interest rates have risen and constrained mortgage affordability.

Annual Household Income	2023	2022
Under £25k	12%	25%
£25k-£35k	16%	16%
£35k-£45k	15%	18%
£45k-£55k	17%	13%
£55k-£65k	13%	8%
£65k+	27%	20%

Tenancies with Children

Approximately 40% of households included children. This is broadly unchanged from last year. It is reasonable to assume that some in the 26-35 year-old group are moving into the homes with the intention of starting a family, but the high volume of renters without children may indicate a tendency to defer or abandon family formation. The two largest groupings of tenants with children are those with two or four children. This is similar to the prior year.

Children	2023	2022
None	60%	58%
One child	5%	9%
Two children	18%	17%
Three children	2%	3%
Four+ children	15%	13%

Distance Travelled

The distance travelled by tenants from their previous address to their new 'Simple Life'^[13] home is also recorded. The two largest categories are those travelling less than 3 miles and greater than 50 miles. As the brand is nationwide, we believe that this shows increasing brand awareness and that the model for site selection in and around major conurbations is capturing residents moving for employment reasons.

Distance Travelled	2022	2022
<3 miles	27%	24%
3-10 miles	23%	27%
10-50 miles	23%	22%
>50 miles	27%	27%

All 2023 statistics are based on new applicant data between July 2022 and June 2023. Both sets of data are based on successful applicants only reflective of the whole Simple Life Homes regional brand.

 

Investment Strategy and Business Model

AWARDS

Insider NW Residential Property Awards   Sustainability and Social Impact 2023   (Winner)   Property Week RESI Awards   Social Impact 2023   (Finalist) The Yorkshires    Best Large Development 2022 (Pullman Green)   (Winner)  The Herald Property Awards   Development of the Year 2022 (Bertha Park)   (Finalist)    Home Views Awards   Top Rated North East Development 2022 (Bracken Grange)   (Finalist)   Insider Midlands Property Awards   Large Development of the Year 2023 (Stonefield Edge)   (Shortlisted)   Love to Rent Awards   BTR Social Impact Award 2023   (Shortlisted)

Insider NW Residential Property Awards   Operator of the Year 2023   (Shortlisted)   Property Week RESI Awards   Landlord of the Year 2023   (Finalist)   The Yorkshires    ESG Excellence Award 2022 (Pullman Green)   (Shortlisted)  WhatHouse? Awards   Best Sustainable Development 2022 (Bertha Park)   (Winner)   Home Views Awards   Top Rated Midlands Development 2022   (Sutherland Grange, Silkin Green, Stonefield Edge, Wards Keep)   (Finalist)   Love To Rent Awards   BTR Tech Award 2023   (Shortlisted)   Love To Rent Awards   SFH BTR Development 2023 (Stonefield Edge)   (Shortlisted)

 

Business Activities

The PRS REIT plc is a public limited company incorporated in England on 24 February 2017. Together with its subsidiaries, it is the only quoted Real Estate Investment Trust ("REIT") to focus purely on the Private Rented Sector ("PRS").

The Company completed its IPO on 31 May 2017, raising initial gross proceeds of £250 million through the issue of 250 million ordinary shares of one pence each at an issue price of £1 each, and the shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. Since then, the Company has raised additional funds through two placings and through gearing, taking its total available resources to £983 million (gross). On 2 March 2021, the Company transferred its entire issued share capital to the premium listing segment of the Official List of the FCA and to the London Stock Exchange's premium segment of the Main Market.

Investment Objective, Policy and Business Model

The PRS REIT is seeking to provide investors with an attractive level of income, together with the prospect of income and capital growth, through the establishment of a large-scale portfolio of newly-constructed residential rental homes in or near towns and cities in the UK for the private rented sector.

The Company's scalable business model is able to deliver new homes across multiple geographies and sites. It utilises the Investment Adviser's PRS property delivery and management platform (the "Sigma PRS Platform").

The Company's portfolio of homes is targeted at the family market, which is the largest segment within the private rented sector. The Company has concentrated on traditional housing, with broad appeal across the demand spectrum, and its portfolio comprises differing house types, built to standardised specifications. They cater for different life stages, including smaller houses for young couples and retirees, and larger houses for growing families. The Company has also invested in some low-rise flats in appropriate locations to broaden its rental offering.

The Company's homes are located across multiple sites in the UK, outside London. Sites are predominantly in the Midlands and North, with locations chosen for their accessibility to main road and rail links, good primary schooling, and to centres of economic activity, which promote long-term employment prospects. The new-build nature of the assets means that they benefit from a 10-year building warranty, typically from the NHBC (National House Building Council), and manufacturers' warranties. Homes are let on Assured Shorthold Tenancies (as defined in the Housing Act 1988) to qualifying tenants.

The sourcing of assets is undertaken by Sigma PRS and the Company has been building its portfolio in two ways.

·      In the first instance, Sigma PRS has selected suitable development sites ("PRS development sites") which already have detailed planning permission and then agreed a fixed price design & build contract with one of Sigma PRS's construction partners. Sigma PRS then manages the delivery process on behalf of the Company.

Assets are acquired with detailed planning consent and fixed price design & build contracts, thereby minimising the Company's exposure to development risk. Construction risk has been further mitigated with standard fixed-price design & build contracts, containing liquidated damages clauses for non-performance, financial retentions for one year after completion, and a parent company guarantee ensuring the satisfactory performance by the contractor and an indemnity for losses incurred. Over three-quarters of the Company's assets have been sourced through this way.

·      In the second instance, assets have been acquired by entering into forward purchase agreements with Sigma Capital Group Limited ("Sigma"), the ultimate holding company of Sigma PRS. The assets are acquired once fully completed and let. Typically, they have been constructed by the same construction partners and supply chain as other assets whose development is described above, thereby ensuring homogeneity of the Company's housing stock. Completed and stabilised developments may also be purchased from other third-parties using approved construction partners.

In both instances, assets are acquired at the valuation provided by the independent valuer.  The PRS REIT retains the right-of-first-refusal to acquire and develop any sites sourced by Sigma PRS that meet the Company's investment objective and policy subject to the availability of funding.

Achieving Scale and Reducing Risk

The Sigma PRS Platform

The Investment Adviser has been utilising Sigma's well-established PRS property delivery and management platform to scale the PRS REIT's portfolio and to minimise development and operational risks. Specifically, the Sigma PRS Platform facilitates the efficient sourcing and development of investment opportunities. 

The Sigma PRS Platform comprises relationships with construction partners, central government, and local authorities. Key construction partners include Countryside Partnerships, Vistry, Seddon, and EQUANS (formerly Engie). Homes England, an executive non-departmental public body sponsored by the Ministry of Housing, Communities & Local Government, works closely with Sigma in the common goal of accelerating new housing delivery in England. 

All pre-development risks are identified and underwritten by Sigma and its partners, and development sites  have an appropriate certificate of title, detailed planning consent and a fixed price design & build contract with one of Sigma's housebuilding partners. During the construction phase, many of the properties are pre-let and subsequently occupied as they complete.

Through its wide network of relationships, the Sigma PRS Platform sources land for development sites, and has delivered a variety of high-quality house types efficiently and in volume. This underpins the PRS REIT's objective to build at scale and across multiple geographies.

Multiple Geographies

By creating assets across multiple locations and in different regions, the PRS REIT's concentration risk has been reduced. 

The Company has targeted a mix of locations, which demonstrate higher yielding profiles (predominantly those in the North of England) and/or greater potential for capital appreciation (often in the South of England). Proximity to good primary schools remains a key requirement, reflecting the Company's focus on family rental.

In addition, no investment has been made in any single completed PRS site or PRS development site that exceeds 10% of the aggregate value of the total assets of the Company at the time of commitment.

'Simple Life' Brand

The PRS REIT's rental homes are marketed under the 'Simple Life' brand. The brand has created an identity for the PRS REIT's product and aims to set a 'gold standard' in the private rented sector, by providing high-quality, sensibly-priced rental homes, which are supported by high customer service standards.

The PRS REIT's long-term approach to the ownership of its assets provides reassurance to residents that tenancies have longevity. The Group also actively fosters initiatives that help to create a sense of community within the Group's developments.

Investment Restrictions

The Group observes the following investment restrictions: 

·      the Group only invests in private rented residential houses and apartments located in the UK (predominantly in England);

·      the Group invests in assets that require development by means of the Group's forward funding model, (so long as when completed they fall within the Company's investment policy). However, it does not undertake development without planning consent being in place or if the gross committed (but unspent) construction costs to the Group of all such forward funded development exceeds 25% of the aggregate gross value of total assets of the Group at the time of commitment, as determined in accordance with the accounting principles adopted by the Group from time to time (the "gross asset value"). Any forward funded development will only be for investment purposes; 

·      in order to further manage risk in the portfolio, no investment by the Group in any completed PRS site or PRS development site exceeds 10% of the aggregate value of the gross asset value of the Group at the time of commitment); and

·      the Group does not invest in other alternative investment funds or closed ended investment companies.

Equity and Debt Financing

Three tranches of equity have been raised to date: £250 million (gross) at the Company's IPO on 31 May 2017; £250 million (gross) in February 2018; and £55.6 million (gross) in September 2021.

The PRS REIT utilises gearing to enhance equity returns. The level of borrowing is prudent for the asset class, whilst maintaining flexibility in the underlying security requirements and the structure of both the PRS portfolio and the Group. The Group has raised debt from banks and institutions, with equity from Homes England and the capital markets. In line with the Company's Investment Policy, the aggregate borrowings of the Group are always subject to an absolute maximum, calculated at the time of drawdown of the relevant borrowings, of not more than 45% of the gross asset value, although the Investment Adviser expects actual gearing to settle to around 40% following stabilisation of the portfolio. See further detail of debt facilities in the Investment Adviser's Report.

Derivatives

The PRS REIT uses derivatives for efficient portfolio management. In particular, the Company may engage in full or partial interest rate hedging or otherwise seek to mitigate the risk of interest rate increases on borrowings incurred, in accordance with the gearing limits as part of the management of the PRS Portfolio. In July 2023, as part of the debt refinancing process, an interest rate cap was put in place on the RBS £75 million floating rate debt to hedge against downside risk on further interest rate movements. This is in addition to the fixed-rate borrowings with Scottish Widows and Legal and General Investment Management.

REIT Status

The Company will conduct its affairs so as to enable it to remain qualified as a REIT for the purposes of Part 12 of the Corporation Tax Act 2010 (and the regulations made thereunder).

Investment Adviser's Report

Sigma PRS Management Ltd ("Sigma PRS"), a wholly-owned subsidiary of Sigma Capital Group Limited, is the Company's Investment Adviser.  It is pleased to provide a report on the PRS REIT's activities and progress for the year ended 30 June 2023 and to outline the portfolio's performance in the first quarter of the new financial year ending 30 June 2024.

Operational Review

Development Activity and Acquisitions

A total of 294 homes were added to the PRS REIT's portfolio in the financial year to 30 June 2023. This compared with 802 in the prior year and reflects the advanced stage of the rollout of the portfolio, with fewer sites under active development as the portfolio approaches maturity.

The total number of completed homes in the portfolio at the end of June 2023 stood at 5,080, an increase of 6% on the same point last year (2022: 4,786). The homes are located predominately across six of the eight major regions of England, and their combined estimated rental value ("ERV"), was £55.0 million per annum as at 30 June 2023. This is a 15% increase in the portfolio's estimated rental value over the year (30 June 2022: ERV of completed homes stood at £47.8 million per annum).

At the beginning of the year, four development sites were acquired. They are located in Warwickshire, Shropshire, South Yorkshire and Staffordshire, and when completed, will add a combined 97 new homes to the portfolio.

The Company's assets now reflect a difference between ERV, used for valuation, and actual passing rent paid by tenants. As at 30 June 2023, ERV was estimated to be £5.1 million higher than passing rent (2022: £2.7 million higher). This reflects the strength of demand for the Company's portfolio of assets. The fair value of the Group's investment properties as at 30 June 2023 is based on ERV as opposed to passing rent. All estimates were compiled independently by Savills.

The table below provides further information on development activity over the financial year, and includes data for the first quarter of the new financial year ending 30 June 2024, as well as comparative data for the financial year ended 30 June 2022.

	At 30 September 2023	At 30 June 2023	At 30 June 2022
Number of completed homes	5,129	5,080	4,786
ERV per annum of completed homes	£57.6m	£55.0m	£47.8m
Completed sites	63	63	58
Contracted sites	8	8	10
Number of contracted homes	395	444	693
ERV per annum of contracted homes	£3.1m	£3.8m	£7.2m

Construction Resource

The construction resource provided by the Sigma PRS Platform has national reach. It has underpinned the continued expansion of the Company to key population centres across the UK, primarily in England, and supported the creation of a geographically diverse portfolio.

There are many benefits for our construction partners in partnering with us. These include strengthening their ability to bid for land with local councils and improving operational efficiencies with their own housing delivery. This partnership approach works well and the model we operate of using standard family house types, fixed price design & build contracts, together with standardised specification, helps to ensure that developments are built to budget. The standardisation of housing type also means that completed assets can be maintained and managed more efficiently.

Financial Results

Income statement

The Group's revenue (which is wholly derived from rental income) increased by nearly 18% over the year to £49.7 million (2022: £42.0 million). After the deduction of non-recoverable property costs, the net rental income was £40.2 million (2022: £34.3 million). Administration expenses were slightly higher at £8.3 million (2022: £7.5 million).

The gain from the fair value adjustment on investment property was £25.4 million (2022: £99.7 million). The gain reflects a combination of higher ERV offset partially by the negative impact of higher yields in the current period as asset values move inversely to yield. As against the comparative period, the overall reduction in the level of the gain principally reflects a higher level of ERV growth during the prior year. Operating profit was £58.9 million (2022: £127.0 million).

Finance costs for the year were £16.5 million (2022: £11.1 million) reflecting the debt utilisation and associated costs during the year as well as an increase in interest rates on variable rate debt during the year. Finance income for the period from short-term deposits was £49,000 (2022: £4,000). The profit after taxation was £42.5 million (2022: £115.9 million).

The basic and fully diluted earnings per share on an IFRS basis for the year were 7.7p (2022: 21.4p).

Dividends

The total dividend for the financial year under review amounted to 4.0p (2022: 4.0p) per ordinary share, declared and paid quarterly as follows:

·      On 2 November 2022, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 July 2022 to 30 September 2022, which was paid on 30 November 2022 to shareholders on the register as at 11 November 2022.

·      On 7 February 2023, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 October 2022 to 31 December 2022, which was paid on 3 March 2023 to shareholders on the register as at 17 February 2023.

·      On 25 April 2023, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 January 2023 to 31 March 2023, which was paid on 26 May 2023 to shareholders on the register as at 5 May 2023.

·      On 2 August 2023, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 April 2023 to 30 June 2023, which was paid on 1 September 2023 to shareholders on the register as at 11 August 2023.

Balance Sheet

The principal items on the balance sheet are investment property of £1.0 billion (2022: £961.9 million), cash and cash equivalents of £13.2 million (2022: £48.7 million), long-term loans of £248.4million (2022: £246.7 million), short term loans of £126.7 million (2022: £100.0 million) and trade and other payables, accruals and deferred income of £20.1 million (2022: £32.0 million).

Investment property includes completed assets and assets under construction at fair value.

Debt Financing

At 30 June 2023, the PRS REIT had the following debt facilities:

·      £150 million revolving credit facility ("RCF") with Lloyds Banking Group plc / The Royal Bank of Scotland plc ("RBS") for an initial term of three years, extended to mid-July 2023. Interest was based on three-month Sterling Overnight Interbank Average Rate ("SONIA") plus applicable margin and the loan was secured over assets allocated to Lloyds Banking Group. As at 30 June 2023, £115 million had been drawn (2022: £85.4 million);

·      £100 million term loan of 15 years with Scottish Widows, fully drawn as at 30 June 2023 (2022: fully drawn) and maturing in June 2033. Interest is fixed at 3.1% and the loan is secured over assets allocated to Scottish Widows; 

·      £150 million term loan of 25 years with Scottish Widows, fully drawn as at 30 June 2023 (2022: fully drawn) and maturing in June 2044. Interest is fixed at 2.8% and the loan is secured over assets allocated to Scottish Widows; and

·      £40 million (2022: £40 million) development debt facility with Barclays Bank PLC, maturing in August 2025. Interest is based on three-month SONIA plus applicable margin and the loan is secured over assets allocated to Barclays Bank PLC. As at 30 June 2023, £12.1 million had been drawn (2022: £15.2 million drawn).

Post period debt refinancing

At the beginning of July 2023, the Company completed the refinancing of the £150 million RCF provided by RBS and Lloyds Banking Group plc. The RCF had been originally due to mature in February 2023 and was extended on substantially the same terms to mid-July 2023 (with an option to extend until October 2023).

A £102 million facility of fixed-rate debt for 15 years was agreed with Legal and General Investment Management, together with a £75 million floating-rate debt facility for two years with RBS. The floating-rate facility provides the Company with the flexibility to refinance this element of debt at a potentially more favourable rate during the two-year term of the loan. An interest rate cap was also put in place on the floating rate debt to hedge against downside risk on further interest rate movements.

The Company immediately deployed almost two-thirds (£115 million) of the revised facilities (specifically the entire £102 million fixed-rate facility and £13 million of the floating-rate facility) to fund already completed and stabilised sites. The balance of £62 million of floating-rate debt is expected to be drawn down to fund sites completing and stabilising before the end of calendar year 2024.   

In September 2023, the Barclays Bank PLC development debt facility was reduced from £40 million to £33 million.

Gearing on the portfolio remains low at 37% EPRA LTV. Approximately 82% of the £427 million of investment debt is now fixed rate at an average of 3.8%, which compares favourably against the average net investment yield for valuation purposes of 4.47%.

The PRS REIT's aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown of the relevant borrowings, of not more than 45% of the value of the assets. Although the aggregate debt facilities total £460 million, the £33 million Barclays Bank PLC debt facility can be drawn as development debt to enable a larger number of sites to be developed simultaneously. Following practical completion and stabilisation of lettings on sites partially funded by development debt, the assets are refinanced using the Company's longer-term investment debt facilities. On this basis, the total borrowings will not exceed the maximum gearing level of 45% highlighted above.

Key performance indicators

The Company's performance is tracked and the major key performance indicators ("KPIs") are shown below:

KPI	June 2023	June 2022	Change
Rental income (gross)	£49.7m	£42.0m	+18%
Average rent per month per tenant	£903	£834	+8%
Number of properties available to rent	5,080	4,786	+6%
Average net investment yield	4.5%	4.1%	+8%
Non-recoverable property costs as a percentage of gross rent (gross to net)	19.1%	18.2%	+5%
Fair value uplift on investment property	£25.4m	£99.7m	-75%
Operating profit	£58.9m	£127.0m	-54%
Earnings per share ('EPS')	7.7p	21.4p	-64%
EPRA EPS	3.1p	3.0p	+3%
Dividends declared per share in relation to the period	4.0p	4.0p	-
Dividends paid during the period	4.0p	4.0p	-

All the KPIs are in line with management expectations. Rental income increases, non-recoverable property costs, operating profit, and the number of properties available to rent reflect the increased size of the portfolio and the progression of development sites.

The valuation of the Group's property assets is based on five key drivers being, land purchase, cost to build, ERV, gross to net income deductions, and yield. Rental income, being passing rent receivable rather than ERV, and gross to net income deductions or operating costs, are the key factors in determining net income. Small variations in these can have a material impact on the valuation of property or the net income levels. These drivers therefore form the basis of the key performance indicators measured and monitored by the Company.

As the majority of the property assets are now complete and let, costs have already been incurred and the focus has moved to rental income, operating expenses and average net investment yield. Levels of rental income are dependent on the number of completions and annual rent levels set at the time of renewals and re-lets. Average rent of £903 per calendar month at June 2023 reflects growth of 8% over the average of £834 at June 2022 and is consistent with the like-for-like growth of 7.5% during the financial year.

The number of completed homes is the other key determinant of gross rental income. At the end of June 2023 the number of completed homes stood at 5,080, up by 294 from 4,786 at the same point in 2022. The delivery of the initial portfolio is nearing an end, with the majority of assets completed and let.

Operating expenses determine the quantum of gross rental income that is converted into net rental income.  This, in turn, determines the underlying profitability of the Group. In addition, the independent valuers utilise industry standard assumptions around long-term sustainable operating expenses in performing their valuation work. Monitoring actual operating expense levels against the industry standard assumptions is therefore key in assessing overall asset performance and re-affirming the assumptions utilised by the independent valuers. The prevailing level of operating expenditure of 19.1% (2022: 18.2%) is lower than the long-term sustainable assumption reflecting the age of the assets in the portfolio.

Valuation of the Group's property assets represents the largest component of the balance sheet. Movements in the valuation between balance sheet dates are therefore essential in understanding profitability through the income statement and asset strength on the statement of financial position. The valuation uplift during the year reflects a combination of the development surplus recognised on assets under construction together with the impact of the revaluation of the portfolio at the year end. The valuation uplift of £25.4 million (2022: £99.7 million) reflects the combined impact of ERV and average net investment yield movements. Over the financial year, ERV has grown from £47.8m to £55.0 million for completed homes, an increase of 15%, of which unit numbers account for only 6%, while the average net investment yield has softened from 4.13% to 4.47%. As asset values move inversely to yield, the ERV growth has more than offset the increase in net investment yield.

The portfolio's average rental affordability ratio (measured as rent paid as a proportion of gross household income) is very healthy at 22% in 2023 (2022: 25%). This is after like-for-like rental growth of 7.5% over the financial year on stabilised sites (2022: 5.1%). Like-for-like blended rental growth on stabilised sites is the annual rental growth on sites where all units have been completed and either all or nearly all have been let.

Post Period Review

Over the first quarter of the new financial year, 49 new homes were added to the portfolio, taking the number of completed homes at 30 September 2023 to 5,129, and the cumulative ERV of completed homes to £57.6 million per annum. At the end of September 2023, there were an additional 395 homes, with a combined ERV of £3.1 million per annum, under way. The portfolio's total ERV of completed and not-yet-completed homes therefore amounted to £60.7 million at 30 September 2023.

The Company continues to work with one of its principal house building partners to resolve a planning issue in respect of one of its sites. Further details can be found in Note 7.

The table below provides further information of delivery activity over the first quarter of the new financial year.

	At 30 September 2023	At 30 June 2023
Number of completed PRS homes	5,129	5,080
ERV per annum of completed homes	£57.6m	£55.0m
Number of contracted homes	395	444
ERV per annum of contracted homes	£3.1m	£3.8m

Resident feedback

All tenants receive a tenant satisfaction survey email one week into their tenancy and then approximately six months later. This helps the Investment Adviser to monitor tenants' experience with the lettings and moving-in teams and then again once settled into their tenancies. Tenants are also surveyed when renewing their tenancies.

The following table provides data based on tenant satisfaction results for the 12-month period from July 2021 to the end of June 2022, in comparison to results for the 12-month period from July 2022 to the end of June 2023.

		July 2021 - June 2022	July 2022 - June 2023
Move in survey	% of tenants who said the team made it easy to apply	93%	96%
	% who said they were kept well-informed during the application process	88%	89%
	% who said they received all the information they required	84%	91%
	% who said they would recommend 'Simple Life'	95%	96%
6-month survey	% of tenants who said they were still happy with their home	95%	98%
	% who said they were happy with the service provided	89%	89%
	% who said they felt they had been kept well-informed	83%	88%
	% who said they felt their Asset Manager was responsive and were satisfied with the service provided	76%	89%
	% who said the communal areas were well maintained	86%	84%
	% who said they feel part of a community	85%	85%
	% who said they felt their maintenance requests were fixed in a timely manner	76%	77%
	% who said they would recommend 'Simple Life'	94%	95%
Renewal survey	% of tenants who were happy with their 'Simple Life' experience so far	96%	96%
	% of people who renewed their tenancies because they love the property	49%	58%
	% who renewed because they love the area	40%	20%
	% who renewed because of the rent (value for money)	9%	5%
	% who renewed because 'Simple Life' offers a better service than a 'one-off' landlord	2%	17%
	% of people who see themselves staying with 'Simple Life' for 4 years or more	62%	58%
	% who see themselves staying for 3 years or more	78%	76%
	% who said they would recommend 'Simple Life'	91%	94%

All results are based on responses on a range from "neutral" to "strongly agree". Tenants are given the option to respond on a range from "disagree" to "strongly disagree", these responses are not included in the results reported above.

Overall the results from the latest survey are in line with those of the prior year, with the majority showing an improvement in customer satisfaction.

The biggest increase from the previous year was the feedback on Asset Management, with 89% saying their Asset Manager was responsive and that they were satisfied with the service provided (2022: 76%). This question was introduced last year to enhance insight and provide another measure of  asset manager performance across sites.

It is encouraging to see that across the three surveys the proportion of residents who would recommend Simple Life to friends and family has increased by 5% year-on-year.

The strength of the Simple Life brand continues to grow. Over the past 12 months the Simple Life website received c.1.6 million page views and over 16,000 enquiry submissions. The number of leads obtained through the website continued to exceed enquiries coming from third-party websites, such as Rightmove. Site signage, recommendation and online search continue to be the largest sources of enquiries of those coming through the Simple Life website.

Tenant Initiatives

Affordability and Energy Calculator

As reported previously, an affordability calculator, based on the Investment Adviser's referencing criteria, is built into the Simple Life website. It is designed as an aid to assist prospective residents to determine how much monthly rent they can afford relative to their earnings and outgoings.

Following the energy efficiency modelling that Sigma undertook last year, the Simple Life website now offers an energy efficiency calculator against our most common property types. Users are able to input their usage habits and property details to obtain an energy bill estimate. 

Rental Availability

The Simple Life website lists the availability of rental homes in real-time. As well as giving potential renters a better service, it also facilitates a more efficient uptake of homes. In 2023, an 'all-available properties' page was introduced, enabling users to view all available properties according to their search criteria. This also helps to give prospective residents an idea of comparable rental prices where a specific development has no live availability.

'My Simple Life' Mobile App

The bespoke resident mobile app, 'My Simple Life', which was launched in August 2021, provides a convenient and efficient 'one-stop shop' for residents' needs and is available on Google and Apple devices. It provides:

·      easy access to all important documents, including tenancy agreements, inventories, EPC, gas and EICR certificates;

·      information on homes, including floorplans and measurements;

·      information on home appliances, including manuals;

·      access to statements of account, with certain payments enabled via the app;

·      access to an open forum, enabling residents on the same development to engage with each other;

·      the ability to report maintenance problems;

·      exclusive affiliate offers and discounts;

·      latest news;

·      information on the local area; and

·      the ability to leave feedback.

New services were added to the app over the financial year. These included the following:

·      content presentation by property type (apartment or house);

·      a notification log;

·      a new meter-reading section, which enables residents to access meter readings and request new meter readings, including 'push' notifications when a new reading is ready to view; and

·      a dedicated health and wellbeing ("H&W") section. 

App enhancements that are scheduled over the coming year include functionality that will enable tenants to:

·      add images to forum topics and comments - particularly relevant for 'lost and found' inquiries and furniture swaps; and

·      upload health and wellbeing content to the H&W hub.

Affiliate Offers

The Investment Adviser has increased the range of affiliate offers that are available to tenants. These are promoted through the 'My Simple Life' mobile app. New offers agreed this year include discounts from Sparkling Cleaning, Sculpt Pilates, Grow Gorgeous, ESPA, Dot. (Professional Organisers), Wash Doctors, Virgin Wines, Simply Cook, Leaf Envy and Smol. These offers supplement existing affiliate offers from Oddbox, Sky, Argos, Dunelm, Wayfair, AO, Pretty Little Thing, Appleyard London Florists, and The Modern Milkman.

Podcast

The Investment Adviser's 'Simple Life Chat' podcast gained a new host this year, which was Capital Radio presenter, Russ Morris. He continues to address the experience of renting and explores topics of interest to residents, with experts and residents participating in discussions.

New Market Research Survey

The Investment Adviser monitors the rental market on behalf of the PRS REIT in order to enhance decision-making and identify opportunities. During the year, it commissioned a major piece of market research, which surveyed a broad cross-section of some 2,000 UK renters, including some of the Company's tenants, and was supplemented by two focus groups. Some interesting findings that emerged included the following:

·      the average age of a UK renter is 44 years;

·      the main reason for renting - reported by 71% of survey participants - is lack of ability to buy;

·      the average length of time participants had been renting was just under 7 years;

·      property location was a key factor for 89% of survey participants;

·      the average rent paid was £700 per calendar month;

·      home office space was cited as a requirement by 44% of participants, reflecting post-pandemic hybrid working patterns; and

·      environmentally-friendly features were sought by 61% of participants.

The market research report can be viewed online at www.theprsreit.com/company/the-private-rented-sector-marketplace/.

Online reviews

Simple Life is registered with Trustpilot and tenants are routinely invited to leave reviews. This helps the Investment Adviser to identify any areas that need improvement. There are over 750 reviews on Trustpilot and Simple Life achieved an overall rating of 4.2 stars out of 5.0. This is significantly above the average of 3.6 for the business category of Property Rental Agency.

Simple Life developments also feature on 'Home Views', a dedicated review website for housing developments. They have gained an average score of 4.28 out of 5.00 from approximately 750 resident reviews (with the BTR benchmark at 4.19). Nine Simple Life developments were rated above the industry benchmark for facilities, design, value and management.

Customer testimonials

A selection of customer testimonials are below.

"Just perfect. The layout of the greenery and roads are fantastic. We even recommended it so much we have friends moving in the area soon! The fact all the front gardens are looked after really helps us during our busy lives. Always kept well and the staff are so friendly."

Aimee (Newhall Resident) on Home Views

"I love the design of the houses. Having a kitchen that you can entertain in is a must for me. The downstairs toilet means no visitors are having to invade on your private space upstairs. The property is warm and I've hardly had to use the heating system although it's good to have a monitor in the bedroom for cold mornings. Any issues I have had I have been able to easily report them through the app and a contractor has been sent to fix the issue almost immediately."

Jade (Stanley Park Resident) on Home Views

"The apartments themselves are very well decorated and I have had a great time living here. The apartments are spacious, and I have had very few problems with the property, and when I have, these have always been resolved quickly by management. The furniture provided is very high quality and adds greatly to the apartment. They have been a very good landlord responding quickly to repairs and have enjoyed some of the organised activities such as free pizza for the opening of the communal garden."

Emily W (Empyrean Resident) on Home Views 

"The design of the house is superb, particularly the en-suite room. I really like that appliances are included with the property and the garden is fantastic! The property manager is easy to contact and they are quick to resolve an issue. Overall the property is outstanding."

Adam (Durban Mill Resident) on Home Views

"The development is lovely; everyone seems very friendly and are respectful to the space. The location is ideal as you are close to town but aren't in the centre of everything, which is ideal for me as I have a young baby. The house is gorgeous and Simple Life are very supportive when there are any maintenance issues."

Emily C (Beehive Mill Resident) on Home Views

"We are very happy with our house. It is perfect for our family and very clean and new. We have had great communication with the management team and if we have had a problem or something damaged, they work hard to get it fixed asap. Even the rent is very affordable. We are very happy with the location - it is a 20min walk to most areas and lots of parks for our kids."

Chris Webb (Silkin Green Resident) on Home Views

"I recently approached Simple Life with a view to renting a home. I spoke to a representative, Jade. She guided us through the process, made herself available at any time - nothing was too much trouble.  Such customer service is now rare I feel she must be such an asset to Simple Life."

Janet Wilkinson (Simple Life Resident) on Trust Pilot

"From moving into our new forever home, has been absolutely wonderful, Simple Life have made it stress free from the very start. I have a lot of health issues which they are aware of, especially Junior. He's been absolutely amazing and very helpful throughout. He is very considerate and compassionate when dealing with any issues I've had. Junior goes above and beyond to help guide me through everything in relation to Simple Life, I think personally every office needs a Junior, thank you so so much."

Dawn (Simple Life Resident) on Trust Pilot

"Simple Life do exactly what they say; they make renting simple. The home I rent is of outstanding specifications, maintenance is quick and easy and their app is really useful for tracking your rent account and logging repairs. Overall, Simple Life are an outstanding company who make renting simple!"

Adam (Simple Life Resident) on Trust Pilot

"The quality of the rental property provided by "Simple Life" Is truly impressive. The property is impeccably clean, well-maintained, and equipped with all the necessary amenities. It is evident that the company takes great pride in their properties, as everything is in excellent condition. I feel comfortable and at home from the moment I stepped through the door."

Ion Postolachi (Simple Life Resident) on Trust Pilot

Summary and Outlook

The PRS REIT's assets continue to perform very strongly as figures for the first quarter of the new financial year show. Demand remains high, occupancy very strong, rent collection extremely robust and affordability well within the guidance provided by Homes England.  We expect this to continue, with the structural undersupply of rental homes and other fundamental market drivers supporting the sector. In the near term, higher mortgage rates and general economic uncertainty will also act as stimulants to the rental market.

We are in the final phase of housing delivery for the PRS REIT's initial portfolio.  At completion, it is expected to comprise around 5,500 homes with an ERV of £60.7 million per annum, consolidating the PRS REIT's position as the leader in single-family rental homes in the UK.  We continue to focus our efforts on steering through remaining delivery, providing our residents with a high standard of customer care, and ensuring all our developments are attractive, sustainable, and neighbourly places in which to live.

Environmental, Social and Governance

ESG statement

The Company's Investment Adviser, Sigma PRS, undertakes the day-to-day management of the Company's ESG strategy and takes responsibility for managing the Company's ESG priorities at both a Company level and at asset level. Sigma PRS reports on ESG matters to the PRS REIT's Board on a quarterly basis.

Approach

The Company recognises that it is a long-term stakeholder in the communities and neighbourhoods it creates and takes this responsibility very seriously. Its Investment Adviser engages with leading industry ESG bodies for support in achieving the Company's ESG goals. 

·    The Investment Adviser is a signatory of the United Nations Global Compact ("UN Global Compact"). This is a special initiative of the United Nations Secretary-General, which is designed to encourage business leaders to implement universal sustainability principles and, in particular, the UN Global Compact's Ten Principles and so help to deliver the UN's Sustainable Development Goals ("SDG"). The Ten Principles are derived from the Universal Declaration of Human Rights, the International Labour Organisation's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. The UN Global Compact is the world's large corporate sustainability initiative.

·    The Investment Adviser has also committed to SDG Ambition guides, which support the UN's goals. It is particularly focusing on the UN's target of Land Degradation Neutrality ("LDN") and its LDN principles. Objectives include zero deforestation and enhanced biodiversity through tree and wildflower planting programmes.

·      The Investment Adviser is also cognisant of legislative developments in relation to the Government's Biodiversity net gain ("BNG") strategy, which aims to safeguard habitat for wildlife, and its encouragement of the energy performance efficiency of rental homes.

·      The PRS REIT is a member of European Public Real Estate Association ("EPRA"), a not-for-profit association that represents the publicly-traded European real estate sector. EPRA's mission is to promote, develop and represent the European public real estate sector by, amongst other things, providing better information to investors and stakeholders, actively engaging in public and political debate, and promoting best practices. 

The Investment Adviser regularly monitors the changing legislative and reporting landscape, including the EU Sustainable Finance Disclosure Regulation ("SFDR"), the UN Principles of Responsible Investment ("PRI"), the Task Force on Climate-Related Financial Disclosures ("TCFD"), the Taskforce on Nature-related Financial Disclosures ("TNFD"), the EU's Corporate Sustainability Reporting Directive ("CSRD"), as well as national and city-level regulations, which are increasing.  

The Investment Adviser has incorporated ESG factors into its decision-making processes and operations. Its practices are based on the following policy approaches in key areas:

Opportunity review

·      ESG risks are assessed, reviewed and monitored, and strategies for enhancement and/or mitigation are set. These strategies are based on recognised frameworks such as climate change and social needs.

Investment decisions

·      ESG issues are listed and addressed in a summary investment paper, which informs decision-making at the Investment Committee approval stage.

·      ESG costs, including for ongoing community involvement, are also determined and factored into investment decision-making processes.

 

Asset management

·      Appropriate governance structures are established.

·      Relevant laws and regulations are adhered to.

·      ESG issues are monitored and managed.

·      Impacts on the natural habitat surrounding PRS assets are managed.

·      Local community engagement and support plans are established, reviewed and developed.

·      Due diligence is performed on third parties e.g. service providers.

·      Policy reviews and updates are ongoing.

·      Good practice is established.

·      Continued research and review of carbon reduction opportunities are ongoing.

·      Investment restrictions are screened to ensure ongoing compliance.

·      The ability of investments to comply with ESG standards is assessed.

Processes and strategies

As an industry leader in the provision of private rental homes, the PRS REIT recognises its responsibilities regarding the environment and also public priorities. The Government's '10 Point Plan for a Green Industrial Revolution', and "Net Zero Strategy: Build Back Greener" set out pathways to accelerate the UK's attainment of net zero carbon emissions and encompasses energy, production, transport, innovation and the natural environment, with 2050 set as the endpoint of its net zero goal. 

In the real estate sector, there is a continuing need for action in areas including energy and water consumption, non-fossil fuel heating provision and biodiversity. In developing the Company's ESG agenda, the Investment Adviser has embedded best practices, and works closely with supply chain and construction partners to ensure that their policies and activities comply with the PRS REIT's commitment to legislative requirements and best practice.

Environmental Impact and Data

The Company is aware of the impact that its activities have on the environment and is committed to taking action to minimise and mitigate any negative aspects as much as possible. 

A particular focus for the Company is ensuring that the homes in its portfolio are highly energy efficient. All homes added during the financial year ended 30 June 2023 had an EPC rating of at least a B, and across the Company's portfolio 87% of homes are rated A or B. The balance have an EPC rating of C. The portfolio was therefore in compliance with the Government's proposed new Minimum Energy Efficiency Standard, requiring all rental homes to have a minimum rating of C by 2028. The Government dropped this measure in September 2023, in a policy change to take a more pragmatic, proportionate and realistic approach to reaching net zero.

The total EPC data for the Company's homes is as follows:

EPC Rating	No. of Homes	%
A	47	1%
B	4,352	86%
C	681	13%
Total	5,080	100%

The Company provides residents with access to clean and renewable energy through the installation of electric vehicle ("EV") charging facilities and solar photovoltaic panels, where possible. To date, 188 homes have access to EV chargers, 255 homes have been installed with wiring looms, which are specially designed wiring systems that provide for greater efficiency, protection and safety, and 18 EV chargers have been installed at apartment blocks. Photovoltaic panels have been installed at 966 homes.

Homes with photovoltaic panels	% of portfolio with photovoltaic panels	Estimated generated kWh/yr	Estimated avoided CO2 emissions kg/yr
966	21%	592,584	148,864

Sigma PRS is working closely with the Company's construction partners to understand and monitor the greenhouse gas emissions and waste produced in the construction of homes. Gathering relevant and meaningful data to help direct future design and asset maintenance is important, and the Investment Adviser is in discussion with building partners, Vistry and Countryside Partnerships to develop a strategy and process for data gathering in this area. Data collation is not an easy task as there is no legal obligation on third parties such as suppliers and customers to provide information. In the absence of relationship and economic leverage, this process is therefore reliant on a voluntary co-operation. Collaboration has involved participation in a sustainability materiality assessment, which will be used to discuss and agree targets.

Scope 1 and 2 emissions are those owned or controlled by a company. Scope 3 emissions are a result of the activities of the company but occur from sources not owned or controlled by a company. Examples of Scope 1 include direct emissions from fuel combustion on site such as boilers and fleet vehicles. Scope 2 emissions relate to indirect emissions generated from purchased energy such as electricity, and Scope 3 emissions relate to  emissions created by the products we buy from suppliers and that our customers use.

Further details on the PRS REIT's environmental, social and governance activities can be found in its annual ESG Report, which is available on the Company's website at www.theprsreit.com.

Social Engagement

The Company places great importance on engaging with the communities in which its developments are sited. Over the last twelve months, the Company has supported over 20 charities and clubs across the country, either financially or practically, through work undertaken by the Investment Adviser. Residents are often involved in selecting these charities and organisations and the Investment Adviser aims to ensure that residents will readily identify with chosen causes.

A wide range of organisations and social initiatives were supported over the year, ranging from local clubs promoting girls' football and women's cricket and rugby, to smaller and national charities. 

Examples of initiatives that were supported include the British Heart Foundation's RevivR project, which teaches vital cardiopulmonary resuscitation, and the NSPCC's parenting skills project, 'Look, Say, Sing, Play' as well as its Adolescence programme in Liverpool, and its "The Net" project to raise awareness of online safety for children in Doncaster and Leeds. A new partnership was started with Alzheimer's Research UK. It has provided residents with the opportunity for significant engagement, including visiting the charity's research laboratories. 

The Investment Adviser seeks to establish productive relationships with charity partners. During the year, visits were organised with a number of charity partners, including Embassy Village, Atherton and Leigh Foodbank, Knowsley Foodbank, Salford Loaves and Fishes, Barnardo's Gap Homes Project, Speed of Sight, and Carluke Men's Shed. They provided the opportunity for the Investment Adviser to discuss how best to provide ongoing support.

Large-scale initiatives during the year included the Simple Life Schools and Communities Biodiversity Project, which was launched in partnership with Green the UK, and the DanceSing Wellbeing initiative. The Simple Life Schools and Communities Biodiversity Project is a countrywide project, which involves communities and schools engaging in activities such as planting trees, vegetables, and wildflowers. The DanceSing Wellbeing initiative has resident wellbeing at its heart and offers residents online access to a wide range of activities that support physical and mental health.

We are pleased to provide below some of the feedback from the charities and organisations with which we have been involved.

Michele Duckworth from Knowsley Foodbank wrote:  

"Knowsley foodbank started nearly 12 years ago. Now the Big Help Project Food division has a team of eight people working from our warehouse in Kirkby. We have three drivers, two warehouse operatives, and three office-based colleagues alongside a team of dedicated volunteers. The warehouse handles all of the food for our seven foodbanks and 17 food clubs. The foodbank via food clubs has been successful in expanding throughout Knowsley and the Liverpool City Region and the Wirral. 

"Last year we distributed over 275.5 tonnes of food to across our foodbanks and food clubs in total, which helped to feed 140,000 people; of this 261 tonnes was surplus food.(saved from going to landfill).  

"Donations for the foodbank are essential to ensure that we maintain our support to those people who are living in crisis and poverty.  We are grateful to those people and companies that support us in our work as without them we could not achieve what we do within the community."  

Simon McDermot, Regional Fundraising Officer for Alzheimer's Research UK wrote:  

"Thank you so much for the donation to Alzheimer's Research UK. We're so grateful that Simple Life Homes/the PRS REIT plc has supported our work to help bring about life-changing treatments for dementia. Your support makes a difference We're making huge advances in our understanding of dementia, and the breakthroughs keep coming. Support like yours has helped our scientists discover over 20 genes linked to Alzheimer's disease, uncovering new avenues of investigation in the search for new treatments. Thank you once again for your generous donation and we look forward to supporting your efforts in raising awareness of dementia with your local communities.  

Resident Michelle Bryan, a member of Runcorn Women's Cricket Club, wrote:  

"I'm ecstatic to show you our new hoodies which arrived yesterday. And one of our new kit bags so far.  I have to say again, a massive thank you to you and your company for making this happen.  Feel like we are moving on up in the world." 

Rachel Shields, Fundraising and Partnerships Manager, at Smart Works Scotland wrote,  

"We really value your support, which will help fund our vital service to equip women in need with the clothes, coaching and confidence to secure employment, gain financial stability and change the trajectory of their lives."     

Jane from The Bereavement Café in Bolton, emailed to say:    

"Wow! Thank you so much! This is fantastic news and really very much appreciated - and needed!"    

Octavia and Jade Snedeker, Corporate Partnerships Officer from Alzheimer's Research UK commented,

"We're delighted that you have raised funds for ground-breaking dementia research. That is such a kind and generous thing to do." "WOW! That is amazing news, I know the team will be so grateful."  

Becki Stewart, Normanton U12 Girls Rugby team, commented:   

"Honestly, I cannot thank you enough.  This will benefit the girls so much; you've given us a truly amazing opportunity."  

David Nation, Manager of U18 Sandymoor FC, said:

"Again, I cannot thank you enough for your support! For both Sandymoor and Runcorn Women's cricket team.  Honestly, it is massively appreciated what Simple Life have done for both teams!"

 

Resident Focused Initiatives

The Investment Adviser's report covers many of our resident-focused initiatives. They are designed to create specific opportunities for residents to engagement with each other and to bring educational, social and other benefits. Two further initiatives are highlighted below.

Outward Bound Trust

Sigma PRS partnership with The Outward Bound Trust, 'Building for My Future', continues to go from strength to strength, with Simple Life residents offered the opportunity to participate, fully funded by Sigma Capital Group. Young people from schools and youth groups close to Simple Life homes joined residents for a week of challenges and adventure. Several young people went on to develop their skills at summer courses, further enhancing the experience. A selection of feedback from participants is below.  

Lucja - "This was my second time going for a five-day course with Simple Life Homes, at Outward Bound in Ullswater. Both times have allowed me to stretch my abilities, especially this time around as I took more of a leadership position becoming more connected with the people in my group. It helped me build confidence, personal strengths and resilience. I am thankful for this opportunity and hope to move into doing the seven-day course to expand my strengths even further."

Nanette - "I'm not a very active or social person but I wanted to try something new and meet new people. I wasn't sure how it would be but I took the chance and I don't regret it. I even became good friends with my wonderful teammates and I actually enjoyed the activities even though they were out of my comfort zone. I can say it's better to try than just to rule something out because if I hadn't tried this course I would have missed out on a lot."

Ben - "The time I spent with my team was some of the most fun I've had in years. It really helped me get past some old stress and get to know some amazing people, who I'm still in contact with. I'd definitely recommend the week for anyone looking to expand your horizons and hope you have as much fun with it as I did. Pushing boundaries with their amazing staff has got me in a healthy state of mind for my coming exams and I'm sure it can help others too."

Book Boxes and Guardians

In August 2022, Sigma PRS launched a Book Box programme across several developments to encourage residents to share books. To date 17 book boxes have been installed providing a means of sharing and accessing free books to over 1,417 homes and enhancing opportunities for community engagement. The book boxes were sustainably made from 100% repurposed materials in partnership with a specialist recycling company, Ground Neutral.

 

Human Rights

The obligations under the Modern Slavery Act 2015 (the "Act") are not applicable to the Company given its size. However, to the best of its knowledge, the Group is satisfied that its principal suppliers and advisors comply with the provisions of the Act.

The Company operates a zero-tolerance approach to bribery, corruption and fraud.

Health and Safety

In order to maintain high standards of health and safety for those working on sites, monthly checks by independent project monitoring surveyors are commissioned to ensure that all potential risks have been identified and mitigated. These checks supplement those undertaken by construction and development partners. The data is reported to the Board on a quarterly basis in the event of a nil return, and immediately in the event of an incident. There were no reportable incidents over the year (2022: none).

 

Governance

Strong governance is essential to ensuring that risks are identified and managed, and that accountability, responsibility, fairness and transparency are maintained at all times.

The Company is subject to statutory reporting requirements and to rules and responsibilities prescribed by the London Stock Exchange and the Financial Conduct Authority. The Board has a balanced range of complementary skills and experience, with independent Non-executive Directors who provide oversight, and challenge decisions and policies as they see fit. The Board believe in robust and effective corporate governance structures and are committed to maintaining high standards and applying the principles of best practice.

Employee Diversity - Gender and Ethnicity

Directors of The PRS REIT Plc	2023	2022
Male	80%	80%
Female	20%	20%

Directors of The PRS REIT Plc	2023	2022
White British	80%	80%
Asian / Asian British	20%	20%

 

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2023

	Note	30 June 2023 £'000		30 June 2022 £'000
Rental income		49,701		41,963
Non-recoverable property costs		(9,551)		(7,635)
Net rental income		40,150		34,328
Other income		1,646		470
Administrative expenses
Directors' remuneration		(180)		(170)
Investment advisory fee		(5,788)		(5,158)
Other administrative expenses		(2,300)		(2,183)
Total administrative expenses		(8,268)		(7,511)
Gain from fair value adjustment on investment property	7	25,353		99,727
Operating profit		58,881		127,014
Finance income		49		4
Finance cost		(16,478)		(11,129)
Profit before taxation		42,452		115,889
Taxation	4	-		-
Profit after tax and Total comprehensive income for the year attributable to the equity holders of the Company		42,452		115,889
Earnings per share attributable to the equity holders of the Company:
IFRS earnings per share (basic and diluted)	5	7.7p		21.4p

All of the Group activities are classed as continuing and there were no comprehensive gains or losses in the period other than those included in the statement of comprehensive income.

Consolidated Statement of Financial Position

Company No. 10638461

As at 30 June 2023

	Note	30 June 2023 £'000		30 June 2022 £'000
ASSETS
Non-current assets
Investment property	7	1,034,732		961,915
		1,034,732		961,915
Current assets
Trade and other receivables		7,066		7,286
Cash and cash equivalents		13,198		48,682
		20,264		55,968
Total assets		1,054,996		1,017,883
LIABILITIES
Non-current liabilities
Accruals and deferred income		2,081		2,243
Interest bearing loans and borrowings	8	248,440		246,687
		250,521		248,930
Current liabilities
Trade and other payables		17,076		29,742
Provisions		934		-
Interest bearing loans and borrowings	8	126,745		99,973
		144,755		129,715
Total liabilities		395,276		378,645
Net assets		659,720		639,238
EQUITY
Called up share capital		5,493		5,493
Share premium account		298,974		298,974
Capital reduction reserve		118,584		140,554
Retained earnings		236,669		194,217
Total equity attributable to the equity holders of the Company		659,720		639,238
IFRS net asset value per share (basic and diluted)	9	120.1p		116.4p

As at 30 June 2023, there is no difference between IFRS NAV per share and the EPRA NTA per share.

These consolidated group financial statements were approved by the Board of Directors and authorised for issue on 9 October 2023 and signed on its behalf by:

Steve Smith

Chairman

Consolidated Statement of Changes in Equity

For the year ended 30 June 2023

Attributable to equity holders of the Company

	Share  capital		Share premium account		Capital reduction reserve		Retained earnings		Total equity
	£'000		£'000		£'000		£'000		£'000
At 30 June 2021	4,953		245,005		161,984		78,328		490,270
Comprehensive income
Profit for the year	-		-		-		115,889		115,889
Transactions with owners
Issue of ordinary shares	540		53,969		-		-		54,509
Dividend paid	-		-		(21,430)		-		(21,430)
At 30 June 2022	5,493		298,974		140,554		194,217		639,238
Comprehensive income
Profit for the year	-		-		-		42,452		42,452
Transactions with owners
Dividend paid	-		-		(21,970)		-		(21,970)
At 30 June 2023	5,493		298,974		118,584		236,669		659,720

Consolidated Statement of Cash Flows

For the year ended 30 June 2023

	Note	30 June  2023 £'000		30 June 2022 £'000
Cash flows from operating activities
Profit before tax		42,452		115,889
Finance income		(49)		(4)
Finance costs		16,478		11,129
Fair value adjustment on investment property	7	(25,353)		(99,727)
Cash generated by operations		33,528		27,287
(Increase) / Decrease in trade and other receivables		(578)		124
(Decrease) / Increase in trade and other payables		(1,640)		4,795
Net cash generated from operating activities		31,310		32,206
Cash flows from investing activities
Purchase of investment properties		-		(26,346)
Development expenditure on investment properties*		(47,458)		(55,476)
Decrease in capital trade and other payables		(10,255)		-
Finance income		49		4
Net cash used in investing activities		(57,664)		(81,818)
Cash flows from financing activities
Proceeds from issue of ordinary shares		-		55,593
Cost of share issue		-		(1,084)
Bank and other loans advanced		49,801		89,624
Bank and other loans repaid		(23,304)		(100,014)
Finance costs		(13,657)		(10,809)
Dividends paid	6	(21,970)		(21,430)
Net cash (used in) / generated from financing activities		(9,130)		11,880
Net decrease in cash and cash equivalents		(35,484)		(37,732)
Cash and cash equivalents at beginning of year		48,682		86,414
Cash and cash equivalents at end of year		13,198		48,682

The accompanying notes are an integral part of this cash flow statement.

* Includes capitalised interest of £0.9 million (2022: £2.5 million).

Notes to the Financial Statements

1.   General information

This final results announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 9 October 2023.

2.   Basis of preparation

The financial information set out in this announcement does not constitute statutory financial statements for the year ended 30 June 2023 and year ended 30 June 2022. The financial information in this announcement has been derived from the statutory accounts for the year ending 30 June 2023 and year ending 30 June 2022. The report of the auditor on the statutory financial statements for the year ended 30 June 2023 and year ended 30 June 2022 was (i) unqualified; (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006. The statutory financial statements for the year ended 30 June 2023 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The statutory accounts for the year ending 30 June 2022 have been delivered to the Registrar of Companies.

3.   Going concern  

The consolidated and Company financial statements have been prepared on a going concern basis. The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance with sensitivity testing undertaken to replicate plausible downside scenarios related to the principal risks and uncertainties associated with the business. As interest rate exposure has largely been mitigated with 82% of the investment debt in the portfolio at fixed rates, the Directors paid particular attention to the risk of a deterioration in the forecast rental growth over the review period which would have a negative impact on both forecast valuations and cashflows. The outcome of this stress testing indicated that covenants on existing facilities would not be breached. As part of the review, the Group has considered its cash balances, and its debt maturity profile, including undrawn facilities. The Group had net current liabilities of £124.5 million as at 30 June 2023 (2022: net current liabilities £73.8 million). The increase in net current liabilities reflects the LBG / RBS debt facility (refinanced on maturity in July 2023), which was £115.0 million drawn at 30 June 2023 (2022: £85.4 million drawn) and the utilisation of cash. The Group's cash balances at 30 June 2023 were £13.2 million (2022: £48.7 million), of which £3.5m was restricted but released within 3 months. The Group had debt borrowing as at 30 June 2023 of £374.1 million. A portion of the development debt facilities were utilised subsequent to the year-end to enable the Group to continue to develop assets to completion and enabling the letting of these to tenants. Following stabilisation on a site, which comprises practical completion and substantial letting, investment debt is drawn down to replace the development debt facilities utilised. In July 2023, the LBG / RBS variable rate investment debt facility was amended to a 2-year facility of £75 million, of which £13 million was immediately drawn. A new 15-year fixed rate investment debt facility was taken out with LGIM of which £102 million was immediately drawn.

Capital commitments outstanding as at 30 June 2023 were £27.3 million. The Group's current ERV as at 30 June 2023, was £55.0 million from 5,080 homes and has increased to £57.6 million from 5,129 homes as at 30 September 2023. This has increased the Company's recurring income which at this level is more than sufficient to cover monthly cash costs. Based on the prevailing run-rate of monthly cash costs and average rent levels, approximately 2,500 homes are required to generate income to cover monthly cash outlays.

The current market volatility is being monitored by the Board however, the strong income performance and high proportion of fixed rate debt puts the Group in a good position.

Therefore, the Directors believe the Group and Company are well placed to manage their business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Group and Company will have adequate resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of the approval of the Group's consolidated financial statements and the Company's financial statements for the year ended 30 June 2023.

4.   Taxation

As a UK REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it meets certain conditions as set out in the UK REIT regulations. For the current year and prior year, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. If there were any non-qualifying profits and gains, these would be subject to corporation tax.

It is assumed that the Group will continue to be a UK REIT for the foreseeable future, such that deferred tax has not been recognised on temporary differences relating to the property rental business. No deferred tax asset has been recognised in respect of the unutilised residual current period losses from non-qualifying activities as it is not anticipated that sufficient residual profits will be generated from these in the future.

5.   Earnings per share

Earnings per share ("EPS") amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments, basic and diluted earnings per share are the same for both the current and prior periods.

The calculation of basic and diluted earnings per share is based on the following:

	2023		2022
	£'000		£'000
Earnings per IFRS income statement	42,452		115,889
Adjustments to calculate EPRA Earnings:
Changes in value of investment properties (Note 7)	(25,353)		(99,727)
EPRA Earnings	17,099		16,162
Weighted average number of ordinary shares	549,251,458		535,203,388
IFRS EPS (pence)	7.7		21.4
EPRA EPS (pence)	3.1		3.0

6.   Dividends

The following dividends were paid during the current year and prior year:

	2023		2022
	£'000		£'000
Dividends on ordinary shares declared and paid:
Dividend of 1.0p for the 3 months to 30 June 2021	-		4,953
Dividend of 1.0p for the 3 months to 30 September 2021	-		5,492
Dividend of 1.0p for the 3 months to 31 December 2021	-		5,492
Dividend of 1.0p for the 3 months to 31 March 2022	-		5,493
Dividend of 1.0p for the 3 months to 30 June 2022	5,493		-
Dividend of 1.0p for the 3 months to 30 September 2022	5,493		-
Dividend of 1.0p for the 3 months to 31 December 2022	5,492		-
Dividend of 1.0p for the 3 months to 31 March 2023	5,492		-
	21,970		21,430

Proposed dividends on ordinary shares:
3 months to 30 June 2022: 1.0p per share	-		5,493
3 months to 30 June 2023: 1.0p per share	5,493		-
	5,493		5,493

7.   Investment property

The freehold/heritable, leasehold and part freehold part leasehold interests in the properties held within the PRS REIT were independently valued as at 30 June 2023 by Savills (UK) Limited, acting in the capacity of External Valuers as defined in the RICS Red Book (but not for the avoidance of doubt as an External Valuer of the PRS REIT as defined by the Alternative Investment Fund Managers Regulations 2013). The valuations accord with the requirements of IFRS 13 and the Royal Institution of Chartered Surveyors' ("RICS") Valuation - Global Standards, effective from 31 January 2022, incorporating the IVSC International Valuation Standards (the "RICS Red Book"). The valuations were arrived at predominantly by reference to market evidence for comparable property.

Savills (UK) Limited are an accredited External Valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.

The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent valuation are reviewed by the Board.

	Completed Assets		Assets under Construction		Total
	£'000		£'000		£'000
At 30 June 2021	533,774		246,592		780,366
Properties acquired on acquisition of subsidiaries	14,820		11,526		26,346
Property additions - subsequent expenditure	-		55,476		55,476
Change in fair value	69,461		30,266		99,727
Transfers to completed assets	222,300		(222,300)		-
At 30 June 2022	840,355		121,560		961,915
Property additions - subsequent expenditure	-		47,464		47,464
Change in fair value	26,963		(1,600)		25,353
Transfers to completed assets	80,419		(80,419)		-
At 30 June 2023	947,727		87,005		1,034,732

The historic cost of completed assets and assets under construction as at 30 June 2023 was £831.8 million (2022: £785.0 million).

The carrying amount of investment property pledged as security as at 30 June 2023 was £952.5 million (2022: £823.6 million).

The Group has recognised a right-of-use ("ROU") asset within investment property in relation to ground rents payable on certain investment property sites. The net book value of the ROU asset was £1 million as at 30 June 2023 (2022: £1 million).

The PRS REIT acquired a site at Coppenhall Place, Crewe with planning consent during the year ended 30 June 2019.  At the same time, the Company also entered into a fixed price design and build contract with one of its principal house building partners to complete 131 units. This represented approximately 50% of the entire Coppenhall Place site with the balance being developed by the house builder as market for sale units. The design and build contract contained standard clauses making the house builder responsible for delivering the site and doing so in compliance with the requirements of the original planning consent.

Shortly after physical completion and letting of more than 95% of the units on the site acquired by the PRS REIT, a dispute arose between the respective Council and the house builder regarding compliance with the original planning consent. After consultation between these two parties, the house builder submitted a further planning application with a view to resolving the areas of dispute. The submission was recommended to the Elected Council Members ("Members") by the Council Executive but a decision was deferred at the hearing in order that the Members could obtain additional information on viability, a peer review to clarify on-site ventilation and clarification on queries regarding potential soil contamination in certain areas of the whole site.  As at the date of approval of these financial statements the house building partner continues to work with the Council Executive to address outstanding matters before reverting to the Members for approval. The Investment Adviser is closely monitoring progress. The Board of the PRS REIT is of the view that remaining areas of work will be completed and the planning issues ultimately finalised to the satisfaction of all parties, including the private owners of the market for sale units. 

The financial statements include an investment value for the Coppenhall Place asset of £23.5 million as at 30 June 2023 on the assumption that the planning matters are resolved. The value of the site represents approximately 2.3% of the balance sheet investment value of assets as at the year-end date. Given the contractual protections, the risk of any potential impact to the Group is considered highly unlikely, and given the value of the site relative to the overall balance sheet, the risk of any potential impact to the Group is considered to be immaterial.

Fair Values

IFRS 13 sets out a three-tier hierarchy for assets and liabilities valued at fair value. These are as follows:

Level 1   quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2   inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3   unobservable inputs for the asset or liability.

Investment property falls within Level 3.

The investment valuations provided by the external valuation expert are based on RICS Professional Valuation Standards but include a number of unobservable inputs and other valuation assumptions. The significant unobservable inputs and the range of values used are:

Type	Range
	2023	2022
ERV per unit	£10k - £22k	£7k - £22k
Investment yield	4.10% to 5.00%	3.75% to 4.50%
Gross to net assumption	22.5% to 25.0%	22.5% to 25.0%

The following descriptions and definitions relate to key unobservable inputs made in determining fair values:

·		ERV (Estimated Rental Value) per unit: the estimated annual market rental value that could be earned on a unit basis annually;
·		Investment yield: the net income earned as a percentage of the investment value; and
·		Gross to net assumption: the non-recoverable property costs expected to be incurred on a rental property as a percentage of rental income.

Development assets are valued based on total development cost plus expected final uplift in valuation multiplied by % of site development completed. The range of % completions as at 30 June 2023, was from 29% to 99% (2022: 7% to 99%). The final investment value uses the assumptions stated above. An increase of 2% in the gross development cost would reduce the fair valuation of these assets by c.£1.7 million.

The impact of changes to the significant unobservable inputs for completed and development assets are:

	2023 Impact on statement of comprehensive income		2023 Impact on statement of financial position		2022 Impact on statement of comprehensive income		2022 Impact on statement of financial position
	£'000		£'000		£'000		£'000
Improvement in ERV by 5%	52,650		52,650		48,213		48,213
Worsening in ERV by 5%	(51,303)		(51,303		(48,223)		(48,223)
Improvement in yield by 0.125%	30,078		30,078		30,124		30,124
Worsening in yield by 0.125%	(28,407)		(28,407)		(28,359)		(28,359)
Improvement in gross to net by 1%	14,192		14,192		12,492		12,492
Worsening in gross to net by 1%	(12,738)		(12,738)		(12,402)		(12,402)

The rates of sensitivity reflected in the above table have been selected as being reflective of movements experienced in ERV, yields and gross to net expenses.

8.   Interest bearing loans and borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method.

	Group 2023		Company 2023		Group 2022		Company 2022
	£'000		£'000		£'000		£'000
Current liabilities
Bank loans at 1 July	99,941		-		109,998		-
Loans advanced in the year	49,801		-		89,624		-
Loans repaid in the year	(23,304)		-		(100,014)		-
Capitalised loan costs	275		-		333		-
Bank loans at 30 June	126,713		-		99,941		-
Lease liability	32		-		32		-
Total loans and borrowings	126,745		-		99,973		-
Non-current liabilities
Bank loans at 1 July	245,684		-		244,875		-
Loans advanced in the year	-		-		-		-
Capitalised loan costs	1,748		-		809		-
Bank loans at 30 June	247,432		-		245,684		-
Lease liability	1,008		-		1,003		-
Total loans and borrowings	248,440		-		246,687		-

The fair value of loans and borrowings at year end totalled £300.2 million (2022: £365.3 million).

Bank loans

Through its subsidiaries the Company has granted fixed and floating charges over certain investment property assets to secure the loans.

The Group's borrowing facilities are with Scottish Widows, Lloyds Banking Group plc / RBS plc and Barclays Bank PLC. At 30 June 2023, these comprised the following:

Lender	Loan facility	Balance drawn 30 June 2023	Loan period	Interest rate (all in)	Loan Type	Maturity
Scottish Widows	£100 million	£100 million	15 years	3.14%	Fixed	June 2033
Scottish Widows	£150 million	£150 million	25 years	2.76%	Fixed	June 2044
Lloyds Banking Group plc /RBS*	£150 million	£115 million	3 years	6.53%	Variable	July 2023
Barclays Bank PLC	£40 million	£12 million	3 years	8.28%	Variable	August 2025

* In July 2023, the loan was restated as a two-year £75 million floating-rate debt facility with RBS. £13.1 million was drawn immediately

As determined by the Company's Investment Policy, the Group's maximum loan to value ratio can be no more than 45%. As at 30 June 2023 the Group's EPRA loan to value was 37% (2022: 34%).

Reconciliation of movements of borrowings to cash flows arising from financing activities:

	2023		2022
	£'000		£'000
Balance as at 1 July	345,625		354,873
Cash movements
Proceeds from borrowings	49,801		89,624
Borrowings repaid	(23,304)		(100,014)
Interest paid	(11,957)		(9,825)
Non-utilisation fees paid	(703)		-
Arrangement and commitment fees paid	(932)		(846)
Non-Cash movements
Finance costs	15,615		11,813
Balance as at 30 June	374,145		345,625

Debt refinancing

At the beginning of July 2023, the Company completed the refinancing of its £150 million revolving credit facility ("RCF") provided by RBS and Lloyds Banking Group plc. The Group secured a £102 million facility of fixed-rate debt for 15 years with Legal and General Investment Management, together with a further £75 million of floating-rate debt agreed for two years with RBS. An interest rate cap has been put in place on the floating rate debt to hedge against downside risk on further interest rate movements.

9.   Net Asset Value

EPRA NTA, is considered to be the most relevant measure for the Group. The underlying assumption behind the EPRA NTA calculation assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. Due to the PRS REIT's tax status, deferred tax is not applicable and therefore there is no difference between IFRS NAV and EPRA NTA.

Basic IFRS NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary equity holders of the parent by the number of Ordinary Shares outstanding at the end of the year. As there are no dilutive instruments, only basic NAV per share is quoted below.

Net asset values have been calculated as follows:

	2023		2022
IFRS Net assets at 30 June (£'000)	659,720		639,238
EPRA adjustments to NTA	-		-
EPRA NTA at 30 June	659,720		639,238
Shares in issue at end of year	549,251,458		549,251,458
Basic IFRS NAV per share (pence)	120.1		116.4
EPRA NTA per share (pence)	120.1		116.4

The NTA per share calculated on an EPRA basis is the same as the IFRS NAV per share for the year ended 30 June 2023 and the year ended 30 June 2022.

10.  Transactions with Investment Adviser

On 31 March 2017, Sigma PRS was appointed the Investment Adviser of the Company. A new Investment Adviser Agreement with Sigma PRS was signed in January 2021.

For the year ended 30 June 2023, fees of £5.8 million (2022: £5.2 million) were incurred and payable to Sigma PRS in respect of asset management fees. At 30 June 2023, £0.5 million (2022: £0.9 million) remained unpaid.

For the year ended 30 June 2023, development management fees of £1.8 million (2022: £2.5 million) were incurred and payable to Sigma PRS. At 30 June 2023, £0.2 million (2022: £0.3 million) remained unpaid. Development management fees were capitalised as development costs during the year and prior year.

For the year ended 30 June 2023, administration and secretarial services of £70,000 (2022: £85,000) were incurred and payable to Sigma Capital Property Ltd, a fellow subsidiary of the ultimate holding company of the Investment Adviser. At 30 June 2023, £9,000 (2022: £49,000) remained unpaid.

Sigma PRS's shareholding as at 30 June 2023 was 5,889,852 (2022: 5,889,852), which represents 1.07% (2022: 1.07%) of the issued share capital in the Company. All the shares acquired were in accordance with the Development Management Agreement between the Company and Sigma PRS.

For the year ended 30 June 2023, Sigma PRS received dividends from the Company of £236,000 (2022: £236,000).

11.  Post balance sheet events

Debt refinancing

At the beginning of July, the Group completed the refinancing of its £150 million revolving credit facility provided by RBS and Lloyds Banking Group. The facility had been originally due to mature in February 2023 and was extended on substantially the same terms to mid-July 2023 (with an option to extend until October 2023). The Board views the refinancing as having been completed on attractive commercial terms in light of the current interest rate environment. 

The Investment Adviser secured a £102 million facility of fixed-rate debt for 15 years, together with a further £75 million of floating-rate debt agreed for two years, providing the Group with the flexibility to refinance this element over that period. An interest rate cap has been put in place on the floating rate debt to hedge against downside risk on further interest rate movements. These new facilities have been established with Legal and General Investment Management and RBS respectively. 

The Investment Adviser immediately arranged for deployment of almost two-thirds (£115 million) of the total debt, specifically the entire £102 million fixed-rate facility and £13 million of the floating-rate facility, to fund already completed and stabilised sites. The balance of £62 million of floating-rate debt is expected to be drawn down to fund sites completing and stabilising before calendar year 2024.  

Dividends

On 2 August 2023, the Company declared a dividend of 1.0p per ordinary share in respect of the fourth quarter of the current financial year. The dividend was paid on 1 September 2023, to shareholders on the register as at 11 August 2023.

12.  Availability of statutory financial information

Copies of the full statutory financial statements are available on the Company's website at www.theprsreit.com.

13.  Annual General Meeting

The Annual General Meeting of the Company will be held at the offices of Singer Capital Markets, 1 Bartholomew Lane, London EC2N 2AX on Monday 4 December 2023 commencing at 2 pm.

---

^[1] A full reconciliation between IFRS profit and EPRA earnings can be found in note 5 of the Financial Statements

[2] Finance costs adjusted to exclude amortised debt costs of £2.1m (2022: £2.2m)

[3] A reconciliation of IFRS NAV to EPRA NTA can be found in note 9 of the Financial Statements

[4] Like-for-like blended rental growth on stabilised sites is defined as the annual rental growth on sites where all units have been completed and either all or nearly all have been let

[5] TwentyCi  https://www.twentyci.co.uk/resources/

^[6]  Jones Lang LaSalle (JLL), UK Build To Rent (BTR) Report, September 2021

^[7] British Property Federation, Build-to-Rent Report, Q2 2023

^[8] Zoopla Rental Market Report, June 2023

^[9] National Residential Landlords Association, Landlord Confidence Index (LCI) No.17: 2023 Q1

^[10] National Residential Landlords Association, Landlord Confidence Index (LCI) No.18: 2023 Q2

^[11] Office for National Statistics, Housing Purchase Affordability, UK: 2022

^[12] Department for Levelling Up, Housing & Communities, A Fairer Private Rented Sector, June 2022

^[13] 'Simple Life' - The PRS REIT's rental homes are marketed under the 'Simple Life' brand.

 

END