Annual Report & Financial Statements
For the year ended 30 June 2020
Company Number 10638461
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
Contents
02 Highlights
COVID-19 and Going Concern review
04 Strategic Report
04 Chairman’s Statement
09
12 Market Dynamics
16 Portfolio Analysis
26 Featured Developments
28
31
38
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Investment Strategy and Business Model
Investment Adviser’s Report
Enviromnental, Social and Governance
Principal Risks and Uncertainties
54
Stakeholder Engagement and Section 172 Statement
58 Corporate Governance
58 Directors
59 Advisers
60 Report of the Directors
66
67
76 Audit Committee Report
80
82
Directors’ Remuneration Policy
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Corporate Governance Statement
86
Independent Auditors Report to the Members of The PRS REIT plc
92 Financial Statements
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Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
100 Notes to the Financial Statements
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HIGHLIGHTS
Key points
Good progress despite impact of COVID-19 pandemic
Rental income and demand for properties remained
- with 909 new rental homes added over FY2020
(2019: 768) to take portfolio at year end to 2,082
completed homes (2019: 1,173), with a further 2,803
homes at various stages of the delivery process (30
June 2019: 3,196)
- national ‘lockdown’ and resultant delivery
disruption is estimated to have delayed the
completion of a further 600 homes in FY2020
- despite this, in Q1 2021, 552 new homes were
added to take the portfolio of completed homes
at 30 September 2020 to 2,634, with estimated
rental value (“ERV”) at £24.3m p.a.
strong over the year and in Q1 of FY2021
Financial position is very robust, with net rental income
covering cost base, low gearing of 25% and headroom
on committed bank facilities
Total dividends paid, 4.0p per share (2019: 5.0p), in
line with revised strategy taking into account pandemic
impact.
Financial
Revenue
Net rental income
Operating profit
Profit after tax
Basic earnings per share
Net assets at 30 June*
Year to
Year to
30 June 2020
30 June 2019
Change
£12.9m
£10.2m
£19.9m
£16.4m
3.3p
£471m
£6.0m
£4.9m
£14.6m
£14.6m
2.9p
£474m
95.8p
+115%
+108%
+36%
+12%
+14%
-1%
-1%
IFRS and EPRA NAV* per share at 30 June
95.1p
95.0p at 31 Dec 2019
*after dividend payments
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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Operational
Q1
At
At
Year-on-
FY 2021
30 June 2020
30 June 2019
year change
Number of completed homes
2,634
2,082
1,173
Estimated rental value (“ERV”)
£24.3m p.a.
£19.1m p.a.
£10.7m p.a.
Number of contracted homes
2,369
2,803
3,196
ERV
£23.3m p.a.
£27.4m p.a.
£30.5m p.a.
Completed and contracted sites
64
62
54
ERV of completed and contracted sites
£47.6m p.a.
£46.6m p.a.
£41.2m p.a.
Rent collected as a percentage
of total rent due
100%
98%
99%
+77%
+79%
+15%
+13%
-1%
Outlook
96% of the Company’s net funding has now been
deployed, with the portfolio now comprising 5,003
completed and contracted homes, including sites
under forward contracts for purchase
Rental values have remained strong and at 30
September a further 145 qualified applicants were
due to take occupancy
Long-term opportunity is strong with family rental
housing market remaining critically undersupplied.
Steve Smith, Chairman of the PRS REIT, commented:
“The PRS REIT plc continued to make good progress in its
third year of activity, despite the impact of the COVID-19
pandemic. While construction was suspended in the
fourth quarter, we reached the milestone of our 2,000th
completed rental home by mid-June, and over the year
as a whole added 909 new homes. We are now at 2,634
completed homes, with a further 2,369 homes under way
as we approach our target of 5,200 rental homes.
“There are significant macroeconomic uncertainties
ahead but the Company is well-positioned financially, and
our risk-mitigated model and the scale and geographic
spread of our portfolio limits our exposures. Demand for
our properties remains strong and the undersupply of
good quality, well-located and professionally managed
homes is significant. We are therefore confident in
long-term prospects for The PRS REIT plc.”
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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Strategic Report
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
I am pleased to present The PRS REIT plc’s (“the PRS
REIT”, “the Company” or “the Group”) audited financial
results for the year ended 30 June 2020. While the year
was dominated by the impact of the COVID-19 pandemic,
the Company made good progress on housing delivery.
In mid-June, the Company reached the milestone of its
2,000th new rental home, a little over three years since the
launch of the PRS REIT in May 2017. At the year-end, the
portfolio stood at 2,082 homes, having added 909 new
homes over the year as a whole (2019: 768), including
465 homes in the second half (2019: 398). The Company
remains financially and operationally well-positioned.
The delivery model provided significant downside
protection when construction activity across all sites was
suspended between the end of March and mid-May, as a
result of the Government-imposed restrictions. In particular,
fixed price design and build contracts limited financial
exposure. The Company’s financial position continues
to be robust, with increased cash flows year on year, net
rental income covering the cost base, and low gearing.
Demand for the PRS REIT’s properties remained strong,
and rental income increased significantly over the year as
new homes were added to the portfolio. The amount of
rent collected matched 98% of rent invoiced, and rental
rates since the reopening of the market in May 2020
have reflected growth from new tenancies whilst rates for
renewals have been frozen at pre-pandemic levels.
Construction activity across all sites resumed by the
end of May, though social distancing and other safety
measures adversely affected the pace of delivery. The
909 new rental homes added to the Company’s portfolio
during the year (2019: 768) took the number of completed
homes at the year-end to 2,082 (30 June 2019: 1,173),
increasing the portfolio’s estimated rental value (“ERV”)
by £8.4 million per annum to £19.1 million per annum (30
June 2019: £10.7 million). A further 2,803 homes, with an
ERV of £27.4 million per annum, were at various stages of
the delivery process at 30 June 2020.
By the end of September, another 552 homes, with an
ERV of £4.4 million per annum, had been completed,
taking the number of completed homes at that point to
2,634 and the completed portfolio’s ERV to £24.3 million
per annum. The number of homes contracted at 30
September was 2,369. Once completed, they will take
the portfolio to 5,003 homes, providing an ERV of £47.6
million.
This delivery includes development sites that are under
forward-purchase agreements with the PRS REIT (125
homes with an ERV of £1.6 million).
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
Financial Results
The Company’s portfolio of assets is geographically
widely spread, across 64 sites throughout the major
regions of England, including the North West, North
East, Yorkshire, the Midlands, the South East (excluding
London) and the East of England.
Revenue increased to £12.9 million for the year to 30 June
2020 as more units were completed and let (2019: £6.0
million) and entirely comprises rental income. After the
deduction of non-recoverable property costs, net rental
income for the year was £10.2 million (2019: £4.9 million).
The total gross development cost (“GDC”) of delivery by
the year end stood at £757 million (2019: £661 million).
This figure comprises the cost of the 21 completed sites
in the portfolio and the expected cost of the 41 sites that
were at various stages of progression at 30 June 2020.
It also includes the nine fully-developed and let sites that
we have acquired to date.
Approximately 96% of the Company’s net proceeds from
its gross funding of £900 million (comprising equity and
debt), has been deployed to date. The remainder of the
Company’s available resource is expected to be deployed
by the end of 2020.
Expenses in the year increased to £6.2 million (2019: £5.9
million), in particular independent valuation costs reflecting
the growth in the number of the Group’s assets. The gain
from the fair value adjustment on investment property was
slightly up on the prior year at £15.8 million (2019: £15.6
million) due to the delay to construction works during
the lockdown period in the current year. Operating profit
increased to £19.9 million (2019: £14.6 million) as a result
of the increase in completed units being let.
Finance income from short-term deposits was £0.2 million
(2019: £0.8 million). Finance costs in relation to bank loans
were £3.7 million (2019: £0.9 million). These reflect the
drawdown and utilisation of debt funding during the year.
Following full deployment of funds, the portfolio is
expected to comprise approximately 5,200 rental homes,
with stabilisation expected to be reached in the second
half of calendar year 2022.
Profit after taxation increased to £16.4 million (2019: £14.6
million) and basic and diluted earnings per share rose to
3.3p (2019: 2.9p) on an IFRS basis.
The Investment Adviser’s report provides further
commentary on housing delivery and asset performance
over the year.
The Group’s net asset value (“NAV”) per share at 30 June
2020, on an IFRS basis, was 95.1p (2019: 31 December,
95.0p and 30 June 95.8p) as was the EPRA NAV per
share (2019: 31 December, 95.0p and 30 June, 95.8p).
Net assets of the Group at 30 June 2020 stood at £471
million (2019: £474 million) after paying dividends of £19.8
million in the year.
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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STRATEGIC REPORT CHAIRMAN’S STATEMENT (Cont.)
Dividends
The Company’s policy is to pay a quarterly dividend during
the development phase, even though it is not as yet fully
covered by rental income.
For the year to 30 June 2020, aggregate dividends of
4.0p per share were paid to shareholders (2019: 5.0p
per share), in line with the revised strategy set by the
Board following the uncertainty and disruption caused by
COVID-19.
The Board continues to target a minimum total dividend of
4.0* pence per ordinary share for the current financial year
ending 30 June 2021.
Corporate Social Responsibility
The creation of high-quality, well-located, professionally-
managed rental homes has a long-term social impact.
We take this responsibility seriously and the ‘Simple Life’
brand, through which our properties are marketed and
managed, directly connects the Company to the families
and individuals who rent its properties, and to the local
communities in which developments are situated.
It is important to create homes that tenants will enjoy
and in which they feel that they can put down long-term
roots. We aim to achieve this through the quality of our
properties, the care we take in maintaining them, and
through the high standard of customer support provided.
The Investment Adviser’s support for schools and
institutions close to the Company’s developments
continued over the financial year. This included the
Salford Foundation, a charity providing opportunities
for young people and adults in Greater Manchester and
the North West, Salford Loaves and Fishes, which helps
homeless and vulnerable people in Manchester, and Park
Palace Ponies, an inner-city starter riding school based
in Liverpool. However, in the second half, with the onset
of the pandemic and lockdown, the Investment Adviser
directed additional support to certain charities chosen by
residents. Donations were made to Centre Point, which
helps homeless young people, Mind UK, the mental health
charity, Women’s Aid, which combats domestic violence,
and The Trussell Trust, which supports a nationwide
network of food banks. The Investment Adviser also
increased communications with tenants during the
lockdown and sought to identify and resolve any financial
issues supportively.
Our Investment Adviser will continue with these and
other valuable initiatives. We believe that such support
fosters a greater sense of community between residents
and with the wider neighbourhoods in which our
developments are located.
Other Company Matters
At the time of its IPO and launch in May 2017, the Board
stated its intention in the medium term to move the
Company to the premium segment of the Official List
should the Directors consider that such a move would be
in the best interests of the Company and its shareholders
as a whole. Given the Company’s progress since then in
delivering an initial portfolio of completed rental homes,
the Board is commencing consideration of the benefits of
migration to the premium segment.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT CHAIRMAN’S STATEMENT (Cont.)
Outlook
The Company is now in its fourth year, and is very well
advanced in its target of creating an initial portfolio of
5,200 build-to-rent homes across most of the major
regions of England, excluding London.
While we anticipate that the COVID-19 pandemic will
continue to affect the Company’s activities in the near
term, both housing delivery and lettings are progressing
well, within the necessary COVID-19 restrictions. A
further 552 new homes were added to the portfolio in the
first quarter of the new financial year. This has taken the
total number of completed homes as at 30 September to
2,634, with 2,369 homes under way. When completed,
this delivery will take the total ERV of the portfolio to
£47.6m per annum.
Trading performance has remained robust across the
portfolio. The number of units let and occupied now totals
2,337 with a rent roll of £21.6m. In the latest quarter to
30 September 2020, the rent collected matched the
rent invoiced during the period. Reservations over the
first quarter of the new financial were strong and at 30
September 2020, a further 145 qualified applicants were
due to take occupancy.
The underlying structural drivers of demand for the
Company’s high-quality family rental homes remain
strong, and we believe this may have been strengthened
by people reassessing their residential needs post-
lockdown. We have considered the proposals set out
in the Government’s Planning White Paper, published in
August, and do not anticipate any adverse impact on
the prospects or activities of the PRS REIT. We continue
to consult with the PRS REIT’s advisers and others and
expect to provide further comments on the proposals in
due course.
We look forward to reporting continued progress, despite
the disruption caused by COVID-19, and will declare our
next dividend during October 2020.
Steve Smith
Chairman
5 October 2020
* 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.
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STRATEGIC REPORT CHAIRMAN’S STATEMENT (Cont.)
IFRS AND EPRA PERFORMANCE MEASURES
KPI
Explanation
Performance
Year to
30 June 2020
Year to
30 June 2019
IFRS NAV
(see note 26)
EPRA NAV
(see note 26)
IFRS EPS
(see note 14)
EPRA EPS
(see note 14)
Unadjusted net asset value
95.1p per share
95.8p per share
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
95.1p per share
95.8p per share
Unadjusted earnings per share
3.3p per share
2.9p per share
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
0.1p profit per share 0.2p loss per share
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT
COVID-19 AND GOING CONCERN REVIEW
COVID-19 and Going Concern
This going concern review summarises the risks that the
COVID-19 pandemic continues to pose to the Group
and the parent Company of the PRS REIT, together with
actions we have taken to ensure that the business is well-
placed to emerge from the crisis in a position of financial
strength.
During the period of the lockdown imposed by the
Government from the end of March, house building and
letting activity effectively ceased, resulting in delays to
homes being completed, let and occupied. The Group’s
contractual obligations only provide for payment to house
builders in respect of work undertaken and independently
certified. Accordingly, development expenditure and
associated cash outflows during lockdown reduced
significantly. However, the knock-on impact of the
disruption is that practical completion dates for
construction and subsequent letting activity have all been
delayed in comparison to original schedules.
The pandemic reduced planned construction activity by
approximately 60% during the four month period ended
30 June 2020 reflecting actual construction spend of
approximately £40 million during this period. As a result,
the 2,000th completed home was not delivered until June
2020 instead of March. Compared to forecasts prior to
the pandemic this reflects a reduction of over 600 units
which will not be caught up until June 2022, a year later
than previously planned.
Although lockdown restrictions began to ease in
May, construction activity only began to resume
comprehensively from the beginning of June. Even
allowing for this, continuing requirements for social
distancing and guidance around using public transport
mean that construction activity has not fully returned to
pre-lockdown levels.
A further complication has been the introduction of
localised lockdown restrictions in response to outbreaks
of COVID-19 in particular areas.
COVID-19 continues to have the potential to impact
the Group and Company as a result of the Government
introducing or re-introducing restrictions limiting, either
wholly or partly, construction and letting activity on a
regional or national basis. This has the potential to impact
the Company and Group in the following areas:
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Risk factor
Mitigating actions
House builders unable to continue with construction
work on sites or forced to limit construction work on
sites due to adherence to social distancing or other
requirements and staff unable to work or are absent
from work.
Letting agents unable to progress activities in respect
of lettings, repairs and maintenance. This could arise as
a result of tenant and/or, maintenance company issues
or because lettings staff are unable to work or absent
from work.
The PRS REIT has spent time with its construction
partners ensuring that their health and safety
assessments are correctly applying and complying
with the Government’s social distancing rules. These
new measures mean that work on development
sites can continue although at a slower rate than
before the crisis. This has reduced the Group and
Company’s cash outflows during this period but has
also delayed practical completion and subsequent
letting of units. Continual review of the situation in
conjunction with house building partners is in place
to monitor the situation on a site-by-site basis.
The Group has worked with its lettings agents to
ensure that the Government’s social distancing rules
are adhered to. As lockdown restrictions have eased,
lettings activity has resumed as have all repair and
maintenance services. Weekly reviews of lettings
activities are in place.
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STRATEGIC REPORT COVID-19 AND GOING CONCERN REVIEW (Cont.)
Risk factor
Mitigating actions
Income reduction and potential
bad debt resulting from tenants’
financial difficulties because of a
loss of income due to individuals
being without work, unable to work
or absent from work.
The Group carefully vets prospective tenants and typically obtains
insurance for at least the first year of new lettings. To date, COVID-19
related arrears are being managed by agreeing payment plans with
tenants encountering difficulties. The insurer has been notified of this
in order to preserve rights of claim but policies will ultimately pay out
in the event that arrears are not recovered through payment plans.
This, together with the geographic spread of multiple sites will help
mitigate against bad debts. We are working with letting agents to assist
and support those tenants encountering difficulty in a responsible and
reasonable manner. The adaptation of our technology has meant that
tenant interaction and engagement can continue through a variety of
channels, including telephone, e-mail and social media.
Disruption to the supply chain in
the event of raw materials and
construction products not being
produced or imported.
Significant efforts and contingencies have already been put in place in
respect of Brexit, and additional inventory, including timber has been
secured. To date, production and shipment difficulties have not been
encountered partly reflecting the reduction in construction activity
during the lockdown period.
General disruption to employees,
house builders, letting agents and
the supply chain due to restrictions
on the movement of goods and
people.
Impact of the virus on the economy
and market sentiment.
All of our suppliers have worked quickly to adapt to new ways of
working in accordance with government guidelines to enable all areas of
the business to continue, although at a slower rate than before.
During August, announcements indicated that the UK has technically
entered a severe recession as a result of two successive quarters of
negative GDP growth. However, there is a structural under supply of
new family homes in the UK and indications suggest that the pandemic
and recession may have increased demand for the Group’s high quality
but affordable product across multiple regions.
Valuations reduced due to changes
in rental levels, bad and doubtful
debt risk and sector attractiveness
impacting yields.
Independent valuers are advising that the sector is viewed as stable
and attractive, tenant demand remains strong and may even be
increasing due to changes in consumer requirements for housing
during the pandemic, low level of bad and doubtful debts reflecting the
procedures surrounding tenant vetting, deposits and insurance.
A second wave of the COVID-19
and potential for another national
lockdown.
Having experienced the first lockdown, the Group and Company has
a good understanding of how to react quickly to adapt to further
lockdowns. New systems are in place, which enable the Company
to better support tenants e.g. with online repairs and maintenance
assistance. It presently appears that lockdown measures are more likely
to be imposed on a localised basis in response to regional outbreaks of
the virus rather than on a national level. Given the geographic spread of
sites, the Group is likely to be able to continue construction and lettings
activity in those regions unaffected by restrictions. As mentioned
above, cessation of construction work on development sites would
reduce short-term cash outflows although practical completion and
lettings schedules would be delayed.
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STRATEGIC REPORT COVID-19 AND GOING CONCERN REVIEW (Cont.)
COVID-19 Stress Test
Conclusion of COVID-19 Stress Test
The conclusion of our stress test is that the parent
Company of the PRS REIT and the Group have more
than adequate cash resources to sustain an extended
cessation of construction and letting activity lasting
at least four months together with a longer period of
income reduction from tenant hardship resulting from
an economic downturn. The Group and Company also
has the flexibility to reduce further asset acquisitions
from Sigma should it have insufficient funds to complete
planned asset purchases.
The Directors therefore believe the parent Company of
the PRS REIT and Group are well placed to manage
its business risks successfully and have a reasonable
expectation that both will have adequate resources to
continue in operational existence for the foreseeable
future and for a period of at least 12 months from the
date of the approval of the Group and parent Company
of the PRS REIT’s financial statements for the year ended
30 June 2020. The Board is therefore of the opinion that
the going concern basis adopted in the preparation of the
consolidated and parent Company financial statements
for the year ended 30 June 2020 is appropriate.
COVID-19 Conclusion
Overall, COVID-19 remains a risk that requires careful
monitoring and management in conjunction with our
house building partners and letting agents in order to
mitigate the potential issues pending the restoration of a
more normal working and living environment. The Group
and the parent Company of the PRS REIT will continue
to review and assess objectively the impact of the
COVID-19 outbreak and government response on both
its strategy and focus of activities.
In light of the above, the Group and the parent
Company of the PRS REIT have performed a prudent
financial stress test geared towards ensuring that it has
sufficient cash resources to weather the pandemic and
subsequently emerge in a robust condition to continue
to implement its build-to-rent strategy. The stress test
incorporated the following sensitivities:
- availability of funds pursuant to the terms and
conditions of the Group’s existing borrowing facilities
with Scottish Widows, Lloyds Banking Group / RBS
and Barclays Bank PLC;
- cessation of construction activities across all sites for
a period of four months from the beginning of October
2020 to the end of January 2021 reflecting the risk of a
second lockdown;
- absence of development management fees, which are
payable to the Development Manager with reference to
independently assessed construction activities during
the four month period of the lockdown;
- absence of further asset purchases during this period,
in particular aborting the purchase of completed asset
sites from both Sigma Capital Group plc (“Sigma”) and
third parties;
- loss of 15% of rental income in relation to increased
hardship and redundancy levels affecting tenant
occupancy rates and arrears levels for a period of eight
months from October 2020 to the end of May 2021;
- inclusion of only contracted revenue from existing
tenancies and exclusion of any additional revenue from
new potential sources;
- inability to progress with lettings activity during the
four month period from October 2020 to the end of
January 2021;
- maintenance of the Group and Company’s existing
administrative overhead base of approximately £6
million per annum, comprising £4 million of investment
advisory fees and £2 million of other overheads,
without reduction from cost saving initiatives or
mitigating action; and
- continuation of the Company’s stated dividend policy
of a minimum of 1.0p per quarter and 4.0p per annum.
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STRATEGIC REPORT MARKET DYNAMICS
Research Report
MARKET DYNAMICS
Sigma PRS Management Ltd (“Sigma PRS”), a subsidiary of Sigma Capital Group plc (“Sigma”), is Investment Adviser
to the PRS REIT. In 2019, Sigma, one of the leading build-to-rent providers in the UK, with a significant track record in
family housing, commissioned a report into the Private Rental Sector (“PRS”), with the objective of gaining an up-to-date
picture of current consumer behaviour and attitudes towards renting and the rental experience.
The report, The Rental Experience: Setting the Standard, is based on qualitative and quantitative data collection and
surveyed more than 2,000 tenants across England during the second half of 2019.
WHO IS THE MODERN DAY RENTER?
KEY INSIGHTS
AVERAGE
7 THE
PRIVATE
RENTER
HAS
BEEN
RENTING
FOR
SEVEN
YEARS
THE AVERAGE AGE OF
THE RENTER IS 45
ON AVERAGE PEOPLE SPEND £661
PER MONTH ON THEIR RENT
THE AVERAGE PRIVATE RENTER
HAS BEEN RENTING FOR 7 YEARS
50% OF RENTERS
HAVE PETS
54% OF RENTERS LIVE
WITH A PARTNER
RENTERS ARE AFFLUENT WITH
OVER HALF CATEGORISING AS ABC1
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STRATEGIC REPORT MARKET DYNAMICS (Cont.)
REASONS FOR RENTING
69%
62%
43%
OF RENTERS AGREE THAT
THEY ARE RENTING BECAUSE
IT IS ALL THEY CAN AFFORD
OF RENTERS AGREE THAT THEY
CAN’T AFFORD TO BUY THE
SIZE OF HOUSE THEY NEED
OF RENTERS AGREE THAT
THEY ARE RENTING UNTIL
THEY CAN AFFORD TO BUY
43%
38%
36%
OF RENTERS AGREE THAT
THEY CAN’T GET A MORTGAGE
DUE TO THEIR CREDIT RATING
OR INCOME
OF RENTERS AGREE THAT THEY
ARE RENTING BECAUSE THEIR
PERSONAL CIRCUMSTANCES
HAVE CHANGED
OF RENTERS AGREE
THAT THEY LIKE THE
FLEXIBILITY OF RENTING
FOR RENT
33%
29%
17%
OF RENTERS AGREE THAT
THEY ARE NOT INTERESTED
IN BUYING A HOUSE
OF RENTERS AGREE THAT
RENTING HELPS TO FREE UP
MONEY FOR OTHER THINGS
OF RENTERS AGREE THAT
RENTING ALLOWS THEM
TO GET TO KNOW AN AREA
BETTER BEFORE BUYING
Data based on Sigma’s The Rental Experience: Setting the Standard market research report published June 2020.
Data collected during the second half of 2019 on all renters across the country (not in conjunction with the Simple Life or The PRS REIT portfolio).
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STRATEGIC REPORT MARKET DYNAMICS (Cont.)
WHAT ARE THE BARRIERS TO RENTING?
FOR SALE
34%
DO NOT
HANG
PICTURES
OF RENTERS WORRY THAT THEIR
LANDLORD MIGHT DECIDE TO SELL
RENTING CAN SEEM EXPENSIVE
AND INCREASINGLY SO
RESTRICTIONS OF WHAT IS
ALLOWED IN RENTAL HOMES
E.G. HANGING PICTURES AND
DECORATING
£
RENTING CAN BE
SEEN AS DEAD MONEY
RENTAL SECTOR HAS A POOR
SERVICE REPUTATION
ATTITUDES TO RENTING
24%
46%
22%
8%
51%
OF RENTERS WOULD
PREFER THE SECURITY
OF A 2+ YEAR
CONTRACT DURATION
Our research showed that almost half of renters (46%)
are quite happy renting, while 24% are very happy,
22% are not very happy and 8% are not at all happy.
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WHAT WAS PERCEIVED AS HIGHLY IMPORTANT
SEARCHING FOR A PROPERTY?
61%
82%
86%
VIEW THE GARDEN AS BEING
ONE OF THE REQUIREMENTS
AT THE TOP OF THEIR LIST
STATED A GOOD
QUALITY KITCHEN WAS
IMPORTANT
STATED THE PROPERTY
LOCATION WAS
IMPORTANT
WHAT WAS PERCEIVED AS LESS IMPORTANT
SEARCHING FOR A PROPERTY?
47%
23%
29%
STATED THE GARAGE
WASN’T IMPORTANT
WOULD OPT FOR AN OPEN
PLAN KITCHEN, DINING
AND LIVING AREA
STATED THAT HAVING
AN EN-SUITE WAS
IMPORTANT
WHAT ARE THE PERCEIVED
BENEFITS OF RENTING?
ACCESS TO
DISPOSABLE
INCOME
REDUCED
FINANCIAL
RESPONSIBILITY
MINIMISING
COST OF
MAINTENANCE
LEVERAGE ON
LOCATION
& PROPERTY SIZE/
TYPE
Data based on Sigma’s The Rental Experience: Setting the Standard market research report published June 2020.
Data collected during the second half of 2019 on all renters across the country (not in conjunction with the Simple Life or The PRS REIT portfolio).
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STRATEGIC REPORT PORTFOLIO ANALYSIS
PORTFOLIO ANALYSIS
Age Groupings
As at 30 June 2020, the valuation of the Group’s property
portfolio was £577 million (2019: £362 million) and the
investment value of all sites under way at that date was
£722 million on completion (2019: £552 million) with their
ERV on completion at £42 million (2019: £33 million).
Property Portfolio by Regional Split – at 30 June
2020
The regional split by investment value was – North West
(NW) 56% (2019: 70%), West Midlands (WM) 20%
(2019: 20%), South East (SE) 13% (2019: nil), Yorkshire
(Y) 7% (2019: 10%), North East (NE) 3% (2019: nil) and
East Midlands (EM) 1% (2019: nil).
The majority of the portfolio is located in the North
West with units in the West Midlands and South East
accounting for a growing proportion.
Other Metrics – at 30 June 2020
The rent roll at 30 June 2020 was £19.1 million (2019:
£10.7 million) and the average rent was £9,175 per
annum or £765 per month (2019: £9,120 per annum or
£760 per month).
Forecast average rent across the current portfolio when
complete is £9,154 per annum or £792 per month
(2019: £8,953 per annum or £746 per month).
The average size of site was 83 (2019: 85) housing
units.
The split between 1, 2, 3 and 4 bed properties was
approximately 4%, 26%, 61% and 9% respectively
(2019: 5%, 25%, 60% and 10% respectively).
Contractor split was – Countryside 86%; Engie 10%;
Vistry (formerly Galliford Try) 3%; and Seddon 1%
(2019: Countryside 84%; Engie 11%; Keepmoat
Homes 4% and Vistry (formerly Galliford Try) 1%).
The percentage split by age of our tenants was consistent
with the same point in the prior year. The 26-35 age
bracket still accounted for around 42% of our tenants,
which demonstrates the Company’s young family
demographic. There was a small increase in the under
25 age bracket, and a small increase in tenants aged 56
years and over.
1. Under 25
2. 26–35
3. 36-45
4. 46-55
5. 56-65
6. 65+
2020 2019
24%
22%
42%
43%
17%
19%
9%
10%
6%
5%
2%
1%
Household Income Bracket
The household income profile remained consistent year-
on-year. Households with an income of above £35,000
per year (an increase of about 2%) accounted for 54%
of total households, with the balance having an income
lower than £35,000. The proportion of households earning
under £25,000 has decreased to 23% (2019: 26%). The
figures below indicate the wide range of customers.
1. Under £25K
2. £25K–£35K
3. £35K-£45K
2020 2019
23%
26%
23%
22%
22%
20%
14%
14%
7%
8%
11%
10%
The deduction from gross to net rent across the
4. £45K-£55K
portfolio for the year ended 30 June 2020 was 21.1%
(2019: 17.6%).
5. £55K-£65K
Bad debt expense stood at £24,000 (2019: £13,000)
and bad debt provision was £35,000 (2019: £13,000).
6. £65K +
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
Tenancies with Children
Over the financial year, the number of tenant households
without children increased significantly (58%, compared
with 43% last year). This could be attributed to the
completion of new apartment schemes within the past
12 months. There was an increase in tenancies with 4+
children (7% last year, compared to 13% this year).
None
One Child
Two Children
Three Children
4+ Children
58%
43%
2020 2019
8%
20%
18%
21%
3%
9%
13%
7%
Distance Travelled
The data showing distanced travelled from previous
address is broadly consistent with the prior year across
the segments. Around 30% of households previously
lived locally (less than 3 miles away) (2019: 28%) and
approximately 17% previously lived over 50 miles away
(2019: 19%).
>3 Miles
3-10 Miles
10-50 Miles
>50 Miles
2020 2019
30%
28%
30%
30%
23%
23%
17%
19%
All 2020 statistics are based on new applicant data
between July 2019 and June 2020 and include sites
acquired from Sigma. The prior year’s statistics are
based on all successful Simple Life applications
referenced between June 2018 and June 2019.
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
DEVELOPMENT PORTFOLIO
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Baytree Lane, Middleton M24 2EL
NW 110
98,346
2.52% £18,190,000
£18,190,000 £184.96
£1,080,360
£10.99
Description: The development comprises a completed site of 110 units with a mix of two, three and four bedroom houses.
Address: Durban Mill, Oldham OL8 4JT
NW 80
69,425
1.71% £12,365,000
£12,365,000
£178.11
£734,700
£10.58
Description: The development comprises a completed development of 80 houses, with a mix of two, three and four bedrooms.
Address: Coral Mill, Newhey, Rochdale OL16 3SS
NW
69
54,282
1.44% £10,390,000
£10,390,000
£191.41
£608,340
£11.21
Description: The development comprises a completed development of 45 houses with a mix of three and four bedroom houses as
well as 24 two bedroom low rise apartments and therefore will provide a total of 69 units.
Address: Woodbine Road (Mackets Lane), Halewood, Liverpool, L25 9PB
NW 50
40,540
1.07% £7,700,000
£7,700,000 £189.94
£464,940
£11.47
Description: The development comprises a completed development of 50 houses with a mix of two, three and four bedroom houses.
Address: Woodford Grange (Woodford Lodge Phase 1 & 2), Winsford, CW7 4EH
NW
54
45,505
1.14% £8,235,000
£8,235,000 £180.97
£489,180
£10.75
Description: The development comprises a completed site of 54 houses with a mix of two, three and four bedrooms.
Address: Shrewsbury Close (Tintern Avenue), Middleton, M24 6JQ
NW
88
74,322
1.85% £13,320,000
£13,320,000 £179.22
£791,280
£10.65
Description: The development comprises a completed site of 88 houses with a mix of two, three and four bedroom houses.
Address: Galton Lock (Mafeking Road), Smethwick, B66 2EG
WM
63
52,874
1.50% £10,795,000
£10,795,000 £204.16
£605,460
£11.45
Description: The development comprises a completed development of 63 two, three and four bedroom houses.
Address: Hamilton Square (Howe Bridge Mill), Atherton, M46 0JT
NW
59
51,106
1.32% £9,560,000
£9,560,000 £187.06
£545,820
£10.68
Description: The development comprises a completed site of 59 units made up of two, three and four bedroom houses.
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Silkin Green, Hinkshay Road, Telford, TF4 3PF
WM
78
67,266
1.80% £12,970,000
£12,970,000 £192.82
£727,620
£10.82
Description: The development comprises a completed development of 78 two, three and four bedroom houses.
Address: Our Lady’s (Our Lady’s School), M28 0HF
NW
73
62,703
1.68% £12,125,000
£12,125,000 £193.37
£688,620
£10.98
Description: The development comprises a completed development of 73 two, three and four bedroom houses.
Address: Juniper Grove (Leach Lane), St Helens, WA9 4PJ
NW
55
46,303
1.19% £8,620,000
£8,620,000
£186.17
£483,600
£10.44
Description: The development comprises a completed development of 55 houses with a mix of two and three bedroom homes.
Address: Yew Gardens, Granby Road, Doncaster, DN12 1JU
Y
53
42,010
0.89% £6,430,000
£6,430,000 £153.06
£411,420
£9.79
Description: The development comprises a completed development of 53 houses with a mix of two and three bedroom houses.
Address: Park Grange House (Norfolk Park), Sheffield, S2 3RE
Y
24
18,447
0.44% £3,180,000
£3,180,000 £172.39
£213,360
£11.57
Description: The development comprises a completed development of 24 two bedroom apartments.
Address: Spirit Quarters, Monkswood Crescent, Coventry, CV2 1FG
WM
29
27,522
0.70% £5,085,000
£5,085,000 £184.76
£288,000
£10.46
Description: The development comprises a completed development of 29 houses with a mix of three and four bedroom houses.
Address: Spirit Quarters, Milverton Road, Coventry, CV2 1GN
WM
20
17,140
0.47% £3,400,000
£3,400,000 £198.37
£197,100
£11.50
Description: The development comprises a completed development of 20 houses with a mix of three and four bedroom houses.
Address: Highfield Green (Tower Hill 2), Knowsley, L33 1DF
NW
42
37,247
0.85%
£6,160,000
£6,160,000 £165.38
£372,060
£9.99
Description: The development comprises a completed development of 42 units with a mix of three and four bedroom houses.
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
STRATEGIC REPORT PORTFOLIO ANALYSIS
DEVELOPMENT PORTFOLIO (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Chase Park, Ellesmere Port, CH65 5DE
NW 40
40,126
0.90% £6,490,000
£6,490,000
£161.74
£385,380
£9.60
Description: The development comprises a completed development of 40 houses, with a mix of two, three and four bedroom houses.
Address: Prince’s Gardens (Manor Top – Phase 1), Sheffield, S2 1EY
Y
78
78,628
1.66% £11,990,000
£11,990,000 £152.49
£738,120
£9.39
Description: The development forms part of a wider development site with 78 units, being a mix of three and four bedroom houses.
Address: Prescot Park (Carr Lane), Prescot, L34 1NS
NW 140
116,016
3.05% £21,980,000
£21,980,000 £189.46
£1,289,520
£11.12
Description: The development comprises a part completed development, which comprises 24 one and two bedroom apartments
and 116 houses, with a mix of three and four bedroom homes.
Address: Earle Street, Newton le Willows, WA12 9XD
NW
97
80,451
2.04% £14,755,000
£14,755,000 £183.40
£867,480
£10.78
Description: The development comprises a part completed development of 24 one and two bedroom apartments and 73 houses,
with a mix of three and four bedroom homes.
Address: East Hill Gardens (East Bank Road), Sheffield, S2 3PX
Y
58
59,217
1.35% £9,750,000
£9,750,000 £164.65
£579,060
£9.78
Description: The development comprises a completed development of 58 units being a mix of three and four bedroom houses.
Address: Holybrook (Romanby Shaw), Bradford, BD10 0EH
Y
47
39,612
1.00%
£7,215,000
£7,215,000
£182.14
£424,620
£10.72
Description: The development comprises a part completed development of 47 houses, with a mix of two, three and four bedroom
houses. Completed in June 2020.
Address: Prince’s Gardens (Manor Top – Phase 2), Sheffield S2 1EY
Y
85
89,916
1.85% £12,955,000
£13,320,000 £148.14
£817,560
£9.09
Description: The development forms part of a wider development site with 85 units, being a mix of three and four bedroom houses.
Completion is due in November 2020.
Address: Ward’s Keep (Heathfield Lane Ph1 & 2), Darlaston, WS10 8QY
WM
109
86,494
2.35% £16,610,000
£16,975,000 £196.26
£982,500
£11.36
Description: The development comprises a part completed development which proposes 16 one bedroom apartments and 93 two,
three and four bedroom houses. Completion is due in February 2021.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Canalside (Whitworth Way), Wigan, WN6 7QF
NW 145
118,888
3.15% £22,125,000
£22,700,000 £190.94 £1,306,500
£10.99
Description: The development comprises a part completed development which proposes 24 two bedroom apartments and 121
two, three and four bedroom houses. Completion is due in October 2020.
Address: James Mill Way (Cable Street), Wolverhampton, WV2 2QD
WM
164
136,910
3.65% £24,350,000
£26,345,000 £192.43
£1,532,280
£11.19
Description: The development comprises a part completed development which proposes 164 two, three and four bedroom houses.
Completion is due in January 2021.
Address: Abbotsfield (Reginald Road), St Helens, WA9 4HX
NW
92
77,712
2.00% £14,460,000
£14,460,000 £186.07
£811,320
£10.44
Description: The development comprises a part completed development which proposes 102 two, three and four bedroom houses.
Completed in August 2020.
Address: Hollystone Bank (Riverside College), Runcorn, WA7 4DS
NW
83
64,513
1.70% £12,047,500
£12,300,000 £190.66
£704,160
£10.92
Description: The development comprises a part completed development which proposes 32 two bedroom apartments and 51 two,
three and four bedroom houses. Completed in July 2020.
Address: Hilton Park (Chadwick Street), Leigh, WN7 1RL
NW 103
80,108
2.07% £11,225,000
£14,955,000 £186.69
£888,180
£11.09
Description: The development comprises a part completed development which proposes 8 one bedroom apartments and 95 two,
three and four bedroom houses. Completion is due in May 2021.
Address: Sutherland Grange (Sutherland School), Trench, Telford, TF2 7JR
WM
123
106,521
2.89% £16,222,500
£20,855,000 £195.78
£1,169,940
£10.98
Description: The development comprises a part completed development which proposes 123 two, three and four bedroom houses.
Completion is due in March 2021.
Address: Havenswood (Newhaven Business Park), Eccles, M30 0HH
NW 84
63,423
1.81% £11,155,000
£13,055,000 £205.84
£744,120
£11.73
Description: The development comprises a part completed development which proposes 48 one and two bedroom apartments
and 36 three and four bedroom houses. Completion is due in October 2020.
Address: Stonefield Edge (Bilston Urban Village), Wolverhampton, WV14 0LA
WM
123
95,251
2.51% £14,722,500
£18,095,000 £189.97
£1,074,360
£11.28
Description: The development comprises a part completed development which proposes 48 two bedroom apartments and 75 two,
three and four bedroom houses. Completion is due in May 2021.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
STRATEGIC REPORT PORTFOLIO ANALYSIS
DEVELOPMENT PORTFOLIO (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Reynolds Place (Eaton Works), Walkden, M28 3GW
NW 148
122,761
3.09% £14,110,000
£22,265,000
£181.37
£1,333,200
£10.86
Description: The development comprises a part completed development which proposes 62 one and two bedroom apartments and
86 two, three and four bedroom houses. Completion is due in September 2021.
Address: Harewood Close (Durham Street), Rochdale, OL11 1AH
NW
38
30,465
0.78% £5,305,000
£5,640,000
£185.13
£322,380
£10.58
Description: The development comprises a part completed development which proposes 38 two and three bedroom houses.
Completed in August 2020.
Address: Rochwood Rise (Entwisle Road), Rochdale, OL16 2LJ
NW
54
45,001
1.15%
£7,765,000
£8,330,000
£185.11
£472,800
£10.51
Description: The development comprises a part completed development which proposes 54 two and three bedroom houses.
Completed in September 2020.
Address: Norwich Green (Norwich Street), Rochdale OL11 1LL
NW
70
57,166
1.46% £9,345,000
£10,515,000 £183.94
£596,700
£10.44
Description: The development comprises a part completed development which proposes 70 two, three and four bedroom houses.
Completion is due in October 2020.
Address: Brookside Grange (Roch Street), Rochdale, OL16 2NG
NW 100
72,557
1.86% £11,335,000
£13,410,000 £184.82
£796,740
£10.98
Description: The development comprises a part completed development which proposes 48 one and two bedroom apartments
and 54 two, three and four bedroom houses. Completion is due in November 2020.
Address: Coppenhall Place (Bombardier), Crewe, CW1 3JB
NW 131
110,875
2.73%
£7,785,000
£19,725,000 £177.90
£1,177,080
£10.62
Description: The development comprises a part completed development which proposes 24 two bedroom apartments and 107
three and four bedroom houses. Completion is due in August 2021.
Address: Beehive Mill, Bolton BL3 2NF
NW 121
99,167
2.57%
£9,637,500
£18,555,000
£187.11
£1,083,840
£10.93
Description: The development comprises a part completed development which proposed 121 two, three and four bedroom houses.
Completion is due in August 2021.
Address: Queen Victoria Place (Queen Victoria Street), Blackburn, BB2 2QG
NW
68
56,805
1.36%
£8,357,500
£9,790,000 £172.34
£581,460
£10.24
Description: The development comprises a part completed development which proposes 68 two, three and four bedroom houses.
Completion is due in November 2020.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Empyrean (Lower Broughton 5), Salford, M7 1GA
NW 298
182,077
5.61% £31,190,000
£40,505,000 £222.46 £2,596,560
£14.26
Description: The development comprises a part completed development which proposes 299 one, two and three bedroom
apartments. Completion is due in March 2021.
Address: Highfield Place (Tower Hill 3), Knowsley, L33 1DF
NW
92
73,011
1.72% £11,687,500
£12,430,000 £170.25
£739,140
£10.12
Description: The development forms part of a wider development site and comprises 92 units, being a mix of two and three
bedroom houses. Completion is due in November 2020.
Address: Millard Grange (Houghton Regis - Parcel 6), Houghton Regis, LU6 6JZ
SE
129
119,315
5.31% £23,795,000
£38,295,000 £320.96
£2,148,360
£18.01
Description: The development comprises a part completed development site which proposes 129 two, three and four bedroom
houses. Completion is due in July 2021.
Address: Millard Grange (Houghton Regis – Parcel 8), Houghton Regis, LU6 6JZ
SE
113
94,023
4.35%
£11,142,500
£31,405,000 £334.01
£1,761,840
£18.74
Description: The development comprises 113 two and three bedroom houses. Completion is due in March 2022.
Address: Belmont Place (Owens Farm), Hindley Green, WN2 4XS
NW 50
43,992
1.16% £8,370,000
£8,370,000 £190.26
£470,880
£10.70
Description: The development comprises 50 two, three and four bedroom houses. This scheme is complete.
Address: Brickkiln Place (Brickkiln Phases 1 & 2), Wolverhampton, WV3 0BS
WM
24
18,956
0.55% £3,855,000
£3,940,000 £207.85
£226,920
£11.97
Description: The development comprises 24 two, three and four bedroom houses. Completion is due in October 2020.
Address: Ashfield Park, Station Road, Normanton, WF6 2ND
EM
72
55,834
1.46% £4,745,000
£10,520,000 £188.42
£607,320
£10.88
Description: The development comprises 72 two and three bedroom houses. Completion is due in January 2022.
Address: Bracken Grange (Brackenhoe), Middlesbrough, TS4 3AE
NE
80
62,182
1.54% £4,057,500
£11,140,000
£179.15
£661,860
£10.64
Description: The development comprises 80 two and three bedroom houses. Completion is due in May 2022.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
DEVELOPMENT PORTFOLIO (Cont.)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Area
(sq ft)
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
Location Units
Address: Base at Newhall (Harlow – Phase 2), Harlow, CM17 9LR
SE
74
63,081
3.12% £10,627,500
£22,490,000 £356.53
£1,202,340
£19.06
Description: The development comprises a part completed development site which proposes 74 two, three and four bedroom
houses. Completion is due in March 2022.
Address: Kirkleatham Green, Redcar, TS10 4GY
NE
80
62,038
1.47% £3,430,000
£10,635,000
£171.43
£631,800
£10.18
Description: The development comprises 80 two and three bedroom houses. Completion is due in March 2022.
Address: Stanley Park (Stanley Potteries), Stoke, ST6 3PP
WM
63
50,880
1.29% £2,470,000
£9,295,000 £182.68
£528,480
£10.39
Description: The development comprises 63 two and three bedroom houses. Completion is due in June 2021.
Address: Dutton Fields (Airfields), Deeside, CH5 2RD
NW
99
80,460
2.05% £8,225,000
£14,800,000 £183.94
£875,100
£10.88
Description: The development comprises a part completed development site which proposes 99 two, three and four bedroom
houses. Completion is due in August 2021.
Address: Bluebell Manor (Dawley Road), Telford, TF1 2LT
WM
31
23,164
0.64% £1,080,000
£4,645,000 £200.53
£266,220
£11.49
Description: The development comprises 31 two and three bedroom houses. Completion is due in May 2021.
Address: Brickkiln Place (Brickkiln –Phase 3), Wolverhampton, WV3 0BS
WM
7
6,090
0.17%
£1,207,500
£1,235,000 £202.79
£70,200
£11.53
Description: The development comprises 7 three and four bedroom houses. Completion is due in October 2020.
TOTALS
Units
Area
(sq ft)
% of
Portfolio by
Investment
Value
Value of the
Development
at 30 June
2020
Investment
Value of the
Development at
30 June 2020
Capital
Rate psf
Market Rental
Value at 30
June 2020
Rental
Rate psf
4,460 3,668,724
100.00% £576,100,000
£721,700,000
£196.72
£42,168,180
£11.49
LOCATION KEY:
NW = North West, Y = Yorkshire, WM = West Midlands, SE = South East, NE = North East, EM = East Midlands
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
Development Portfolio - Mix by Property Size
Site
Baytree Lane
Durban Mill
Woodbine Road
Coral Mill
Woodford Lodge
Shrewsbury Close
Galton Lock
Hamilton Square
Silkin Green
Our Lady's
Juniper Grove
Yew Gardens
Park Grange House
Spirit Quarters, Monkswood Crescent
Spirit Quarters, Milverton Crescent
Highfield Green
Chase Park
Princes Gardens Ph 1
Prescot Park
Earle Street
East Hill Gardens
Holybrook
Princes Gardens Ph 2
Wards Keep
Canalside
James Mill Way
Abbotsfield
Hollystone Bank
Hilton Park
Sutherland Grange
Havenswood
Stonefield Edge
Reynolds Place
Harewood Close
Rochwood Rise
Norwich Green
Brookside Grange
Coppenhall Place
Beehive Mill
Queen Victoria Place
Empyrean
Highfield Place
Millard Grange Parcel 6
Millard Grange Parcel 8
Belmont Place
Brickkiln Place Ph 1&2
Ashfield Park
Bracken Grange
Base at Newhall Ph 2
Kirkleatham Green
Stanley Park
Dutton Fields
Bluebell Manor
Brickkiln Place Ph 3
Total
%
1 Bed
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6
6
0
0
0
16
0
0
0
0
8
0
24
0
4
0
0
0
12
0
0
0
99
0
0
0
0
0
0
0
0
0
0
0
0
0
175
4%
2 Bed
8
8
12
24
10
10
11
10
11
5
12
9
24
0
0
0
3
0
18
18
0
7
0
24
39
40
20
40
23
18
24
57
65
10
11
17
42
24
36
17
189
28
10
25
6
10
26
39
14
40
18
32
17
0
1,161
26%
3 Bed
82
64
38
39
39
76
46
41
59
62
43
44
0
27
19
34
23
58
107
58
35
33
54
53
92
105
64
37
68
81
26
50
59
28
43
53
42
93
78
47
10
64
104
88
33
10
46
41
49
40
45
61
14
6
2,711
61%
4 Bed
20
8
0
6
5
2
6
8
8
6
0
0
0
2
1
8
14
20
9
15
23
7
31
16
14
19
8
6
4
24
10
16
20
0
0
0
4
14
7
4
0
0
15
0
11
4
0
0
11
0
0
6
0
1
413
9%
Total
110
80
50
69
54
88
63
59
78
73
55
53
24
29
20
42
40
78
140
97
58
47
85
109
145
164
92
83
103
123
84
123
148
38
54
70
100
131
121
68
298
92
129
113
50
24
72
80
74
80
63
99
31
7
4,460
100.00%
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STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
FEATURED DEVELOPMENTS
FEATURED DEVELOPMENT
SHREWSBURY CLOSE
(TINTERN),
MIDDLETON,
GREATER MANCHESTER
88 units, comprising 2, 3 & 4 bedroom houses
Middleton in Greater Manchester is located
close to the main motorway networks, the M62
and M60, the main Manchester Outer Ring
Road and the A627(M). Shrewsbury Close has
excellent bus and rail networks, and is close to
the Metrolink line with Mill Hills station located
2.3 miles away.
The site benefits from excellent local amenities
and a good range of local schools, including the
nearby St Anne’s Academy.
FEATURED DEVELOPMENT
SPIRIT QUARTERS,
COVENTRY, WEST
MIDLANDS
49 units, comprising 3 & 4 bedroom houses
With new-build housing, green spaces, excellent
local transport links and employment opportunities,
the area has been completely transformed and is
now recognised as a very desirable place to make
a home.
Situated just 3 miles from the city centre, Spirit
Quarters is close to a number of local parks and
leisure facilities including Moat House Leisure,
Moat House Park, and Woodway Walk.
The development has proved to be very attractive
to young families with good local schools nearby,
including Moat House Primary, St. Patrick’s Catholic
Primary and Henley Green Primary schools.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT PORTFOLIO ANALYSIS (Cont.)
FEATURED DEVELOPMENT
HIGHFIELD PLACE
(TOWER HILL 3),
KNOWSLEY,
MERSEYSIDE
96 units, comprising 2 & 3 bedroom houses
Liverpool city centre is just 10 miles south west
of Highfield Place, with links from the station
every half an hour. There is also easy access
to the M58 and M56 motorways, providing
excellent connections to the wider region.
Highfield Place benefits from 23 Good or
Outstanding OFSTED rated primary schools
within a three mile radius, and three Outstanding
secondary schools and colleges are also nearby.
Kirkby town centre is close and Aintree
Racecourse is less than 20 minutes’ drive away.
FEATURED DEVELOPMENT
EMPYREAN (LB5),
SALFORD, GREATER
MANCHESTER
298 units, comprising 1, 2 & 3 bedroom apartments
This new development of 298 apartments
in Salford, is just a 20 minute walk from
Manchester’s Deansgate.
The apartments are spread across six blocks
either side of the newly-renovated Church of
Ascension. Situated directly opposite Green
Grosvenor Park and a stone’s throw away
from the river Irwell, these homes are ideal for
professionals, young families or couples wanting
an easy commute to the city centre.
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STRATEGIC REPORT
INVESTMENT STRATEGY AND BUSINESS MODEL
Business Model
Demand for homes continues to outstrip supply in the UK
and while the delivery of new homes reached a 13-year
high in 2019 at 160,000, the annual construction of new
homes remains significantly short of the Government’s
target of 300,000 new homes per annum. Demand
continues to grow, assisted by historically low levels of
interest rates (for those with deposits) and a change in
household formation. This has further exacerbated house
price growth, which has outstripped wage inflation and
pushed home ownership out of reach for many.
In the private rental sector itself, where those unable to buy
would usually find housing, the number of homes owned
by small scale and amateur landlords is falling as changes
to taxation make ‘buy-to-let’ a less attractive investment
proposition without scale. It is within this context that the
Company is providing a professionally-managed alternative
tenure with the creation of accessible, quality family homes
to rent.
The Company has developed a scalable business
model, which delivers brand new houses across multiple
geographies and sites, utilising the Investment Adviser’s
PRS property platform. New home designs are carefully
selected from house builders’ standard range of house
types and have a consistent specification together with fully
costed delivery metrics, including above ground cost and
construction time. By standardising the housing types at a
portfolio level and the internal specification at the dwelling
level, predictability of total delivery cost is improved and the
cost of managing assets over the long-term is reduced.
The Company’s exposure to development risk has been
minimised through the use of fixed price design and build
contracts and the acquisition of sites that have detailed
planning consent already in place. House building partners,
meanwhile, look to maximise their return on capital by
building the Company’s homes at construction pace rather
than ‘for sale’ pace. This is at least four times quicker, so
generating income flows for partners much more quickly
than a traditional build-out of a purely ‘for sale’ construction
site. The modern methods of construction now employed
by some of the construction partners further speeds up
delivery. At a time of low housing delivery, this delivery
methodology is extremely attractive to councils and local
authorities, not only because it accelerates council tax
receipts, income from ‘New Homes Bonus’ scheme, and
regeneration, but also because it provides a new managed
tenure for constituents.
The active management of developments and the creation
of communities is key to the long-term success of the
Company and all its homes are managed under the
‘Simple Life’ brand. As the portfolio grows, ‘Simple Life’ is
becoming increasingly familiar to the wider market, and its
identity is becoming defined by the Company’s high quality
properties and professional customer service. Regular
communication and customer events foster the creation
of thriving neighbourhoods and a satisfied customer base,
thereby promoting longer term tenancies.
When planning developments, research drives decisions
on the mix and types of houses, and the Company’s
seeks to create developments that will appeal to a
wide range of potential customers, as well as its main
demographic of young families. This diversification helps
to create a mixed community of ages and mitigates
against letting and void risk.
The Company’s scale and approach to site locations
as well as its focus on houses, rather than apartment
blocks, mitigates further risks. By creating a portfolio with
geographic diversity and multiple locations the Company’s
minimises the risks from local factors, such as the failure
of major employers. Individual developments are relatively
small by comparison to the overall size of the portfolio,
INSIDE HOUSING AWARDS
- Best Partnership 2019
(Shortlisted)
YORKSHIRE INSIDER PROPERTY AWARDS
- Public Private Partnership 2020
- Large Development of the Year 2020
PROPERTY WEEK RESI AWARDS
- Landlord of the Year 2020
(Shortlisted – winner to be announced)
(Shortlisted for both – winner to be announced)
28
28
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT INVESTMENT STRATEGY AND BUSINESS MODEL (Cont.)
and the Company’s large and growing customer base
also offsets overall income volatility, especially as average
tenancy terms are expected be three years. Furthermore,
the targeted expansion of the Company’s geography
creates a good mix of sites which, once built, demonstrate
both higher yielding profiles (predominantly those in
the north) and developments where there is significant
headroom between the delivery cost and market value.
This approach has created a robust business which
meets an important social need and provides investors
with an attractive level of income and the potential for
capital growth.
Investment Objectives
The Company seeks to provide investors with an attractive
level of income together with the prospect of income
and capital growth through investment in a portfolio of
newly constructed residential private rented sector sites
of multiple units (“PRS units”) comprising mainly family
homes, to be let on Assured Shorthold Tenancies (as
defined in the Housing Act 1988) to qualifying tenants.
Investment Policy
The Company’s investment policy is to pursue its
investment objective by investing in PRS units in or near
towns and cities in the UK predominantly the Midlands
and the North.
The Company is creating a portfolio of homes targeted
at the family market, the largest cohort within the private
rented sector, and therefore is investing predominantly in
housing with the addition of some low rise apartments to
provide both choice and wider market appeal, in the major
conurbations and larger employment centres in the UK,
predominantly England, outside London. The locations are
chosen for their accessibility, in that they are situated on
the main road and rail links, with access to good primary
schooling and economic activity, promoting long term
employment prospects and thereby a strong need for
housing. The new build nature of the assets, alongside
standardised specifications, means that they benefit from
a 10-year building warranty, typically from the NHBC
(National House Building Council) as well as manufacturers
warranties, providing for a low level of capital expenditure
allied to a predictable and low cost maintenance regime.
The sourcing of assets is undertaken by the Investment
Adviser (“Sigma PRS”) and is done so by two principal
methods. In the first instance, development sites
(‘PRS development sites’) are selected and assessed,
detailed planning permission achieved and a fixed price
design and build contract signed with one of the Sigma
PRS’s construction partners and the delivery process
is managed on behalf of the Company by Sigma PRS.
As the assets are acquired with detailed planning
consent and fixed price design and build contracts, the
Company is exposed to minimal development risk. The
construction risk is mitigated with standard design and
build contracts containing liquidated damages clauses for
non-performance, financial retentions for one year post
completion and a parent company guarantee ensuring the
satisfactory performance by the contractor and providing
an indemnity for losses incurred. The Company will source
approximately two thirds of its assets in this way.
To expedite the growth of the Company, the balance of
assets are acquired by entering into forward purchase
agreements with the Sigma Capital Group plc (“Sigma”),
the ultimate holding company of Sigma PRS, which are
acquired as completed and stabilised developments
using the same construction partners and supply chain,
thereby ensuring homogeneity of the housing stock. A
variation on this method is the purchase of completed and
stabilised developments from third parties using approved
construction partners.
Awards
WINNER
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Property Management Awards –
Build to Rent Provider of the Year
2019 (Winner)
INSIDER NORTH WEST
RESIDENTIAL PROPERTY AWARDS
- Social Impact Award 2020
(Shortlisted)
NORTHERN MARKETING AWARDS -
Property and Construction Campaign
2019
(Shortlisted)
STRATEGIC REPORT INVESTMENT STRATEGY AND BUSINESS MODEL (Cont.)
Investment Restrictions
The Group is aiming to create a high quality, diversified
portfolio and the following investment restrictions are
observed:
the Group is only investing in private rented
residential houses and apartments located in the UK
(predominantly in England);
The total facilities available to the Group at 30 June 2020
comprise a £150 million revolving credit facility with Lloyds
Banking Group / RBS; and two fixed rate term loans
with Scottish Widows for £100 million and £150 million
respectively. Following the year end, the Company entered
into a £50 million development debt facility with Barclays
Bank PLC.
no investment in the Group in any completed PRS site
or PRS development site will exceed 20 percent of the
aggregate value of total assets of the Group at the time
of commitment, as determined in accordance with the
accounting principles adopted by the Group from time
to time (the ‘gross asset value’); and
the Group is not investing in other alternative
investment funds or closed ended investment
companies.
Debt Financing and Gearing
The PRS REIT is using gearing to enhance equity returns.
The level of borrowing will be on a prudent basis for the
asset class, whilst maintaining flexibility in the underlying
security requirements and the structure of both the PRS
portfolio and the Group. The Group has raised debt from
banks, Homes England and the capital markets. The
aggregate borrowings of the Group is always subject to an
absolute maximum, calculated at the time of drawdown
of the relevant borrowings, of not more than 45% of
the gross asset value, although the Investment Adviser
expects actual gearing to settle to around 40% following
stabilisation of the PRS portfolio.
At the end of June 2019, the Group agreed term debt
facilities of £150 million with Scottish Widows in addition
to the previous term debt facility of £100 million with
Scottish Widows. The £150 million facility is a 25 year
fixed rate term loan. Interest is fixed at 1.164% plus a
margin. It was drawn on fixed dates between April and
October 2020.
Although the aggregate debt facilities total £450 million,
£75 million of the Lloyds Banking Group / RBS facility and
the £50 million Barclays Bank PLC debt facility can be
drawn as development debt facilities to enable a larger
number of sites to be developed simultaneously. Following
practical completion and stabilisation of lettings on sites
partially funded by development debt, the assets are
refinanced using the Company’s longer-term investment
debt facilities. On this basis, the total borrowings will not
exceed the maximum gearing level of 45% highlighted
above.
Derivatives
The PRS REIT may utilise derivatives for efficient portfolio
management. In particular, the Company may engage in
full or partial interest rate hedging or otherwise seek to
mitigate the risk of interest rate increases on borrowings
incurred, in accordance with the gearing limits as part of
the management of the PRS Portfolio.
REIT Status
The Company will at all times conduct its affairs so as to
enable it to remain qualified as a REIT for the purposes
of Part 12 of the Corporation Tax Act 2010 (and the
regulations made thereunder).
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
INVESTMENT ADVISER’S REPORT
Sigma PRS Management Ltd (“Sigma PRS”), a wholly-
owned subsidiary of Sigma Capital Group plc, is the
Company’s Investment Adviser, and is pleased to provide
a report on the PRS REIT’s activities and progress for the
year ending 30 June 2020.
The Company is concentrating on traditional housing,
which has a broad spectrum of demand, and differing
house types for different life stages, including smaller
houses for young couples and retirees, and larger houses
for growing families. It also invests in some low-rise flats
in appropriate locations to broaden its rental offering.
Business Activities
The PRS REIT plc is a public limited company
incorporated in England on 24 February 2017. Together
with its subsidiaries, it is the first quoted Real Estate
Investment Trust (“REIT”) to focus on the Private Rented
Sector (“PRS”).
The Company completed its IPO on 31 May 2017, raising
initial gross proceeds of £250 million through the issue of
250 million ordinary shares of one pence each at an issue
price of £1 each and its shares were admitted to trading
on the Specialist Fund Segment of the Main Market of the
London Stock Exchange. The Company has since raised
additional funds, through a further placing and through
gearing, taking its total available resources to £900 million
(gross).
Investment Objective and Business Model
The PRS REIT is seeking to provide investors with an
attractive level of income, together with the prospect
of income and capital growth, through investment in
newly-constructed residential private rented sector
sites of multiple units, comprising mainly family homes.
The homes are let on Assured Shorthold Tenancies (as
defined in the Housing Act 1988) to qualifying tenants.
The Company is investing in multiple sites in cities
and towns across the UK, mainly targeting the largest
employment centres in England predominantly the
Midlands and North, but outside of London. The locations
closely follow the main rail and road infrastructure, and
rental homes, being newly-built, come with the benefit
of 10 year National House Building Council or equivalent
warranties.
The PRS REIT is building its portfolio of PRS assets in
two ways:
by acquiring residential development opportunities,
with these development sites sourced and managed
by Sigma PRS (or another member of Sigma Capital
Group plc acting as development manager). When
completed, homes on these sites are subsequently let
to individual qualifying tenants; and
by acquiring already completed and let PRS sites that
fulfil the Company’s investment objectives, including
appropriate return and occupancy hurdles. Completed
sites are acquired from Sigma Capital Group plc,
pursuant to a forward purchase agreement between
the PRS REIT and Sigma Capital Group plc and
subject to an independent valuation appraisal. Should
the opportunity arise, the PRS REIT may acquire
newly-built PRS assets from third party vendors. The
Company has the ability to fund up to a maximum of
one third of new properties in this manner.
The PRS REIT retains the right of first refusal to acquire
and develop any sites sourced by Sigma PRS that meets
its investment objective and policy.
There are certain restrictions in the PRS REIT’s
investment policy, for instance the PRS REIT will not
invest in other alternative investment funds or closed-end
investment companies.
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STRATEGIC REPORT INVESTMENT ADVISER’S REPORT (Cont.)
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser is utilising Sigma Capital
Group plc’s well-established PRS property delivery and
management platform (“Sigma PRS Platform”) to help the
PRS REIT achieve scale and to minimise development
and operational risks. Specifically, the Sigma PRS Platform
facilitates the efficient sourcing and development of
investment opportunities.
‘Simple Life’ Brand
The PRS REIT’s rental homes are marketed under the
‘Simple Life’ brand. The brand has created an identity
for the PRS REIT’s product and, over time, we would like
it to be recognised as a ‘gold standard’ for the tenant
experience, providing a combination of a high-quality,
sensibly-priced product together with high customer
service levels.
The PRS REIT’s long-term approach to the ownership of
its assets provides further reassurance to tenants, and
the neighbourhood initiatives that we sponsor also help to
foster a sense of community within our developments.
Financing Resource
Equity Placing Programme
Two tranches of equity have been raised to date,
£250m (gross) at the Company‘s IPO on 31 May 2017,
and a further £250m (gross) in February 2018. Homes
England participated in both fundraisings, taking its direct
investment in the Company to a total of approximately
£30 million.
Debt Facilities
The Company is using gearing to enhance equity returns,
and in June 2019, agreed terms with Scottish Widows
and Lloyds Banking Group to increase its total debt
facilities to £400 million. Further details can be found in
the ‘Financial Results’ segment of this report on page
34. After the financial year end, the Company arranged a
further £50 million development debt facility with Barclays
Bank PLC. The PRS REIT’s aggregate borrowings will
always be subject to an absolute maximum, calculated at
the time of drawdown of the relevant borrowings, of not
more than 45 per cent of the value of the assets.
The Sigma PRS Platform comprises relationships with
construction partners, central government, and local
authorities. Key construction partners include Countryside
Properties, which is the primary house building partner,
Engie, Seddon and Vistry. Homes England, an executive
non-departmental public body sponsored by the Ministry
of Housing, Communities & Local Government, works
closely with Sigma in the common goal of accelerating
new housing delivery in England.
All pre-development risks are identified and underwritten
by Sigma Capital Group plc and its partners, and
development sites will have an appropriate certificate of
title, detailed planning consent and a fixed price design
and build contract with one of Sigma Capital Group plc’s
housebuilding partners. During the construction phase,
many of the properties are pre-let and subsequently
occupied as they complete.
Through its wide network of relationships, the Sigma
PRS Platform represents a very good source of land
for development sites, and is able to deliver a variety of
high-quality house types efficiently and in volume. This
underpins the PRS REIT’s objective to build at scale and
across multiple geographies.
Multiple Geographies
By creating assets across multiple locations and regions,
we aim to minimise the PRS REIT’s concentration risk.
We are targeting a mix of locations that demonstrate both
higher yielding profiles (predominantly those in the North
of England) and developments where there is greater
potential for capital appreciation (often in our Southern
opportunities). Proximity to good primary schools is also a
key requirement as the Company is focused on the family
rental market.
In addition, no investment will be made in any single
completed PRS site or PRS development site that
exceeds 20 per cent of the aggregate value of the total
assets of the Company at the time of commitment.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT INVESTMENT ADVISER’S REPORT (Cont.)
Operational Review
Development Activity and Acquisitions
Delivery of new homes from the development pipeline
remains the key focus. However, during the second half
of the financial year, the COVID-19 pandemic interrupted
delivery when the Government implemented a national
lockdown. Construction activity was suspended for
approximately six weeks, from the end of March to
early May. Sites were reopened with social distancing
and other safety measures in place, which has had the
effect of slowing the pace of delivery. We estimate that
the shutdown and decrease in productivity reduced unit
delivery in the year by 600 homes.
Notwithstanding the disruption, a total of 909 homes
were completed in the year to 30 June 2020, compared
with 768 in the prior year. This reflected the significant
increase in the number of sites in the delivery programme
and took the total number of completed homes at the
end of June 2020 to 2,082 (2019: 1,173) across six of
the eight major regions of England.
The Company also acquired one fully-developed and let
site, comprising 50 homes from Sigma Capital Group
plc. As with previous sites acquired from Sigma Capital
Group plc, the site was independently assessed by Savills
before acquisition. The site is located in the Wigan and
provides an ERV of £0.48 million per annum.
The estimated rental value of the portfolio at 30 June
2020 amounted to £19.1 million per annum, a 79%
increase year-on-year (30 June 2019: £10.7 million).
The table below provides further detail in summarised
form of our development activity in 2020 and 2019,
including activity in the first quarter of the new financial
year.
At
30 September 2020
At
30 June 2020
At
30 June 2019
Number of completed homes
2,634
2,082
1,173
ERV of completed homes
£24.3m p.a.
£19.1m p.a.
£10.7m p.a.
Completed sites
Contracted sites
24
40
21
41
17
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Number of contracted homes
2,369
2,803
3,196
ERV of contracted homes
£23.3m p.a.
£27.4m p.a.
£30.5m p.a.
Construction Resource
The construction resource provided by the Sigma
PRS Platform now has national reach. It underpins the
continued expansion of the Company to key population
centres in England, supporting the creation of a
geographically diverse portfolio.
There are many clear benefits for our construction
partners in partnering with us. These include strengthening
their ability to bid for land with local councils and
improving operational efficiencies with their own housing
delivery. This partnership approach is working well and the
model we operate of using standard family house types,
fixed price design & build contracts, and standardised
specification, helps to ensure that developments are built
to budget and that our PRS assets can be maintained and
managed efficiently.
In our annual report last year we highlighted that we
had started to take delivery of homes produced by
Countryside Properties new sectional-building technology.
We are delighted to announce that over 530 of our new
homes have now been constructed using this system.
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STRATEGIC REPORT INVESTMENT ADVISER’S REPORT (Cont.)
Financial Results
Income statement
The Group’s revenue (which is wholly derived from rental
income) more than doubled over the year to £12.9
million (2019: £6.0 million). After the deduction of non-
recoverable property costs, the net rental income was
£10.2 million (2019: £4.9 million). Administration expenses
were marginally higher at £6.2 million (2019: £5.9 million).
The gain from the fair value adjustment on investment
property was £15.8 million (2019: £15.6 million), the
small increase reflecting the delay to construction works
during the lockdown period in the current financial year.
Operating profit was £19.9 million (2018: £14.6 million).
Finance income for the period from short-term deposits
was £0.2 million (2019: £0.8 million), whilst finance costs
were £3.7 million (2019: £0.9 million) reflecting the debt
utilisation during the year. The profit after finance income
and taxation was £16.4 million (2019: £14.6 million).
The basic and fully diluted earnings per share on an IFRS
basis for the year was 3.3p (2019: 2.9p).
Dividends
The Company has declared and paid a total of 4.0p per
ordinary share for the year under review, which comprised
the following:
On 31 October 2019, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary
Share in respect of the period from 1 July 2019
to 30 September 2019, which was payable on 29
November 2019 to shareholders on the register as at
15 November 2019.
On 31 January 2020, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary
Share in respect of the period from 1 October 2019 to
31 December 2019, which was payable on 28 February
2020 to shareholders on the register as at 7 February
2020.
On 18 June 2020, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary
Share in respect of the period from 1 January 2020 to
31 March 2020, which was payable on 17 July 2020 to
shareholders on the register as at 26 June 2020.
On 7 August 2020, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary
Share in respect of the period from 1 April 2020 to 30
June 2020, which was payable on 18 September 2020
to shareholders on the register as at 21 August 2020.
Balance Sheet
The principal items on the balance sheet are investment
property of £577.1 million (2019: £362.3 million), cash and
cash equivalents of £59.3 million (2019: £229.9 million),
long-term loans of £150.0 million (2019: £100.0 million)
and trade and other payables of £23.9 million (2019:
£23.4 million).
The investment property includes completed assets and
assets under construction at fair value. Trade and other
payables includes £8.0 million of development expenditure
that was paid in July 2020.
Debt Financing
The PRS REIT has the following debt facilities:
£150 million revolving credit facility with Lloyds Banking
Group / RBS for an initial term of two years, which
can be extended further for up to two years. Interest is
based on three month LIBOR plus applicable margin
and the loan is secured over assets allocated to Lloyds
Banking Group. This was undrawn at 30 June 2020 but
drawdown commenced shortly after the year-end;
£100 million term loan of 15 years with Scottish Widows,
which was drawn in two equal instalments in March and
April 2019. Interest is fixed at the 15 year swap rate of
1.588% plus applicable margin and the loan is secured
over assets allocated to Scottish Widows;
£150 million term loan for 25 years with Scottish
Widows of which £50 million was drawn in April 2020,
a further £60 million was drawn in July 2020 and the
remaining instalment is due to be drawn in October
2020. Interest was fixed at the relevant swap rate of
1.164% plus applicable margin and is secured over
assets allocated to Scottish Widows; and
Subsequent to 30 June 2020, the Company arranged
a further £50 million development debt facility with
Barclays Bank PLC. Interest is based on three month
LIBOR plus applicable margin and the loan is secured
over assets allocated to Barclays Bank PLC.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STRATEGIC REPORT INVESTMENT ADVISER’S REPORT (Cont.)
Key performance indicators
The Group’s key performance indicators (“KPI”) include:
KPI
Rental income (gross)
Average rent per month per tenant
Non-recoverable property costs as a percentage of
gross rent (gross to net)
Fair value uplift on investment property
Operating profit
Dividends paid per share in relation to the period
Number of properties available to rent
June 2020
June 2019
£12.9m
£766
21.1%
£15.8m
£19.9m
4.0p
2,082
£6.0m
£760
17.6%
£15.6m
£14.6m
5.0p
1,173
All the KPIs are in line with management expectations. Increases in rental income, non-recoverable property costs,
operating profit, and the number of properties available to rent reflect the increased size of the portfolio and the
progression of development sites.
Market Overview
New housing delivery over the course of 2019/20
continued to fall short of annual government targets of
between 240,000 and 340,000 new homes per annum. It
is estimated that the deficit over the year was a minimum
of 70,000 new dwellings. The COVID-19 crisis of 2020,
which saw the shutdown of all building sites for at least
six weeks and reduced activity levels thereafter, has
further dampened unit output.
The supply of rented properties has also reduced
following tighter regulation and increased tax burdens,
which caused large outflows from the ‘Buy-to-let’ sector.
According to Savills, in 2010, 78% of landlords in the
private rented sector owned more than one property,
but by 2018, this had reduced to 45%. This represents a
gross loss of over 40,000 buy to let homes per annum in
each of the last three years.
With the average home in the UK now a multiple of 7.7
times gross average salary, the choices available to those
who are too economically active to qualify for affordable
housing but without sufficient savings to pay for a
minimum deposit (including to qualify for “Help to Buy”),
are increasingly limited. The Build-to-Rent (“BTR”) sector
can absorb some of this demand, although currently
there are only 43,000 operational homes, and just 33,500
under construction.
BTR currently accounts for just 1% of all private rented
homes in the UK, which when compared to 45% in the
US and 35% in Germany, indicates the sector’s potential
growth. Savills estimates that the sector, currently
estimated to be worth £10 billion, could expand to nearer
£550 billion at full maturity.
The UK market continues to focus on high-density flatted
developments in city centre locations whilst the PRS REIT
has maintained its focus on regional family homes. The
relevance of the PRS REIT’s housing model has been
brought into sharp relief this year with COVID-19 and
home-working causing tenants to rethink their space
requirements and the need for private outdoor space.
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STRATEGIC REPORT INVESTMENT ADVISER’S REPORT (Cont.)
Post Period Review
Summary and Outlook
The growth opportunity available to the PRS REIT remains
substantial, driven by the strong underlying supply and
demand fundamentals in the housing market. We also
believe that PRS housing (at scale) can play a part in
accelerating the overall delivery of new homes, a key
agenda with local authorities and Central Government.
In addition, the track record that we have established
in delivering high quality new homes over multiple sites
through our efficient supply chain platform places the
Company in a strong position in the PRS market.
Notwithstanding current political uncertainties, we believe
that the Company remains firmly on track to invest its
full available capital and associated gearing to time and
budget.
Progress since the start of the new financial year
has continued positively, in line with management
expectations.
Over the first quarter of the new financial year, 552
new homes were added to the portfolio, taking the
number of completed homes at 30 September 2020 to
2,634, providing an ERV of £24.3m. The development
pipeline also grew over the first quarter with a number
of acquisitions of additional plots from existing sites and
further commitments to new sites, including at Hexthorpe
in Yorkshire. This increased the development pipeline
by a further 124 homes at the end of September 2020,
taking contracted homes to 2,369 homes, with an ERV of
£23.3 million per annum. The total ERV of contracted and
completed homes at 30 September amounted to £47.6
million.
Approximately 96% of the Company’s total net funding
has now been deployed and the balance is expected to
be contracted over the coming months. The total portfolio
is anticipated to comprise approximately 5,200 new family
homes.
The table below provides further information of delivery
activity over the first quarter of the new financial year.
At
30 September 2020
At
30 June 2020
Number of completed PRS homes
2,634
2,082
ERV of completed homes
£24.3m p.a
£19.1m p.a
Number of contracted homes
2,369
2,803
ERV of contracted homes
£23.3m p.a.
£27.4m p.a.
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MY
SIMPLE LIFE
STORY
CHARLIE SAY
Charlie Say is at a pivotal and exciting time in his life – he’s about to get married and wanted to
take the hassle out of his living arrangements, opting for a Simple Life home in Walkden, Salford.
IT’S ALL ABOUT THE
LOCATION!
“One of the great things about
living here is the location.
Walkden is an up and coming
part of Manchester where a
lot of our friends have moved
to recently. The centre is
undergoing a lot of regeneration
and there are plenty of new
build homes being built in
the area. We are so close to
the train station meaning an
easy commute for me and my
spouse, who will be moving in
after we get married.”
AESTHETICALLY PLEASING…
“Something else that we were
really attracted to Simple
Life was how modern the
apartments are. It’s above
and beyond the rest of the
properties we looked at. The
décor and colour scheme is
fresh and modern; perfect for
relaxing after work in front of
the TV!”
COMMUNITY
“The site itself has a nice
vibrant community feel, it’s
really fun to live in. There’s a
good vibe about this apartment
block in particular. We also
have a Facebook group
where everyone talks about
the practical things, like bins,
parking spaces and things like
that which I find really helpful.”
“I COULDN’T RECOMMEND
SIMPLE LIFE AS A LANDLORD
ANY MORE HIGHLY!”
“Honestly, Simple Life are very
caring landlords - you are a
person to them, not just money
in their books. I’m organising
a wedding so I didn’t want the
stress of buying a house at the
same time and Simple Life make
renting easy. It just makes sense
at this stage of my life. They’re
accessible and easy to talk to
and I like that maintenance isn’t
my problem, but if I do have any
issues they are on-hand to fix
them straight away.
“When I first moved in on
a Saturday, there was a
problem with my toilet and the
maintenance team was here
on the Sunday to fix it, which is
brilliant service.”
I COULDN’T
RECOMMEND
SIMPLE LIFE MORE; IN
FACT, SOME OF MY
FRIENDS ARE ALREADY
RENTING SIMPLE LIFE
PROPERTIES!
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STRATEGIC REPORT
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Sustainability
The Company recognises that it is a long-term
stakeholder in the communities and neighbourhoods it
creates, and takes this responsibility very seriously. The
Investment Adviser has joined the United Nations Global
Compact (“UN Global Compact”), which is a voluntary
initiative designed to encourage business leaders to
implement universal sustainability principles and in
particular the UN Global Compact’s Ten Principles. These
are derived from the Universal Declaration of Human
Rights, the International Labour Organisation’s Declaration
on Fundamental Principles and Rights at Work, the Rio
Declaration on Environment and Development, and the
United Nationals Convention Against Corruption.
high-quality, well-designed, energy efficient homes;
the potential for stable, long-term tenancies;
well-located developments that offer ready access to
centres of employment, good local primary education,
public transport and retail centres;
professional repair and maintenance;
high levels of customer service; and
regular community events.
The Company is therefore committed to aligning its
strategies and operations with the Ten Principles and to
taking action to advance broader societal goals. Most
specifically, the Company aims to create residential
environments that promote societal and individual well-
being through the provision of:
Homes are suitable for a wide range of tenants, levels
of affordability and life-stages, offering families and
individuals the opportunity to move to larger or smaller
homes dependent on their needs. In this way, the
Company’s developments support a diverse demographic
profile and help to create sustainable neighbourhoods.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Environmental
Many of the Company’s developments are part of
wider regeneration programmes and utilise brownfield
sites, often repurposing former industrial buildings and
disused land.
The development process however is under the direct
responsibility of the Company’s house building partners.
As part of the Company’s due diligence process when
relationships are established, the Company undertakes a
thorough examination of house building partner policies
regarding environmental practices. The Company requires
delivery partners to be able to demonstrate policies on
the management and origination of their supply chain,
usage of resources and their approach to biodiversity.
The Company’s two key delivery partners, Countryside
Properties and Vistry are both classed as being a ‘Low
Risk’ by Sustainalytics in their overall approach to
Environmental, Social and Governance and are both
rated in the top 10 out of 76 of their peer group for their
approach.
Homes are constructed to relevant building regulations
and have a minimum energy performance rating of ‘B’
and feature energy efficient LED lighting or low energy
bulbs, whole house ventilation systems and efficient gas
central heating systems. Innovation is important and the
Company works with housebuilding partners to improve
the performance and future proofing of the homes
through regular specification reviews.
The most significant change to housing delivery over
the year has been the increasing use of Countryside
Properties’ new sectional-building technology. This
has reduced waste, increased on-site efficiencies and
decreased build period. Additionally the system allows for
increased control of cost and availability of raw materials,
improved quality control, lower transportation usage (and
thereby reduced vehicular emissions), and a reduction
in Health and Safety risk, due to the controlled internal
production environment.
In its use of materials, the system is accredited to PEFC
ST 2002:2013, which requires the demonstration of the
chain of custody of forest-based products, ensuring the
use of sustainable sources. The system recycles 80%
of timber waste and 80% of plasterboard waste, which
is reused for new plasterboard (the paper lining being
used for animal bedding). Plastic wrapping is baled after
use and recycled to produce damp proof courses and
membranes.
Employees at the factory are drawn from the local
workforce and an apprenticeship scheme has been
established, which currently employs nine apprentices
from Wigan College, who are studying for NVQ’s.
The alignment and synergies between the new sectional-
building technology and the Company’s values is
close, and it is intended that the technology’s usage is
increased.
Additional environmental initiatives
The Investment Adviser has continued its commitment to plant 1,000 trees across all developments.
The Investment Adviser has launched an electric vehicle scheme as part of its wider initiative to
promote more sustainable transport practices. The scheme enables all staff to finance an electric
vehicle through salary sacrifice with a proportion of the financing costs being paid by the Investment
Adviser.
White Rose Clothes Banks continue to be used across all apartment schemes. Clothes are either
upcycled, sold or recycled in aid of Aegis Trust. White Rose supports ‘Green Fashion.’
Customer ‘Welcome’ boxes have been adapted to include ‘green’ items, including re-usable
shopping bags and reusable flasks.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Social and Charitable
Social and community engagement initiatives are carried
out by Investment Adviser on behalf of the PRS REIT
and include employment opportunities and programmes
with local charities and schools. There is continuous
engagement with local authorities to discuss objectives
when planning developments.
St Richard’s Roman Catholic Primary School, Atherton
PROJECT: Fitness equipment including rowing machine,
running machine and ski machine.
Mesne Lea Primary School, Walkden
PROJECT: Playground regeneration including trim trail.
Schools, Education and Careers
St Peter and Pauls RCP, Tower Hill, Knowsley
PROJECT: Outdoor sheltered play area.
Examples of social and community engagement initiatives
are below:
St Theresa’s School, Sheffield
PROJECT: Sensory room and IT equipment.
Galton Valley Primary School, Smethwick
PROJECT: Memorial garden, gardening and healthy eating
lessons.
Galton Valley Nursery School Smethwick
PROJECT: Regeneration of inside and outside of building.
Mills Hill Primary School, Middleton
PROJECT: Daily Mile running track.
River View Primary School, Broughton, Salford
PROJECT: Pond regeneration.
Moat House Primary School, Coventry
PROJECT: Outdoor gazebo and playground equipment.
Bilston C of E, Wolverhampton
PROJECT: Landscaping and adventure park
improvements.
Work with the Salford Foundation, a charity dedicated to
helping people in Salford, Greater Manchester and the
North West, has continued over the year. Five members
of staff took part in a mentoring programme designed to
assist students to enter the world of work
The Investment Adviser continued to support Park Palace
Ponies, the inner city starter riding school in Toxteth,
Liverpool, by sponsoring a pony and supporting riding
lessons for the pupils at Monksdown School in Knowsley.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Children’s Sports Clubs
The Investment Adviser continued to support local
children’s sports clubs close to the Company’s
developments. These included:
- Sale Girls Football Club
- Sale Rugby Club (under 18’s)
- Wolverhampton Tennis Club
COVID-19 Response
It was important to increase communications with
residents with the onset of the national lockdown in March
2020, and to engage supportively with those customers
concerned about their financial situation. Approximately
80 residents were financially affected by the Government’s
emergency measures, and a range of solutions were
offered. Rental holidays of between 20% and 50% of rent
due were provided for up to four months, with payment
plans agreed for the repayment of the deferral amounts.
This policy has worked well to date.
The Company was pleased to join its customer base
in thanking the NHS staff for their work and nearly 150
residents benefitted from the initiative to provide a 20%
rental discount for three months.
Charitable Donations
From August 2019, donations were made by the
Investment Adviser to each of the following foodbanks:
- Coventry Foodbank;
- Atherton and Leigh Foodbank;
- The Big Help Project in Knowsley; and
- The Well Wolverhampton.
In an immediate response to the COVID-19 lockdown,
an additional amount was donated to each of the
above foodbanks to assist through the crisis.
A donation was made to local homeless charity, Loaves
and Fishes, in Salford, which enabled the charity to
purchase personal alarms for staff.
As part of the Investment Adviser’s Christmas
donations, a donation was made to homeless charity,
Crisis UK, which was used to enable 40 homeless
people to enjoy Christmas and benefit from advice
about training, education and housing.
During the COVID-19 pandemic, the Investment
Adviser participated in residents’ efforts to show their
appreciation of the NHS, including with donations of
‘Simple Life’ Easter chocolate to local hospitals and £500
worth of prizes for the Hillingdon Hospital staff raffle.
In June 2020, the Investment Adviser initiated a
‘Simple Life’ charitable poll in which residents selected
four charities to receive a donation of £12,500 each.
A further £50,000 was donated across these charities,
according to resident preferences. The four charities
chosen were:
- Centrepoint (fighting
homelessness amongst
young people)
- Mind UK (mental health)
- Trussell Trust Foodbanks
- Women’s Aid
(domestic violence)
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
FEATURED PROJECTS
MILLS HILL PRIMARY SCHOOL, MIDDLETON
Project: Daily Mile running track
Ian Mason, Head Teacher at Mills Hill Primary School comments:
“The childrens’ daily walks around the
playground eventually developed into
them running three times a week and
it’s brilliant to see that fitness levels have
improved.
“We encourage our children to be both
active physically and to be creative with
their environment. The much-needed
money from Sigma has transformed our
playground and facilities and allowed our
pupils to reap the benefits of keeping fit.”
The running was inspired by the Scottish Daily Mile
initiative, created by Elaine Wyllie, a head teacher who
was concerned about the pupils’ lack of fitness in her
school. Elaine introduced The Daily Mile in 2012 as a
sustainable way of combating inactivity, and it was so
successful that the Scottish Government wrote to every
primary school in the country recommending that they
implement the scheme too. In addition, in August 2016
the UK government’s Childhood Obesity strategy identified
and supported The Daily Mile’s contribution towards the
recommended hour that children should spend taking
daily exercise in school.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
RIVER VIEW PRIMARY SCHOOL, SALFORD
Project: Regeneration of pond area
Daniel Gauld, Head Teacher at River View Primary School said:
“We’re really grateful for the second
donation from Sigma. Nature and being
outdoors is brilliant for the children’s
mental health and wellbeing and the new
pond area is brilliant.
“The outdoor greenhouse built from the
first donation allows us to associate
reading time within playtime and has
made a huge difference to the school.”
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
MORE THAN JUST A HOME
All homes built for the PRS REIT
portfolios are taken to market through
Sigma’s build-to-rent brand, ‘Simple Life’.
Since launching ‘Simple Life’, and in
particular over the last year, there has
been an increased level of community
engagement between residents both on
and off-line.
On-site events
All developments with apartment blocks enjoyed an
Autumn visit from The Wood Fired Pizza Company, giving
neighbours an opportunity to meet and socialise over a
slice of pizza.
At Christmas, visits from Santa, elves and reindeer,
continued across 20 completed developments. Over
the course of five weekends, Santa visited children
across sites in Manchester, Merseyside, Cheshire, West
Midlands, Shropshire and South Yorkshire, exchanging
2,000 bags of chocolate money for some carefully
composed Christmas lists!
During the COVID-19 lockdown period earlier this year,
the festive Easter Egg Hunt took on a virtual guise, with 12
eggs hidden across the ‘Simple Life’ website. Residents
followed clues that took them to the four corners of the
site, with a mix of ‘quick wins’ and ‘brain teasers’ to keep
the hunt interesting. There were over 130 entries over the
course of the week and while all entrants were rewarded
with a branded chocolate bar, 10 winners received a
chocolate hamper from Love Cocoa, a sustainable
chocolate company.
The Summer 2020 ice-cream dash was bigger than
ever before. Over the course of six days the ‘Simple Life’
branded ice-cream van visited 29 sites across England.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
There was a significant increase in resident ‘Simple Life’
Instagram home accounts being set up, all dedicated to
making their ‘Simple Life’ rental house their home. This
has encouraged residents to form a community online,
sharing their best home-style tips.
Online community
As properties numbers have grown, so has residents’
engagement with ‘Simple Life’ on social media.
The annual ‘Peace of Mind’ month took place in April
2020. Residents were encouraged to nominate a loved
one whom they felt deserved a little ‘peace of mind’. In
total, over 50 entries were received, and eight deserving
winners received a spa day for two, and a ‘peace of
mind’ prize tailored to their preferences. Prizes included
shopping vouchers, holiday cottage vouchers, DJ
equipment, football tickets and motorbike lessons.
During lockdown, ‘Peace of Mind’ month was extended
with a special ‘health and wellbeing’ series aimed at
helping residents to keep mentally and physically healthy.
A great sense of community developed as residents
were encouraged to stay connected online. A number
of videos were posted on social channels, created
for ‘Simple Life’ by professionals, partners and even
residents, across a range of themes, including meditation,
make-up, Pilates and baking.
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MEET EMILY
Emily @insidenumber5_
who shares her Simple Life home on Silkin
Green with her boyfriend. Emily talked us
through her take on Home inspiration and
shared some fabulous tips.
What made you choose a Simple
Life Home?
I chose my home because it’s a nice
modern new build. It’s very spacious
and in a great location surrounded
by beautiful walkways. I also love
that it’s a blank canvas to work with
which made it really easy to apply
our sense of style when we first
moved in.
Where do you go for interior design
inspiration?
There are some great places online
for interior inspiration. I follow a
lot of home accounts on Instagram
and a few blogs. Another great
site is Pinterest, on there you
can find anything from cupboard
organisation to whole room
transformations.
Which rooms do you find the
hardest to get ‘right’? What are
your specific tricks to get around
this?
I’d say one of the spare bedrooms
we have. It’s very easy to just
make spare rooms a storage room,
which can get messy very quickly.
We’ve turned our spare rooms into
places where we can each chill. My
boyfriend has his consoles in his, and
I have a separate place where I get
ready and can have some me-time.
What’s your favourite room in the
house?
My favourite room is the kitchen
because it’s the main hub of the
house when we have visitors. It’s
spacious, bright and the big patio
doors open up to our garden, which
is great in the summer! Another
great thing is that it came equipped
with fitted appliances which saved
us lots of money.
Best home-hacks to personalise
your space?
My home hacks would be to add
pops of colour throughout the house
and have a few house plants dotted
around, I think these help bring the
outside in. I also like to fill my house
with photos and souvenirs from
when we travel.
How would you describe your
interior style? Does this reflect your
personality?
I would say my style is very modern
and simple. I like to include lots of
plants and colours such as yellow
and pink within each room and I like
to include photographs of family and
travelling to give it a real personal
touch.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
MEET ASHLEY
Ashley, @oursimplelifehome shares
her Simple Life home with her
partner Chris. She fills us in on her
unique and evolving style as well as
revealing her love of grey.
I don’t like following the crowd too
much and I don’t care what other
people think, if I think it makes my
home look nice and it makes me
happy, then it’s staying!
What are your tips for decorating
your home on a budget?
Your home can be wonderful no
matter what your budget, as I said
about the curtains. A company
wanted £500 to do my patio
doors and by the time I’d finished
it cost me £40 and I’ve had lots of
compliments. When saving money
and wanting to improve your home
it can be really difficult, we wanted a
new dining table because we didn’t
like the chairs anymore so I went
online and found some beautiful
grey and white chair covers for £13
and now it’s like a whole new table!
I love finding little bargains and
making them look stylish!
Which space did you have the most
fun designing and why?
I have to say the lounge. It’s not your
typical lounge, it’s different/quirky.
It’s grey & oak pretty much like the
rest of our house! I love a blank
canvas so our simple life home was
perfect for that. The patio doors are
beautiful. I loved how light it made
the room, and where our home is,
we’re not looked over at the back
which is wonderful so when I didn’t
want to have huge curtains I went
for white voile which made it look so
beautiful but didn’t take away any
light!
Where do you get your home
inspiration from?
So many places! I absolutely love
Chris’s mum’s house, which is grey
and that’s where I got my love of
grey from! Of course the fabulous
Mrs Hinch has a beautiful home and
some of her ideas are wonderful! I
love walking round B&M, The Range,
Ikea and so many more shops that
aren’t expensive but sell the most
beautiful little bits.
How would you describe your
interior design style? Does this
reflect your personality?
Grey .. grey & more grey is pretty
much my style! I love flowers and
making things look pretty, Chris
says putting flowers on the hob is
ridiculous but now he loves it so
they’re even on the bed too! I like
things that are simple but look
so effective. I love doing things
differently and if I can do it on
a budget then even better. Like
the voile, to do a whole window
including the pole and tie costs
£18 but it looks beautiful, and it’s
something you don’t see very often.
What made you choose a Simple
Life Home?
We love new builds, and everything
about them. With Chris’s job, his
next step in work may have meant
moving far away, so to buy a new
build wouldn’t have been a good
step for us. When we heard about
Simple Life and the different styles
of homes they offer we knew
instantly it was the best option for
us. The process was really easy and
quick, and the offer they had on at
the time was great. They also have
so many locations to choose from!
We loved how the kitchen came
fully fitted with all appliances. Best
decision we ever made.
What’s your favourite room in the
house?
I love every room in our home! It’s
tough to pick my favourite between
the lounge and the kitchen. I’d
probably say the kitchen because
we spend most of our time in there
and it’s so spacious, great for having
people over and the lounge because
on a lovely sunny day to have the
doors wide open is amazing! Both
are great sizes and have been so fun
to design.
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
What our residents have to say…
All tenants receive an automated tenant satisfaction survey email one week into their tenancy and then 10 months later.
This helps the Investment Adviser to monitor tenants’ experience with the lettings and move-in team and their later
experience as settled residents.
The following stats are based on tenant satisfaction results for a 12 month period from July 2019 to the end of June 2020.
Move in survey
10 month survey
97% said the team made it easy to apply
96% said they are still happy with their home
89% said they were kept well-informed during
the application process
89% said they are happy with the service
provided
96% said they received all the information they
required
73% said they felt they have been kept well-
informed
91% said they found the process of moving in to
their home straight forward
94% said the communal areas are well maintained
87% said the quality of the home met with their
expectations
85% said they feel part of a community
94% said they would recommend ‘Simple Life’
95% said they would recommend Simple Life
All results are based on responses from neutral – strongly agree
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STRATEGIC REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Resident Focused Initiatives and Tech
Human Rights
The obligations under the Modern Slavery Act 2015 (the
‘Act’) are not applicable to the Company given its size.
To the best of its knowledge, the Group is satisfied that
its principal suppliers and advisors comply with the
provisions of the Act.
Health and Safety
In order to maintain high standards of health and
safety for those working on sites, monthly checks
by independent project monitoring surveyors are
commissioned to ensure that all potential risks have
been identified and mitigated. These checks supplement
those undertaken by development partners. The data is
reported to the Board on a quarterly basis in the event of
a nil return, and immediately in the event of an incident.
There were no reportable incidents over the year.
Governance
Strong governance is essential to ensuring that risks
are identified and managed, and that accountability,
responsibility, fairness and transparency are maintained
at all time.
The Group is subject to statutory reporting requirements
and to rules and responsibilities prescribed by the London
Stock Exchange and the Financial Conduct Authority.
The Board has a balanced range of complementary
skills and experience, with independent non-executive
directors who provide oversight, and challenge decisions
and policies as they see fit. The Board believe in robust
and effective corporate governance structures and are
committed to maintaining high standards and applying
the principles of best practice.
Understanding that pets are important to residents, the
Investment Adviser undertook an analysis of end-of-
tenancy works from households with pets and those
without pets. This established that there was very little
variance in the costs of end-of-tenancy rectification
works. The Investment Adviser therefore decided to cease
applying the standard pet premium charge from tenancy
agreements. This makes ‘Simple Life’ and the Company
one of the first BTR landlords to make such a move.
The second ‘Simple Life’ Annual Resident Newspaper
was delivered to all residents in June. The publication
gives residents a roundup of the previous 12 months,
including events, competitions, campaigns, testimonials,
charitable donations and school initiatives. It also informs
tenants of plans for the rest of the year.
The ‘Simple Life’ resident portal went live in August. It
enables residents to access: online payments; tenancy
documents; ‘how-to‘ guides; news; affiliate offers; and
an open forum with other residents. The portal also
incorporates an online maintenance reporting tool, FixFlo.
As well as enabling residents to access online tutorials,
it offers a simple, streamlined approach for residents
to report, discuss and remain updated about any
maintenance issues they may have.
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STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
The Board of Directors recognise that there are a number
of risks which could have an impact on the Company’s
strategy and investment objectives.
The prospectus issued in May 2017, which is available
to download on the Company’s website at www.
theprsreit.com, includes details of what the Company
and the Directors consider to be the principal risks and
uncertainties. Additional risks and uncertainties relating
to the Group that are not currently known to it or the
Directors or the Company does not consider to be
material may also have a material effect on the Group.
The Board continually consider emerging risks and during
the year under review the COVID-19 pandemic has been
identified, see further information on pages 9 to 11.
The below list sets out the current identifiable principal
risks and uncertainties which the Board are monitoring:
Strategic Risk
The Company’s targeted returns are based on
estimates and assumptions that are inherently
subject to significant uncertainties and
contingencies, and the actual rate of return may
be materially lower than the targeted returns
The Company’s targeted returns as set out in the IPO
Prospectus are targets only and are based on estimates
and assumptions about a variety of factors including,
without limitation, purchase price, yield and performance
of the Company’s investments, which are inherently
subject to significant business, economic and market
uncertainties and contingencies, all of which are beyond
the Company’s control and which may adversely affect
the Company’s ability to achieve its targeted returns. The
Company may not be able to implement its investment
objective and investment policy in a manner that
generates returns in line with the targets. Furthermore,
the targeted returns are based on the market conditions
and the economic environment at the time of assessing
the targeted returns, and are therefore subject to change.
In particular, the targeted returns assume no material
changes occur in Government regulations or other
policies, or in law and taxation, and that the Company is
not affected by natural disasters, terrorism, social unrest
or civil disturbances or the occurrence of risks described
elsewhere in this document. There is no guarantee that
actual (or any) returns can be achieved at or near the
levels set out in this document. Accordingly, the actual
rate of return achieved may be materially lower than
the targeted returns, or may result in a partial or total
loss, which could have a material adverse effect on the
Company’s profitability, the Net Asset Value and the price
of the Ordinary Shares.
Risks relating to investment decisions
There is a risk that investment decisions are made that
deviate from the investment strategy and investment
objectives that may result in lower rental income and
capital growth returns to shareholders.
This risk is mitigated by a regular review by the Board
of the Company with regard to investment strategy and
investment decisions. The Investment Adviser has a
defined investment appraisal process which is authorised
by key personnel. In addition, the investment in multiple
geographical areas of the UK mitigates concentration risk
and provides a more balanced portfolio.
Risk relating to the Company’s ability to deploy
capital effectively
There is strong competition in the housing market for
the supply of land across all tenures which may affect
the Company’s ability to deploy capital in a timely and
effective manner which could adversely affect the returns
to shareholders.
This risk is mitigated due to the strong links that the
Company and Investment Adviser has with its house
building partners across the various regions and
conurbations across the UK. There is a significant pipeline
of future development sites and the Board reviews this on
a regular basis.
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STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
Political Risk
Risks relating to Brexit
The extent of the impact on the Company will depend
in large part on the nature of the arrangements that
are put in place between the United Kingdom and the
European Union following Brexit. Although it is not
possible to predict fully the effects of the exit of the
United Kingdom from the European Union, any of these
risks, taken singularly or in the aggregate, could have a
material adverse effect on the Company, its opportunities
for investments, its construction activities due to supply
chain disruptions and the workforce of house builders. In
addition, it could potentially make it more difficult for the
Company to raise capital.
The Board mitigates this risk by keeping up to date on
the UK’s current position on its exit from the European
Union whilst also taking advice from the Investment
Adviser and other Advisers. The Board acts on this
advice accordingly. In addition, the Company is operating
in the residential property market where current demand
is high and expects this to continue for the foreseeable
future
Operational Risk
Risks relating to the Company’s reliance on the
Investment Adviser
The Company has the benefit of access to the Sigma
PRS platform through the Investment Adviser. If the
Investment Advisory Agreement is terminated it is
likely that the Company will cease to have access to
the platform and to the relationships and contractual
frameworks with Approved Contractors, Local Authorities
and the Approved Letting Agents and favourable
terms and economies of scale that have taken years
to establish. The Company would also need to identify
replacement sources of PRS Development Sites and
Completed PRS Sites.
In accordance with the Investment Advisory Agreement,
the Investment Adviser is responsible for providing certain
management and investment advisory services to the
Company. Accordingly, the Company will be reliant upon,
and its success will depend on, the Investment Adviser
and its key personnel, services and resources.
Consequently, the future ability of the Company to
successfully pursue its investment objective and
investment policy may, among other things, depend
on the ability of the Investment Adviser to retain its
existing staff and/or to recruit individuals of similar
experience and calibre. Whilst the Investment Adviser
has endeavoured to ensure that the principal members
of its management team are suitably incentivised,
the retention of key members of the team cannot be
guaranteed. Furthermore, in the event of a departure of
a key employee of the Investment Adviser, there is no
guarantee that the Investment Adviser would be able
to recruit a suitable replacement or that any delay in
doing so would not adversely affect the performance of
the Company. Events impacting but not entirely within
the Investment Adviser’s control, such as its financial
performance, it being acquired or making acquisitions or
changes to its internal policies and structures, could in
turn affect its ability to retain key personnel.
Under the terms of the Investment Advisory Agreement,
the Investment Adviser is required to devote such
time and have all necessary competent personnel and
equipment as may be required to enable the Investment
Adviser to carry out its obligations properly and efficiently.
However, if the Investment Adviser fails to allocate
the appropriate time or resources to the Company’s
investments, the Company may be unable to achieve
its investment objectives. In addition, although the
Investment Advisory Agreement requires the Investment
Adviser to dedicate competent personnel to the
Company’s business they may not be able to do so.
The Board mitigates these risks by holding regular
Board meetings (at least four times per financial period)
whilst also having regular informal meetings with the key
members of Investment Adviser on a more regular basis.
The Board actively engages with key personnel of the
Investment Adviser and assesses its key man risks to
ensure that it is adequately staffed with suitably qualified
personnel and that succession planning is in place.
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STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
Risks relating to tenant default
Dividends payable by the Company will be dependent
on the income from the Completed PRS Sites it owns.
Failure by tenants to comply with their rental obligations
could affect the ability of the Company to pay dividends to
shareholders.
The Company develops private rented sector residential
housing across multiple sites and across multiple locations
across the UK and therefore some of this risk is mitigated.
A rigorous tenant vetting process has been implemented
and, in addition, the Investment Adviser holds regular
weekly meetings focusing on lettings and outstanding
debtors. The letting agent is compensated only when rent
has been received.
Business disruption relating to the Investment
Adviser and its Information Technology Environment
There is risk associated and the potential of business
disruption in relation to the IT systems utilised by the
Investment Adviser which are hosted off-site by a third
party.
The third party IT provider are Cyber Essential Certified and
have been utilised by the Investment Adviser since 2015 for
maintaining all hardware, software and backups. There has
been limited downtime during normal working hours.
The third party provider has significant controls in place
in respect of the IT environment including that of physical
security, site availability, network security, backups,
disaster recovery and the monitoring of IT systems.
The Investment Adviser employs an IT Manager who
is in regular contact with the third party and ensures
compliance.
Economic Environment
Risks relating to the economic environment
Global market uncertainty and, in particular, the restricted
availability of credit, may reduce the value of the
Company’s portfolio once it has been acquired, and may
reduce liquidity in the real estate market. The performance
of the Company would be adversely affected by a
downturn in the property market in terms of market value
or a weakening of rental yields.
The Company mitigates this risk by building a high quality
portfolio of residential assets across multiple locations
of the UK where there is demand and a requirement for
housing which provides access to strong travel links and
good educational facilities.
Financial Risk
Risks relating to the REIT status of the Group
There is a risk that the Company may fail to remain
qualified as a REIT and therefore its rental income and
capital gains will be subject to UK corporation tax. Any
change in the tax status of the Company or a change in
tax legislation could adversely affect the investment return
of the Company.
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STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
The Company has been structured to be REIT compliant
and the Board will continue to monitor the tax status
using professional taxation advisers.
Risks relating to the development costs of
Investment properties under construction
There is a risk that the development costs of Investment
properties under construction are higher than that
originally forecast perhaps due to unforeseen costs or the
availability of suitable labour.
Risks relating to investment valuation
The valuation of the Group’s property assets is primarily
based on four key drivers being land purchase, cost to
build, rent, gross to net income deductions and yield.
Small variations in these can have a material impact on
the valuation of property.
Valuation risk is mitigated by a combination of factors
including detailed site selection and appraisal process,
fixed price building contracts at competitive rates to
control costs, quality product from house builders,
tenant selection and management by Lettings Agents,
geographic spread of sites / assets, mixture of asset size
and portfolio spread. The sector is considered attractive
to investors and debt providers with some defensive
attributes in relation to recessionary risk. Notwithstanding
the above mitigating factors, the Board constantly
monitors risk around these factors in conjunction with the
Investment Adviser.
Risks relating to compliance
The Group has a wider variety of compliance risks
ranging from factors including status as a Real Estate
Investment Trust on the specialist segment of the London
Stock Exchange, number of companies, Companies
House requirements, HMRC obligations, planning
requirements, Health & Safety, statutes and legislation.
Compliance risks are mitigated by the Board and the
Investment Adviser utilising and employing qualified
professionals and professional advisers to ensure
compliance with current legislation and requirements
including – auditors, tax advisors, Nominated Advisor,
recognised house builder partners and legal advisers.
The Company is able to mitigate this risk by securing
fixed design and build contracts before development
commences.
The Company’s Section 172 statement is included on
pages 54 to 57.
By order of the Board
Steve Smith
Chairman
5 October 2020
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Stakeholder
Engagement And
Section 172 Statement
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT
Stakeholder engagement
The PRS REIT is focused on delivering new homes for
private rental across the UK, with family homes its key
target market. The Group’s PRS activities bring together
a network of formal and informal relationships, which
include construction partners, central government, local
authorities, customers and communities. As a sustainable
business, the Company is providing an innovative build-
to-rent solution to address a national, market and societal
demand for quality family homes.
Across the UK, the PRS REIT engages with a range of
interest groups to ensure that it listens to and understands
the interests and concerns of all stakeholders, as well as
seeking to deliver sustainable value for them.
Effective engagement with stakeholders at Board level
and throughout our business is crucial to fulfilling the
Company’s goal to deliver family PRS homes across the
UK. While the importance of giving due consideration to
our stakeholders is not new, we are taking the opportunity
this year to explain in more detail how the Board engages
with our stakeholders. We continue to be collaborative
with all stakeholder groups including customers, partners,
house builders, suppliers, local authorities, regulators,
funders and investors. This approach necessarily involves
listening to and taking account of their views and
feedback, while also being open to change.
Section 172 statement
The following serves as our section 172 statement and
should be read in conjunction with the Strategic Report on
pages 4 to 53. Section 172 of the Companies Act 2006
requires Directors to take into consideration the interests
of stakeholders in their decision making. The Directors
continue to have regard to the interests of the Company’s
stakeholders, including the impact of its activities on
the community, the environment and the Company’s
reputation, when making decisions. Acting in good faith
and fairly between members, the Directors consider what
is most likely to promote the success of the Company for
its members in the long term. The Directors are therefore
fully aware of their responsibilities to promote the success
of the Company in accordance with section 172 of the
Companies Act 2006.
To ensure the PRS REIT continues to operate in line
with good corporate practice, all Directors are frequently
provided with refresher guidance on the scope and
application of section 172 from the Company’s legal and
financial advisors. This allows Board members to reflect
on how the Company engages with its stakeholders and
identify opportunities for enhancement in the future.
The Board regularly reviews the Company’s principal
stakeholders and how we engage with them. The
stakeholder voice is constantly brought into the
boardroom through information provided by management
and also by direct engagement with stakeholders
themselves. The relevance of each stakeholder group may
increase or decrease depending on the matter or issue in
question, so the Board seeks to consider the needs and
priorities of each stakeholder group during its discussions
and as part of its decision-making.
Throughout these financial statements, we provide
examples of how this engagement with stakeholders
takes place to ensure that we can appropriately consider
their interests in decision-making. Of particular note
for the period under review, the Board’s decision to
defer the 3rd quarter dividend following the outbreak
of COVID-19, the tenant survey undertaken, focused
activities around proactive tenant engagement during
the COVID-19 pandemic through social media platforms
and a responsible approach towards managing tenant
difficulties resulting from outbreak. The Board and the
Investment Adviser intend to use the outputs from the
survey and other tenant interaction in shaping the portfolio
moving forward. In addition, the Board’s engagement
with funders resulted in funders volunteering a reduction
in the covenant test relating to interest coverage by net
operating income to specifically allow for tenant payment
plans deferring rental income as a result of the COVID-19
pandemic.
Employees
The PRS REIT does not have any employees. Instead,
Sigma PRS Management Ltd (“Sigma PRS”) is the
appointed Investment Adviser to the PRS REIT.
Investment Adviser
The Company carefully considers the conditions under
which Sigma PRS interacts with its employees and other
stakeholders.
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STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT Cont. (Cont.)
Customers and communities
Local Authorities, house builders and funders
The new homes that the PRS REIT is delivering form new
neighbourhoods and communities and we recognise our
responsibility towards ensuring that these communities
function well. Our vision is to create homes that people
will enjoy living in and neighbourhoods that they feel a part
of. In order to help to forge the social links that underpin
these communities and create a sense of neighbourhood,
we organise regular events across our developments
that help to bring people together. We also build links
with the wider community, and, over the past year we
have supported a number of local primary schools, with
projects including a library refurbishment and the provision
of outdoor play equipment. We intend to continue to build
on these initiatives, and are moving forward with ideas, big
and small, which will help to create a better environment
for our customers and their local communities. These
measures are facilitated by direct customer engagement
with the utilisation of technology, particularly social media,
to enable two-way interaction.
Environment
Whilst the Company’s activities do not directly impact the
environment, it takes account of the potential impact of
its key business partners. The house builder with whom
we work most closely, Countryside Properties, has a
strong track record in sustainable development. In its last
reporting year, Countryside Properties diverted 99.4% of
its waste away from landfill.
Countryside opened a new modular panel factory in
Warrington during 2019 capable of manufacturing up to
1,500 homes per year. The homes are produced with
sustainable timber from certified forests and the factory
does not generate any landfill.
The Company planted a substantial number of trees over
the course of 2019 and intends to plant a further 1,000
tress per site moving forward. The initiative makes a
positive environmental contribution as well as enhancing
our developments and the local neighbourhood. We
are also working with landscapers to commence a
programme of wildflower planting in our developments
that will promote a greater volume of invertebrate life,
which will support the wild bird population and greater
overall biodiversity.
These actions all demonstrate practical measures geared
towards benefitting the environment in the long-term.
The Group’s objectives are to provide investors with an
attractive level of income together with the prospect
of income and capital growth through investment in a
portfolio of newly constructed residential private rented
sector sites of multiple units comprising mainly family
homes. It aims to do this utilising its property and
capital raising expertise to further its PRS activities and
deliver family housing. The geographies in which we
deliver assets has steadily expanded, and we have also
diversified the financial instruments that we manage to
deliver those assets.
This requires four separate parties involving local
authorities, house builders and funding partners, with the
Investment Adviser performing the roles of facilitator and
co-ordinator. Regular and collaborative communication
and dialogue is essential with all of these parties to ensure
success. Without this, Sigma PRS could not develop,
establish and maintain the partnership relations it has as
Investment Adviser.
The creation of new partnerships is also key. Given that
sites will typically take well in excess of 24 months to
identify, plan, develop and let, it is imperative that the
Investment Adviser constantly has a focus on future sites
through regular dialogue with multiple parties.
Regulators
The Group is subject to statutory reporting requirements
and to rules and responsibilities prescribed by the London
Stock Exchange and the Financial Conduct Authority. The
Board has a balanced range of complementary skills and
experience, with independent non-executive directors who
provide oversight, and challenge decisions and policies
as they see fit. The Board believe in robust and effective
corporate governance structures and is committed to
maintaining high standards and applying the principles of
best practice.
Compliance is maintained through the utilisation of
recognised professional advisers and the Board would
not hesitate to seek input in this regard from the listing
authority.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT Cont. (Cont.)
Shareholders
Dividend
The Board’s proposal on the final total dividend for
the 2020 financial year of 4.0p per share (2019: 5.0p)
reflects a combination of factors in relation to the
Company’s finances and operations both in the short
and long-term. This includes the Company’s revenue
and earnings together with the Board’s confidence in
the PRS REIT’s growth prospects. As outlined in the
Chairman’s Statement, this decision on the dividend for
the 2020 financial year was not made lightly in view of the
current situation surrounding the COVID-19 pandemic.
The Going Concern Review detailed on pages 9 to 11 of
these financial statements formed part of these dividend
deliberations. As the conclusion to this review states,
although the duration of the pandemic is unknown it will
ultimately pass and the Company is well placed to thrive
thereafter. The dividend proposal therefore reflects the
Board’s confidence in the Company’s long-term financial
health and growth prospects and provides a return to the
shareholders who have invested funds with the Board and
the Company.
The Board welcomes the opportunity to engage with our
shareholders and with the capital markets more generally.
We have a high level of investor communication through
our financial calendar activity, through investor meetings,
roadshows, site visits and our AGM.
The Company’s Chairman takes overall responsibility
for ensuring that the views of our shareholders are
communicated to the Board and that our Directors are
made aware of shareholders’ issues and concerns so
these can be fully considered. The Board achieves this
through:
active dialogue with shareholders, prospective
shareholders and analysts; and
the Chairman and the Chair of the Audit Committee
being available to meet institutional shareholders.
Feedback from any such meetings would be shared with
all Board members.
The Chairman and the Board consider that there are
appropriate mechanisms in place to listen to the views
of shareholders and communicate them to the Board
without it being necessary for the Chairman or Chair of the
Audit Committee to attend all meetings with shareholders.
The Board believes that this approach is consistent with
the 2018 Code” (UK) “2019 Code” (AIC) on dialogue
with shareholders and is in line with good corporate
governance.
Major investor relations engagement activities carried out
during the year are set out below:
numerous meetings, presentations and conference
calls hosted with institutional investors or prospective
investors; and
regular site visits
Investors, prospective investors and analysts can contact
the Chairman or access information on our corporate
website. The Board believes that appropriate steps
have been taken during the year so that all members of
the Board have an understanding of the views of major
shareholders.
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CORPORATE GOVERNANCE DIRECTORS
Corporate Governance
DIRECTORS
Steve Smith, Non-Executive Chairman (Age 66)
Steve Smith has over 40 years of experience in the
real estate industry. Steve is currently non-executive
Chairman of Starwood European Real Estate Finance
Limited and non-executive Chairman of AEW Long
Lease REIT plc. Previously, he was the Chief Investment
Officer of British Land Company PLC, the FTSE 100
real estate investment trust from January 2010 to
March 2013 with responsibility for the group’s property
and investment strategy. Prior to joining British Land,
Steve was Global Head of Asset Management and
Transactions at AXA Real Estate Investment Managers,
where he was responsible for the asset management
of a portfolio of more than €40 billion on behalf of life
funds, listed property vehicles, unit linked and closed
end funds. Before joining AXA in 1999, he was Managing
Director at Sun Life Properties for five years. Steve has
recently completed his time as non-executive Director of
Gatehouse Bank Plc and of Tritax Big Box REIT plc.
Steffan Francis, Non-Executive Director (Age 65)
Steffan Francis has more than 40 years of experience in
the real estate industry. Until 2016, Steffan was Director
of Fund Management at M&G Real Estate where he was
responsible for the £6 billion “Long Income” business. He
was also involved in creating and ensuring the long term
success of a number of real estate funds, including the
M&G Secured Property Income Fund, which, within 10
years of being launched, became the largest property fund
on the AREF/MSCI UK quarterly Property Fund Index.
Currently, Steffan is a non-executive Director of M&G
(Guernsey) Limited and is also an independent adviser to
the British Steel Pension Trustees. Steffan is a Fellow of
the Royal Institution of Chartered Surveyors.
Roderick MacRae, Non-Executive Director (Age 56)
Rod has over 20 years of experience in the financial
services sector. Latterly, he was an Executive Director at
Aberdeen Asset Management PLC as the Group Head
of Risk with responsibility for UK and Global operational
risk and regulatory compliance. He was also Chairman
of the Aberdeen Asset Management group executive
risk management committee, the senior risk oversight
function of the group. He has extensive involvement in
corporate activity including transformational acquisitions
and defence strategies. Previously he was Chief Operating
Officer at Edinburgh Fund Managers, which he joined
in 1991 and was acquired by Aberdeen in 2003. Rod is
a member of the Institute of Chartered Accountants of
Scotland having qualified with Coopers & Lybrand and is
the Chairman of the Audit Committee.
Jim Prower, Non-Executive Director (Age 65)
Jim, a Chartered Accountant, has nearly 30 years of
experience in senior financial roles. For the major part of
his career he was Group Finance Director at Argent Group
plc, the UK-based property developer, then Finance
Partner of Argent (Property Development) Services LLP
and Argent Investments LLP, which specialise in mixed-
use developments with a focus on place-making and
regeneration. Jim was involved in major development and
regeneration projects in Manchester, Birmingham and
the City of London, and from 2008 to 2015 he worked
on the King’s Cross Central joint venture, which was one
of Europe’s largest regeneration projects. Prior to that,
he was Group Finance Director at NOBO Group plc, a
leading European manufacturer of visual presentation
products and at Creston Land & Estates plc, the property
developer. Jim is currently Senior Independent Director at
Empiric Student Property plc and a non-executive Director
at AEW UK Long Lease REIT plc. In addition, until March
2019, Jim was Senior Independent Director at Tritax Big
Box REIT plc.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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CORPORATE GOVERNANCE ADVISORS
ADVISERS
Registered Office
Floor 3, 1 St. Ann Street
Manchester
M2 7LR
Auditor
RSM UK Audit LLP
25 Farringdon Street
London
EC4A 4AB
Financial PR
KTZ Communications
No. 1 Cornhill
London
EC3V 3ND
Company Secretary
Sigma Capital Property Ltd
18 Alva Street
Edinburgh
EH2 4QG
Financial Adviser and Broker
N+1 Singer Advisory LLP
One Bartholomew Lane
London
EC2N 2AX
Investment Adviser
Sigma PRS Management Ltd
Floor 3, 1 St. Ann Street
Manchester
M2 7LR
Legal and Tax Adviser
Dentons UK and Middle East LLP
One Fleet Place
London
EC4M 7WS
AIFM and Manager
G10 Capital Limited
136 Buckingham Palace Road
London
SW1W 9SA
Depository
Crestbridge Property Partnerships Limited
8 Sackville Street
London
W1S 3DG
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
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CORPORATE GOVERNANCE REPORT OF THE DIRECTORS
REPORT OF THE DIRECTORS
The Directors present their annual report on the affairs of the Group, together with the audited financial statements, for
the year ended 30 June 2020.
Principal activity
The principal activity of the Company is the investment
in and management of private rented sector (“PRS”)
residential housing which is located in the regions of
England. The Company commenced trading on 31 May
2017 after the successful initial raising of £250 million
gross proceeds through its IPO. Its shares are listed on
the Specialist Fund Segment of the Main Market of the
London Stock Exchange.
Results and dividends
The financial results for the year can be found in the
Consolidated Statement of Comprehensive Income on
page 93. The following dividends were paid during the year:
31 August 2019
29 November 2019
28 February 2020
2.0p per ordinary share
1.0p per ordinary share
1.0p per ordinary share
after 1 January 2019 and requires that all Directors will
stand for re-election annually. The details of the Directors’
remuneration along with the Director’s beneficial interest
in securities of the Company are given in the Directors’
Remuneration Report on pages 82 to 84.
Directors’ interests in shares
The Directors’ interests in the Company’s shares are
disclosed in the Directors’ Remuneration Report.
Directors’ indemnity insurance
The Group held a Directors and Officers insurance policy
in place throughout the year and prior year in respect of
the Company and the Group’s subsidiaries.
Share capital
Since the year-end, a dividend of 1.0p per ordinary share
was paid on 17 July 2020 and a dividend of 1.0p per
ordinary share was paid on 18 September 2020.
At the AGM held on 25 November 2019, the Directors
were authorised to:
Review of the business and future
developments
issue securities up to an aggregate nominal amount
of £1,650,924 representing approximately 33.33% of
the Company’s issued share capital at the time of the
annual general meeting;
The Directors are required to present an extended business
review reporting on the development and performance of
the Group and the Company during the period and their
positions at the end of the period. This requirement is met
by the Strategic Report on pages 4 to 53.
dis-apply pre-emption rights in respect of securities and
to issue securities for cash up to an aggregate nominal
amount equal to £990,556 which represented 20% of
the Company’s issued share capital at that time; and
Directors
The current Directors of the Company are listed on page
58, all of whom held office throughout the year. The
Board consists solely of non-executive Directors, each
of whom is independent of the Investment Adviser and
the Company. The Company therefore has no executive
Directors or employees. In accordance with the Articles
of Association, every person appointed as an additional
director during the course of the year must stand for
re-election at the next Annual General Meeting (“AGM”).
The Board follows the revised AIC Code of Corporate
Governance that applies to financial periods commencing
allow the PRS REIT to buy back up to 14.99% of the
issued share capital of the Company at that time,
provided the Directors believed it to be in the best
interests of shareholders where to do so would likely
result in an increase in earnings per share.
As at 30 June 2020, the Company had 495,277,294
ordinary shares in issue (30 June 2019: 495,277,294),
none of which were held in treasury.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
CORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
Substantial shareholdings
As at 30 June 2020, the Company is aware of the following substantial shareholdings, which were directly or indirectly
interested in 3% or more of the total voting rights in the Company’s issued share capital.
Investor
Invesco High Income Fund
Homes & Communities Agency
Aviva Life & Pensions UK
Invesco Income Fund
Smithfield Alternative Investment Fund
Number of
ordinary shares
% holding of
issued share capital
48,009,758
29,878,047
26,169,336
24,987,568
16,015,000
9.69
6.03
5.28
5.05
3.23
As at 30 September 2020 the following substantial shareholdings were held:
Investor
Invesco High Income Fund
Homes & Communities Agency
Aviva Life & Pensions UK
Invesco Income Fund
Smithfield Alternative Investment Fund
Number of
ordinary shares
% holding of
issued share capital
46,413,468
29,878,047
26,169,336
24,987,568
1 6,015,000
9.37
6.03
5.28
5.05
3.23
Restrictions on the transfer of shares
There are no restrictions on the transfer of securities in the Company, except as a result of:
the FCA’s Listing Rules, which require certain individuals to have approval to deal in the Company’s shares; and
the Company’s Articles of Association, which allow the Board to decline to register a transfer of shares or otherwise
impose a restriction on shares, to prevent the Company or Investment Adviser breaching any law or regulation.
The Company is not aware of any agreements between holders of securities that may result in restrictions on
transferring securities in the Company.
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CORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
Greenhouse gas emissions reporting
Management Arrangements
The Board has considered the requirement to disclose
the Company’s measured carbon sources under the
Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013.
During the year ended 30 June 2020:
any emissions from the Group’s development of
investment properties have been the contractors’
responsibility rather than the Group’s so the principle of
operational control has been applied;
any emissions from the Group’s completed assets have
been the tenants’ responsibility rather than the Group’s
so the principle of operational control has been applied;
any emissions from the Company’s registered office
or from offices used to provide administrative support
are deemed to fall under the Investment Adviser’s
responsibility; and
the Group does not lease or own any vehicles which
fall under the requirements of Mandatory Emissions
reporting.
As such, the Board believes that the Company has no
reportable emissions for the period ended 30 June 2020.
Investment Adviser
The Board appointed Sigma PRS Management Ltd (“Sigma
PRS”) as the Company’s Investment Adviser. Sigma PRS
are responsible for the management of the assets of the
Company and advise the Company on a day-to-day basis
in accordance with the Company’s investment policy. Sigma
PRS may transact on the Company’s behalf in relation to
the acquisition of PRS development sites and completed
PRS sites in accordance with the Company’s investment
objectives and investment policy. The Investment Advisory
Agreement (“the Agreement”) is terminable on 12 months’
written notice, which can be served at any time after
the fifth anniversary of First Admission. The Agreement
may be terminated by the Company and the Company’s
Alternative Investment Fund Manager (“AIFM”) immediately
if the Investment Adviser is in material breach of the
Agreement or is the subject of insolvency proceedings. The
Investment Adviser fee arrangement in respect of Sigma
PRS is detailed in note 9 of the financial statements, in
addition the Investment Adviser is entitled to a development
management fee of 4.0% of gross development spend.
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CORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
AIFM
G10 Capital Limited has been appointed as the
Company’s AIFM with overall responsibility for the portfolio
management and providing alternative investment fund
manager services ensuring compliance with requirements
of AIFMD, risk management of the Group’s investments
subject to the overall supervision of the Directors.
The AIFM manages the PRS REIT’s investments in
accordance with the policies laid down by the Board and
in accordance with the investment restrictions referred to
in the AIFM agreement. The AIFM Agreement provides that
the Company will pay to the AIFM an asset management
fee as follows:
(a) an initial one off fee of £12,000;
(b) a monthly fee of £6,000;
(c) £1,000 per investment committee meeting; and
(d) Ad-hoc work as required.
The AIFM Agreement is terminable by any of the parties to
them on six months’ written notice. The AIFM Agreement
may be terminated by the Company immediately if the
AIFM ceases to maintain its alternative investment fund
manager permission or fails to notify the Company of a
regulatory investigation which is relevant to the AIFM’s
ongoing appointment as alternative investment fund
manager, is in material breach of the agreement or is the
subject of insolvency proceedings. The AIFM Agreement
may be terminated immediately if a member of Sigma
Capital Group plc (“Sigma”), the parent company of Sigma
PRS, is directly appointed as alternative investment fund
manager of the Company.
Depositary
Crestbridge UK Limited (formerly Kingfisher Property
Partnerships Limited) are the appointed Company’s
depositary for the purposes of the AIFMD. Under the
terms of the Depositary Agreement, the Depositary was
paid an initial one off fee of £5,000. Provided that the
assets under management of the Company exceed
£100 million, the Company shall also pay the Depositary
an annual fee. The annual fee shall start at £20,000 per
annum with an additional fee of 0.667 basis points of
any increase above £100 million, subject always to a
maximum fee of £40,000 per annum. The Company’s
assets under management are reviewed quarterly. The
Depositary is entitled to be reimbursed by the Company
for all costs and expenses properly and reasonably
incurred in the performance of duties under the Depositary
Agreement.
Administration and secretarial services
Sigma Capital Property Ltd, also a subsidiary of Sigma,
has been appointed as the Company’s Administrator to
provide day-to-day administration of the Company and
acts as secretary and administrator to the Company
development and production of statutory annual
accounts, interim accounts and reports to shareholders
of the Company in accordance with IFRS and EPRA. The
Administrator is also responsible for calculating the Net
Asset Value of the Ordinary Shares based on information
provided to the Administrator by Sigma PRS. The
Administration and Secretarial Agreement provides that
the Company will pay the Administrator an annual fee of
£90,000 plus VAT, payable monthly in arrears.
Financial risk management
The principal risks and uncertainties faced by the
Company and the Group are set out on pages 50 to 53.
Information on the financial risk management objectives
and policies relating to market risk, credit risk and liquidity
risk is provided in note 2 to the financial statements.
Treasury activities and financial instruments
The Group’s financial instruments comprise cash and cash
equivalents, equity investments plus other items such as
trade and other receivables, trade and other payables
and borrowings that arise directly from its operations. At
30 June 2020, the Group had positive cash balances of
£59.3 million (2019: £229.9 million).
The Group’s policy is to keep surplus funds on short
term and instant access deposit to earn the prevailing
market rate of interest. At 30 June 2020, the Group had
borrowings of £150 million with Scottish Widows and
an undrawn revolving credit facility with Lloyds Banking
Group plc of £150 million. In addition, the Group has
secured a further £100 million term loan with Scottish
Widows and a £50 million revolving credit facility with
Barclays Bank PLC. Further information with regard to the
Group’s cash and cash equivalents is provided in note 19
of the financial statements and borrowings in note 21.
Political donations
No political contributions were made during the year
(2019: nil).
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CORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
Going concern
The Board confirms that it has a reasonable expectation
that the Company and the Group have adequate resources
to manage their business risks successfully, allow it to
continue in operational existence for the foreseeable future
and for a period of at least 12 months from the date of this
report. The assumptions utilised in preparing the prudent
financial stress test geared towards ensuring that the
Company has sufficient cash resources to weather the
COVID-19 pandemic outlined on pages 9 to 11 provide
additional support for this expectation. Accordingly, the
Board of Directors consider that it is appropriate to adopt
the going concern basis of accounting in preparing the
annual report and financial statements.
Viability statement
The Directors have assessed the prospects of the Group
and Company and future viability over a three-year period,
being longer than the twelve months required by the going
concern provision.
The Board confirms that it has a reasonable expectation
that the Group and Company will continue to operate and
meet its liabilities as they fall due over the next three years,
taking account of the principal risks and uncertainties as
set out on pages 50 to 53.
The three-year period chosen by the Board is based upon
the Group’s and Company’s detailed forecasting model
which shows that within three years all investment property
acquisitions are forecast to have been completed, all
assets under construction have been developed and rent
stabilisation thereon has been achieved.
The Board’s expectation is further underpinned by
regular dialogue with the Investment Adviser which
considers market conditions, the availability of investment
opportunities, principal risks and uncertainties and any
change in the regulatory framework. The principal and
emerging risks and uncertainties continue to be monitored
closely by the Board. Please see details of the COVID-19
and going concern review on pages 9 to 11.
Environmental, Social and Governance
The Board’s report on Environmental, Social and
Governance is on pages 38 to 49.
Corporate Governance Statement
The corporate governance statement is set out on pages
67 to 75.
Stakeholder engagement and Section 172
statement
The Groups’ stakeholder engagement and Section 172
statement are set out on pages 54 to 57.
Diversity
The Company does not have any employees. In respect of
the Board of Directors, we consider that each candidate
should be appointed on merit to make sure the best
candidate for the role is appointed every time. We support
diversity at Board level and encourage candidates from
all educational backgrounds and walks of life. What is
important to us is professional achievement and the ability
to be a successful non-executive Director based on the
individuals skills set and experience. Qualifications are
considered when necessary to ensure compliance with
regulation such as in relation to the Audit Committee. We
regularly review the Company’s policy on diversity and
consider the Board of Directors has a balance of skills,
qualifications and experience which are relevant to the
Company. We value the importance of diversity in the
boardroom but we do not consider it appropriate or in
the interests of the Company and its Shareholders, to set
prescriptive diversity targets for the Board.
Auditor
A resolution to reappoint RSM UK Audit LLP as Auditors
will be proposed at the Annual General Meeting.
Audit information
The Directors who held office at the date of approval of
this Report of the Directors confirm that, so far as they
are aware, there is no relevant audit information of which
the Company’s Auditor are unaware and each Director
has taken all the steps that he ought to have taken as
a Director to make himself aware of any relevant audit
information and to establish the Company’s Auditor are
aware of that information.
Post balance sheet events
Details of any significant post balance sheet events are
detailed on page 122 of these financial statements.
By order of the Board
Steve Smith
Director
5 October 2020
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
MY
SIMPLE LIFE
STORY
KELLY WOOD
Kelly Wood and her partner, daughter and family cat live in a three-bedroom Simple Life home
in Telford. Kelly needed a home close to her daughter’s school and fell in love with the homes
on the Silkin Green site and had to have one…
LOVE AT FIRST SIGHT
“A friend of ours had purchased
a property on the site and as
we had a look around, we fell in
love and knew that we had to
have one too.
“What struck me was as a
brand-new build, it was a blank
canvas to make our own and
much more spacious than
anything that we’ve rented
before.”
DANCING IN THE KITCHEN
“We spend most of our time
in the family kitchen as it’s so
big and airy. I can be cooking
while my daughter is doing her
homework or crafting – there’s
usually glitter everywhere. We
stick the radio on and there’s
plenty of dancing around.
“We love the Velux windows
especially, and we have double
doors that open out to the
garden which feels like an extra
room – everything is so big.
Having all new appliances is
brilliant – if anything breaks we
know we don’t need to fork out
thousands of pounds to fix it.
“The front room is nice and
cosy and now that the winter
months are coming too, we
have been spending a bit more
time there but the kitchen is
our favourite place to be.”
GREAT TRANSPORT LINKS
“The area we are in is fab! We
are right by the park, off the
main road and the transport
links are really good – we can
walk into town and everything
is on our doorstep.”
RECOMMEND TO A FRIEND
“One of my friends is just
across the road, then another
friend lives on the site too and
I’ve recommended another
Simple Life property to a
colleague.
“The actual process of
organising moving in was so
easy, the contact was great,
and we were always updated
on progress. We’re not on top
of one another like with some
new builds, everyone has at
least one car parking space
and the garden is nice.”
PEACE OF MIND
“One of the main perks for
me is the peace of mind we
have. We don’t have to worry if
there’s any issues in the house,
maintenance are straight there
and just get it done, get it
fixed, whereas with a normal
private landlord it could take
weeks.
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
“It’s a really satisfying feeling
knowing our landlord is looking
after our needs, we don’t have
to worry about if they are
going to sell or them taking
months to get something
fixed – they care about the
property.”
IT’S A REALLY
SATISFYING FEELING
KNOWING OUR
LANDLORD IS LOOKING
AFTER OUR NEEDS.
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CORPORATE GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Strategic
Report, the Report of the Directors and the Directors
Remuneration Report, the Corporate Governance
Statement and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, the
Directors have prepared the Group financial statements
in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union
(“EU”) and have elected under company law to prepare
the Company financial statements in accordance with
IFRS as adopted by the EU.
The financial statements are required by law and IFRS
adopted by the EU to present fairly the financial position
of the Group and the Company and the financial
performance of the Group. The Companies Act 2006
provides in relation to such financial statements that
references in the relevant part of that Act to financial
statements giving a true and fair view are references to
their achieving a fair presentation.
Under company law, the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
Company, and of the profit or loss of the Group, for that
period. In preparing the financial statements, the Directors
are required to:
select suitable accounting policies and then apply them
consistently;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group and Company’s transactions, and disclose with
reasonable accuracy at any time, the financial position
of the Group and Company, and enable them to ensure
that the financial statements and Directors Remuneration
Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
IAS Regulation.
The Directors are also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
Each of the Directors, whose names and functions are
listed in the Corporate Governance section of the Annual
Report confirm that, to the best of their knowledge:
the financial statements, prepared in accordance with
the applicable set of accounting standards. Give a true
and fair view of the assets, liabilities, financial position
and profit of the Company and the undertakings
included in the consolidation taken as a whole; and
the Strategic Report contained in the Annual
Report includes a fair review of the development
and performance of the business and the position
of the Company and the undertakings included in
the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that it
faces.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the PRS REIT website.
state whether they have been prepared in accordance
with IFRS’s adopted by the EU;
Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
make judgements and accounting estimates that are
Approval
reasonable and prudent; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Company will continue in business.
This Statement of Directors’ Responsibilities was
approved by the Board and signed on its behalf by:
Steve Smith
Chairman
5 October 2020
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE STATEMENT
Statement of Compliance
Responsibilities
The Company is committed to maintaining high standards
of corporate governance and considers that reporting
against the principles and recommendations of the
AIC Code of Corporate Governance issued in February
2019 (the ‘AIC Code’), provides better information to
shareholders as it addresses all the principles set out
in the 2018 UK Corporate Governance Code (the ‘UK
Code’), as well as setting out additional principles and
recommendations on issues that are of specific relevance
to investment trusts, and is endorsed by the Financial
Reporting Council (the ‘FRC’). The AIC Code has been
voluntarily followed by the Company.. The AIC Code is
available from the AIC website at theaic.co.uk. A copy of
the UK Code can be obtained at frc.org.uk. It includes an
explanation of how the AIC Code adapts the Principles
and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board recognises the importance of a strong
corporate governance culture and has established a
framework for corporate governance which it considers to
be appropriate.
The UK Code includes provisions relating to:
the role of the chief executive; and
executive directors’ remuneration.
For the reasons set out in the AIC Code, the Board
considers these provisions not relevant to the position
of the Company, being an externally managed REIT. In
particular, all of the Company’s day-to-day management
and administrative functions are outsourced to third
parties. As a result, the Company has no executive
directors, employees or internal operations. The
Company has therefore not reported further in respect
of these provisions.
The Board has reviewed the principles and
recommendations of the AIC Code and considers that the
Company has complied with these throughout the year,
except as disclosed below:
given the size of the Board, it is not considered
necessary to appoint a senior independent director.
given the structure and size of the Board, the Board
does not consider it necessary to appoint separate
remuneration and nomination committees. The
roles and responsibilities normally reserved for these
committees are matters for the Board.
The Board is responsible for ensuring compliance with
the Group’s investment policy and has oversight of the
management and conduct of the Group’s business,
strategy and development.
The Board is also responsible for the control and
supervision of the AIFM and the Investment Adviser and
compliance with the principles and recommendations of
the AIC Code. The Board ensures the maintenance of a
sound system of internal controls and risk management
(including financial, operational and compliance controls)
and reviews the overall effectiveness of the systems in
place throughout the year and no problems have been
identified. The Board is responsible for approval of any
changes to the capital, corporate and/or management
structure of the Group.
The Board’s main focus is the sustainable long-term
success of the Group to deliver value for shareholders.
The Board does not routinely involve itself in day to day
business decisions.
The AIFM is responsible for portfolio management
(including compliance with the Group’s investment policy)
and risk management of the Group pursuant to the AIFMD,
including the implementation and review of adequate risk
management systems. The AIFM has delegated the day to
day portfolio management of the Group to the Investment
Adviser, including the acquisition of PRS development
sites and completed PRS sites and appointing and liaising
with third parties providing services to the Group. The
Investment Adviser also provides certain development
management services to the Group, in connection with the
construction and delivery of new PRS units.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
The key matters reserved to the Board are:
Board membership and powers including the
appointment and removal of Board members;
establishing the overall control framework, Stock
Exchange related matters, including the approval
of communications to the Stock Exchange, and
communications with shareholders, other than
announcements of a routine nature;
the appointment, termination, and regular assessment
of the performance of the principal advisers, including
the AIFM, Investment Adviser, legal and tax advisers,
administrator, valuer, financial adviser and broker,
registrar and Auditor;
the approval of annual and half yearly financial reports,
to 31 December and 30 June respectively, dividends,
accounting policies and significant changes in
accounting practices;
the review of the adequacy of corporate governance
procedure;
the review of the risk management systems and the
effectiveness of internal controls;
approval of changes to the Group’s capital structure,
dividend policy, treasury policy, borrowing facilities and
any banking relationships;
approval of any related party transactions subject to
further regulatory requirements; and
oversight of the Group’s operations ensuring compliance
with statutory and regulatory obligations.
The Investment Adviser has autonomy for investment
decisions within the terms of the Investment Agreement.
The Board has carried out a robust assessment of the
emerging principal risks affecting the business, including
those which would threaten its business model, future
performance, solvency or liquidity. Details of these risks
and their management are set out in this report on pages
50 to 53.
The Board has reviewed the effectiveness of the AIFM and
Investment Adviser’s compliance and control systems in
operation insofar as they relate to the affairs of the Group
and further reviews the arrangements with the Depository
to ensure the safeguarding of the Company’s assets
and security of the shareholders’ investment is being
maintained.
As the Company principally invests in property assets,
the Board does not consider that there is any need to
determine a separate remit for the Investment Adviser
regarding voting and corporate governance issues in
respect of investee companies. While the Company has
a number of subsidiary undertakings these are all special
purpose vehicles set up for the purposes of holding
property assets and are all wholly owned and controlled by
the Company.
Internal Control Review
The Board is responsible for the systems of internal controls
relating to the Company, including the reliability of the
financial reporting process, and for reviewing the systems’
effectiveness. The Directors have reviewed and considered
the guidance supplied by the FRC on risk management,
internal control and related finance and business reporting
and an ongoing process is in place for identifying,
evaluating and managing the principal and emerging risks
faced by the Company. This process, together with key
procedures established with a view to providing effective
financial control, was in place during the year under review
and at the date of this report.
The internal control systems are designed to ensure that
proper accounting records are maintained, that the financial
information on which business decisions are made and
which is issued for publication is reliable, and that the
assets of the Company are safeguarded.
The risk management process and systems of internal
control are designed to manage rather than eliminate
the risk of failure to achieve the Company’s objectives. It
should be recognised that such systems can only provide
reasonable, not absolute, assurance against material
misstatement or loss.
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
The Directors have carried out a review of the effectiveness
of the systems of internal control as they have operated
over the period and up to the date of approval of the
Annual Report and Financial Statements. There were
no matters arising from this review that required further
investigation and no significant failings or weaknesses were
identified. The internal control systems do not eliminate
risk and can only provide reasonable assurance against
misstatement or loss.
Internal Control Assessment Process
Robust risk assessments and reviews of internal controls
are undertaken regularly in the context of the Company’s
overall investment objective.
The following are the key internal controls which the
Company has in place:
a risk register has been produced against which
identified and emerging risks and the controls in place
to mitigate those risks can be monitored;
a procedure to monitor the compliance status of the
Company to ensure that it can continue to be approved
as a REIT;
the Investment Manager and the Administrator prepare
forecasts and management accounts which allow the
Board to assess performance;
the controls employed by the Investment Manager
and other third party service providers, are periodically
reviewed by the Audit Committee; and there are agreed
and defined investment criteria, specified levels of
authority and exposure limits in relation to investments,
leverage and payments.
The risks of any failure of internal controls are identified in
the risk register, which is regularly reviewed by the Board
which also assesses the impact of such risks. The principal
and emerging risks and uncertainties identified from the
risk register can be found on pages 50 to 53.
Investment Adviser
The Board appointed the Investment Adviser, Sigma
PRS Management Ltd (“Sigma PRS”), in May 2017 to
provide investment advice and to manage the property
portfolio and the associated day to day activities of the
Company. The Investment Adviser is part of the Sigma
Capital Group, a leading provider of PRS properties in the
UK. As a wholly owned subsidiary of Sigma Capital Group
plc, the Investment Adviser benefits from the extensive
experience and expertise of the Sigma Capital Group with
access to its PRS property platform to source investment
opportunities that meet the investment objectives of
the Company, management of all properties within the
portfolio, and providing marketing and investor relations
services to the Company.
The agreement with the Investment Adviser is terminable
on not less than 12 months’ notice by either party,
such notice not to expire earlier than 31 May 2023. The
performance of the Investment Adviser has been reviewed
on an ongoing basis throughout the period by the Board
at its quarterly meetings. The Board considers a number
of factors including investment performance, the skills and
experience of key staff and the capability and resources of
the Investment Adviser to deliver satisfactory performance
for the Company in accordance with its Investment
Objective. The Board is satisfied with the performance
of the Investment Adviser and considers its continued
appointment on the terms agreed to be in the best
interests of the Company and its shareholders as a whole.
Annual report and financial statements
The Directors have responsibility for preparing the annual
report and financial statements. Each of the Directors
considers that, taken as a whole, the annual report and
financial statements are fair, balanced and understandable
and provide the information necessary for shareholders to
assess the Group’s position and performance, business
model and strategy.
The Board has a reasonable expectation that the Group
and the Company will be able to continue in operation
and meet its liabilities as they fall due over the next twelve
months from the date of this report. The going concern and
viability statements of the Group are set out on page 63.
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Board membership and meeting attendance
During the year to 30 June 2020, the number of scheduled Board meetings attended by each Director was as follows:
Director
Steve Smith
David Steffan Francis
Roderick MacRae
Jim Prower
Attendance*
Date of Appointment
Length of Service at
30 June 2020
6/6
6/6
6/6
6/6
24 April 2017
24 April 2017
24 April 2017
20 May 2019
38 months
38 months
38 months
13 months
*Number of scheduled meetings attended/maximum number of meetings that the Director could have attended.
Composition
The Group has a non-executive Chairman and three other
non-executive Directors all of whom were considered
independent on and since their appointment. All of the
Directors are independent of the Investment Adviser
and the AIFM. Although certain of the Directors share
non-executive roles in another organisation this is not
considered a risk to their independence in respect of the
PRS REIT as there is not a significant link.
Steve Smith is the Chairman of the Company. The
Chairman is responsible for leadership and oversight of the
Board to ensure that it functions effectively. Steve ensures
that accurate, timely and clear information is received and
sufficient time is given in meetings to review all agenda
items thoroughly. He promotes constructive debate and
facilitates a supportive, co-operative and open environment
between the Investment Adviser and the Directors. He
is also responsible for ensuring that the Company’s
obligations to its shareholders are understood and met.
The non-executive Directors hold, or have held, senior
positions in industry and commerce and contribute a wide
range of skills, experience and objective perspective to the
Board. Through the Board committees, the non-executive
Directors bring focus and independence to strategy,
governance, internal controls and risk management.
During the year, the Board was satisfied that all Directors
were able to commit sufficient time to discharge their
responsibilities effectively having given due consideration to
the Directors’ external appointments. The Directors were
advised on appointment of the expected time required to
fulfil their roles and have confirmed that they remain able
to make that commitment. All material changes in any
Director’s commitments outside the Group are required to
be, and have been, disclosed prior to the acceptance of
any such appointment.
Directors are selected and appointed by the Board as a
whole. There is no separate nomination committee as
the Board is considered small relative to listed trading
companies. The Directors are therefore responsible for
reviewing the size, structure and skills of the Board and
considering whether any changes are required or new
appointments are necessary to meet the requirements
of the Company’s business succession planning or to
maintain a balanced Board.
In accordance with the Articles of Association, every person
appointed as an additional Director during the course of the
year must stand for re-election at the next Annual General
Meeting (“AGM”). The Board follows the revised AIC Code
of Corporate Governance that applies to financial periods
commencing after 1 January 2019 and requires that all
Directors will stand for re-election annually and that all
Directors will not serve for a period of more than nine years
in accordance with the UK Code.
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Remuneration
Given that the Company has no executive Directors or
other employees, the Board does not consider it necessary
to establish a separate remuneration committee. The
Board takes responsibility for reviewing the levels of
remuneration set.
Board Committees
The Board has established a Management Engagement
Committee and an Audit Committee.
The Audit Committee meets at least twice a year and
reviews the scope and results of the external audit, its
cost effectiveness and the independence and objectivity
of the external Auditors, including the provision of non-
audit services. The Audit Committee comprises 3 of the
non-executive Directors given the size of the Board and to
benefit from the broad range of financial, commercial and
property sector experience which enables them to provide
better oversight of financial and risk matters. Rod MacRae
is Chairman of the Audit Committee.
The Management Engagement Committee comprises
the full Board and keeps the terms of engagement with
the AIFM and Investment Adviser under review and
examines the effectiveness of the Company’s internal
control systems and the performance of the AIFM,
Investment Adviser, Administrator, Depositary, Company
Secretary, valuer and other service providers. There
were no changes to the terms of these engagements.
The Management Engagement Committee comprises
all of the Directors given the size of the Board but each
member is independent of the AIFM and the Investment
Adviser. Steve Smith is the Chairman of the Management
Engagement Committee. The Management Engagement
Committee receives reports and analyses from each of
the Investment Adviser and AIFM and reviews these,
making recommendations for change or requests for
additional information where appropriate to ensure
ongoing performance under the terms of their respective
contractual arrangements. There were 2 Management
Engagement Committee meetings during the year
attended by all of the Directors.
The agreement with the Investment Adviser is terminable
on not less than 12 months’ notice by either party,
such notice not to expire earlier than 31 May 2023. The
performance of the Investment Adviser has been reviewed
on an ongoing basis throughout the period by the Board
at its quarterly meetings. The Board considers a number
of factors including investment performance, the skills and
experience of key staff and the capability and resources of
the Investment Adviser to deliver satisfactory performance
for the Company in accordance with its Investment
Objectives. The Board is satisfied with the performance
of the Investment Adviser and considers its continued
appointment to be in the best interests of the Company
and its shareholders.
Board Meetings
During a full financial period, the Board will meet formally at
least on a quarterly basis with additional meetings as the
Board may decide from time to time dedicated to specific
events. There were four meetings during the year, attended
by those Directors available at the time. The additional
meetings in the year were in connection with the approval
of the 2019 Annual Report and Financial Statements, and
the debt facilities with both Scottish Widows Limited and
Lloyds Banking Group / RBS.
Board papers are circulated by the Investment Adviser
prior to each meeting to ensure that the Directors receive
accurate, clear and timely information to help them to
discharge their duties. For this purpose, the Board receives
periodic reports from the AIFM and the Investment Adviser
detailing the performance of the Group. The primary focus
at the meetings are a review of investment opportunities,
investment performance and associated matters such as
gearing, asset allocation, level of the share price discount
or premium, marketing and investor relations and industry
issues.
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Discussions of the Board
Performance Evaluation
During the year, the Board spent time discussing the
following items:
health and safety
investment policy and objectives
the approval of debt facilities with Scottish Widows and
Lloyds Banking Group / RBS
the Group’s corporate structure
the Group’s communication strategy
the key performance indicators by which the Group
measures success
updates on relevant government or regulatory
developments
review of quarterly management accounts
review of the Company’s share price rating, performance
and trading and the Group’s NAV performance
analysis of the Company’s shareholder register
review of corporate governance compliance, Group
subsidiary activity and Depositary report
The Investment Adviser attends the Board meetings.
Representatives from the AIFM and the Company’s other
advisers are also invited to attend Board meetings from
time to time.
The Directors recognise that the evaluation process is
a significant opportunity to review the practices and
performance of the Board, its committees and its individual
Directors and to implement actions to improve the Board’s
focus and effectiveness which contribute to the Group’s
success.
The Board has undertaken an internal performance
evaluation by way of a questionnaire designed to assess
the strengths and effectiveness of the Board and its
committees. The evaluation considered (amongst other
things) the composition, balance and effectiveness of
the Board, the quality of management information, the
independence and the overall performance of the Board
and its Committees. Each of the Directors completed a
questionnaire which was then used to hold constructive
discussions led by the Chairman.
Having conducted the evaluation, the Board considers that
it has performed effectively and that it demonstrates a good
balance of skills, performance and knowledge. The Board
is also satisfied that the Chairman remains independent of
the Investment Adviser and the AIFM and has exhibited a
good leadership style, promoting effective decision-making,
constructive debate and ensuring the board functions well
as a unit. Whilst the Board recognises it could be more
diverse, it does not consider it is in the best interests of
shareholders to force diversity by imposing fixed criteria
or quotas. The Board will continue to make appointments
based on merit, having regard to a number of factors
including gender, ethnicity, skills and experience. The Board
will continue to monitor and encourage diversity.
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Culture
The Directors are aware that establishing and maintaining
a healthy culture amongst the Board and in its interaction
with the Investment Adviser, other service providers,
shareholders and other stakeholders will support the
delivery of its purpose, values and investment strategy.
The Board seeks to promote a culture of openness,
transparency and integrity through ongoing dialogue and
engagement with its stakeholders.
The Group has a number of policies and procedures
in place to assist with maintaining a culture of good
governance including those relating to diversity, Directors’
conflicts of interest and Directors’ dealings in the
Company’s shares. The Board assesses and monitors
compliance with these policies as well as the general
culture of the Board regularly through Board meetings and
in particular during the annual evaluation process. The
Board seeks to appoint the best possible service providers
and evaluates their service on a regular basis.
The Board considers the culture of the Investment Adviser
and other service providers, including their policies,
practices and behaviour, through regular reporting from
these stakeholders and in particular during the annual
review of the performance and continuing appointment of
all service providers.
Conflicts of interest
The Group operates a conflicts of interest policy that has
been approved by the Board and sets out the approach
to be adopted and procedures to be followed where a
Director, or such other persons to whom the Board has
determined the policy applies, has an interest which
conflicts, or potentially may conflict, with the interests of
the Group. Under the policy and the Company’s Articles
of Association, the Board may authorise potential conflicts
that may arise, subject to imposing limits or conditions
when giving authorisation if this is appropriate.
The Group reserves the right to withhold information
relating, or relevant, to a conflict matter from the Director
concerned, and/or to exclude the Director from any Board
information, discussions or decisions which may or will
relate to that matter of conflict, or where the Chairman
considers that it would be inappropriate for a Director to
take part in such discussion or decision, or receive such
information. Procedures have been established to monitor
actual and potential conflicts of interest on a regular basis
and the Board is satisfied that these procedures are
working effectively.
The AIFM and Investment Adviser maintain a policy to
avoid and manage any conflicts of interest that may arise
between themselves and the Group. The Investment
Adviser has established a clear and robust framework
to ensure that any conflicts of interest are appropriately
governed that includes:
the Investment Adviser’s obligation to provide the
Group with a right of first refusal on every investment
opportunity meeting the Group’s investment policy with
the intention that the Group undertakes not less than
two-thirds of all such opportunities with the balance
being developed by the Investment Adviser and forward
sold to the Group
the Investment Adviser’s obligation to sell all stabilised
investment assets to the Group on pre-agreed terms
at a price equal to the market value determined by an
independent valuation expert
other conflict matters, in particular regarding the value,
quality or other terms relating to the acquisition of assets
by the Group.
Professional development
All Directors received a comprehensive induction
programme on joining the Board that covered the
Investment Adviser’s investment approach, the role and
responsibilities of a Director and guidance of corporate
governance and applicable regulatory and legislative
landscape. The Chairman regularly reviews and discusses
the development needs with each Director. Each Director
is fully aware that they should take responsibility for their
own individual development needs and take the necessary
steps to ensure they are wholly informed of regulatory and
business developments.
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Health and safety
Shareholder engagement
Health and safety is of prime importance to the Group, and
is considered equally with all other business management
activities to ensure protection of stakeholders be they
tenants, advisers, suppliers, visitors or others. The Board
regularly discusses health and safety issues with the
Investment Adviser. The Group is committed to fostering
the highest standards in health and safety as it believes
that all unsafe acts and unsafe conditions are preventable.
All our stakeholders have a responsibility to support the
aim of ensuring a secure and safe environment, and all our
stakeholders are tasked with responsibility for achieving
this commitment.
Transparency
The Company aims to be transparent, and to ensure
that it communicates with its shareholders and
other stakeholders in a manner that enhances their
understanding of its business. The Company engages
Sigma PRS to maintain accounting documentation that
clearly identifies the true nature of all business transactions,
assets and liabilities, in line with the relevant regulatory,
reporting, accounting, and legal requirements. No record
or entry is knowingly false, distorted, incomplete, or
suppressed. All reporting is fair, reasonable, complete
and in compliance in all material respects with stated
accounting policies and procedures.
The Company does not knowingly misstate or
misrepresent management information for any reason, and
the Company expects the same to apply to its suppliers.
The Company may be required to make statements or
provide reports to regulatory bodies, government agencies
or other government departments, as well as to the media.
The Company ensures that such statements or reports
are correct, timely, and not misleading, and that they are
delivered through the appropriate channels. Through its
website the Company provides its Annual Report, other
statements and any appropriate information to enable
shareholders and stakeholders to assess the performance
of its business. The Company complies with the applicable
laws and regulations concerning the disclosure of
information relating to the Company.
The Group encourages active interest and contribution
from both its institutional and private investors and
responds promptly to all queries received by the Group.
The Board recognises the importance of maintaining
strong relationships with shareholders, and the Directors
place a great deal of importance on understanding
shareholder sentiment.
The Investment Adviser and the Group’s financial advisers
regularly meet and receive calls from shareholders and
analysts in order to understand their views, and the
Group’s broker speaks to shareholders regularly, ensuring
shareholder views are communicated to the Board. The
Board takes responsibility for, and has a direct involvement
in, the content of communications regarding major
corporate issues.
Shareholders are encouraged to attend and vote at the
Company’s shareholder meetings, so they can discuss
governance and strategy and the Board can enhance its
understanding of shareholder views. The Board attends
the Company’s shareholder meetings to answer any
shareholder questions and the Chairman makes himself
available, as necessary, outside of these meetings to speak
to shareholders.
The Board believes that sufficient information is available
to shareholders to understand the balance of risk and
reward to which they are exposed by holding shares in
the Company. The publication of the Key Information
Document on the Company’s website, which is prepared
by the AIFMD in conjunction with the Investment Adviser,
provides the nature and key risks of the Company to
shareholders. The Board is committed to providing
investors with regular announcements of significant events
affecting the Group and all investor documentation is
available on the Group’s website www.theprsreit.com.
As a demonstration of the Company’s commitment
to sustainability, it is proposing to move to electronic
communications for all shareholders and a letter notifying
this change was sent to all shareholders on 18 September
2020.
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CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
I am pleased to present the Audit Committee (the
“Committee”) report of The PRS REIT plc covering the
financial year ended 30 June 2020.
The Committee, which reports to the Board, has
governance responsibilities to oversee the Company’s
financial reporting processes, which include the risk
management and internal financial controls of the
Investment Adviser.
The Committee members consist of 3 Board Directors who
have a broad range of financial, commercial and property
sector expertise which enables them to provide oversight of
both financial and risk matters.
Role of the Audit Committee
The principal duties of the Audit Committee are:
Financial reporting
External audit
to manage the relationship with the Company’s external
Auditor, including reviewing the Auditor’s remuneration,
independence and performance and making
recommendations to the Board as appropriate;
to review the policy on the engagement of the Auditor;
and
to safeguard the Auditor’s independence and objectivity.
External property valuation
to review the quality and appropriateness of the half-
yearly and full year external valuations of the Group’s
property portfolio.
Other
consider the integrity of the interim and full year financial
performance effectiveness.
review the Committee’s terms of reference and
statements which includes the preliminary results
announcement of the Company;
report to the Board on any significant financial reporting
issues and judgments having regard to any matters
communicated to it by the Auditor; and
as requested by the Board, to review the contents of the
annual report and financial statements and advise the
Board on whether the report and financial statements
provide a true and fair view of the Company’s financial
position as at 30 June 2020 and further provides
shareholders with sufficient information to assess the
financial position of the Company and Group, and
the Group’s performance, investment strategy and
investment objectives.
Risk management and control
review the adequacy of the internal controls and risk
management systems of the Company’s Investment
Adviser; and
The Committee is to meet at least twice annually and its
quorum is two members. The Audit Committee reports and
makes recommendations to the Board, after each meeting.
Matters considered by the Audit Committee
There are at least two scheduled Audit Committee
meetings per any financial period. For the period from 1
July 2019 to 5 October 2020, the Committee has met five
times. The attendance at these meetings was as follows:
Director
Attendance *
Rod MacRae (Chairman)
Steve Smith
Steffan Francis
Jim Prower
5/5
3/3
4/5
3/3 *
*Number of scheduled meetings attended/maximum number of meetings
that the Director could have attended.
report to the Board on the Company’s procedures for
detecting fraud.
At these meetings, the Audit Committee has:
reviewed the internal controls and risk management
systems of the Company;
reviewed financial results;
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CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT (Cont.)
agreed the audit plan with the Auditor, including the
agreement of the audit fee;
reviewed the annual valuation reports from the
independent valuation expert, Savills (UK) Limited;
reviewed the provision of non-audit services by the
Auditor;
reviewed the independence of the Auditor; and
reviewed the Group’s financial statements and advised
the Board accordingly.
The Company’s principal risks can be found on pages
50 to 53. The Administrator and the Investment Adviser
update the Audit Committee on changes to accounting
policies, risk, legislation and areas of significant judgement
by the Investment Adviser.
Significant matters considered by the Audit
Committee in the year
Acquisition of subsidiaries
During the year the Group acquired six property owning
special vehicles. The Directors considered whether
these acquisitions met the definition of a business or
the acquisition of a group of assets and liabilities. It was
concluded that the subsidiaries met the criteria for the
acquisition of a group of assets and liabilities as outlined
in IFRS 3. The Committee considered the accounting
treatment of the acquisitions of these property owning
special purpose vehicles. The Administrator and
the Investment Adviser provided advice to the Audit
Committee in this regard. The Committee was satisfied
that these acquisitions were appropriately treated as asset
acquisitions.
Property portfolio valuation
Investment property is held in the financial statements
at fair value. There are independent valuations which
are carried out by a qualified independent valuation
expert. The valuations depend on some data provided
by the Investment Adviser and the independent valuation
expert makes decisions and assumptions on criteria,
some of which are subjective. As the valuation of the
properties within the Group’s portfolio is central to the
Company’s business the Directors consider that the value
of investment properties is a significant issue due to the
magnitude of the total amount, the potential impact on
the movement in value on the reported results and the
subjectivity of the valuation process.
The investment properties are independently valued
by an external valuation expert, Savills (UK) Limited.
The valuations are prepared in accordance with RICS
Valuation Professional Standards 2014. The valuations
are compliant with International Valuation Standards. The
Investment Adviser has held open discussions with the
valuers throughout the period on the valuation process
to discuss various elements of the property valuations
and the Auditor also has direct access to them as part
of the audit process. Given the audit risks related to the
valuation of the property portfolio, the Auditor engaged its
own independent valuation expert to review the Group’s
valuation. Since the year-end, the Committee has reviewed
the valuation reports and has discussed these reports
with the Investment Adviser and the Auditor. The Audit
Committee were satisfied with the valuation reports.
External audit process
Before the commencement of the audit, the Audit
Committee met with the Auditor, to discuss the scope
of the audit plan. After completion of the external audit,
the Committee met again with the Auditor to discuss the
findings of the external audit and consider and evaluate
any findings.
True and fair view
After the consideration of the above matters and detailed
review, the Audit Committee was of the opinion that the
annual report and financial statements, represent a true
and fair view of the Company as a whole and in addition
provides the information necessary for shareholders
to assess the Company’s performance, strategy and
investment objectives.
Audit fees and non-audit services
An audit fee of £98,000 has been agreed in respect of the
audit of the Company for the year ended 30 June 2020
(2019: £80,000). The audit fees of the Group for the period
ended 30 June 2020 totalled £182,000 (2019: £130,000).
The cost of non-audit services provided by the Auditor
to the Company for the financial period ended 30 June
2020 was £19,000 (2019: £18,000) of which £19,000
related to the interim financial statements review (2019:
£18,000). BDO LLP have been engaged to advise on
taxation compliance matters. To safeguard the external
Auditor’s independence and objectivity there was
prior approval of a detailed scope and no additional
safeguards were considered necessary due to the nature
of procedures involved.
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CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT
Independence and objectivity of the Auditor
RSM UK Audit LLP (“RSM”) were appointed as Auditor
to the Company since IPO on 31 May 2017, during
which time Mr Euan Banks, Partner at RSM, has been
the audit partner on the audit. No tender for the audit
of the Company has been undertaken. In evaluating
RSM’s performance, the Audit Committee considered
the effectiveness of the audit process, quality of
delivery, staff expertise, audit fees and the Auditor’s
independence, along with matters raised during the audit.
The Committee received confirmation from RSM that
they maintain appropriate internal safeguards in line with
applicable professional standards. In accordance with
new requirements relating to the appointment of Auditors,
the Company will need to conduct an audit tender no
later than for the accounting period beginning 1 June
2026. Having considered the Auditor’s independence
in respect of the year ended 30 June 2020, the Audit
Committee is satisfied with the Auditor’s performance,
objectivity and independence.
Review of Auditor appointment
Following consideration of the performance of the Auditor,
the service provided during the year and a review of their
independence and objectivity, the Audit Committee has
recommended to the Board the continued appointment
of RSM UK Audit LLP as the Company’s external
independent Auditor.
Internal audit
The Audit Committee has determined that there is no
need for an internal audit function given the limited size
and complexity of the Company and its business.
Rod MacRae
Audit Committee Chairman
5 October 2020
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CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION POLICY
DIRECTORS’ REMUNERATION POLICY
The Directors’ Remuneration Policy of the Company is
set by the Board. A resolution to approve this Directors’
Remuneration Policy was approved at the last Annual
General Meeting. The policy provisions set out below will
apply until they are next put to shareholders for renewal of
that approval, which must be at intervals of not more than
three years, or earlier if proposals are made to vary the
policy. The Directors’ Remuneration Policy is binding and
sets the parameters within which Directors’ remuneration
may be set.
The fees paid will be reviewed on an annual basis and
may also be reviewed when new non-executive Directors
are recruited to the Board. The Directors of the Company
are entitled to such rates of annual fees as the Board
at its discretion shall from time to time determine. The
Chairman of the Board and the Audit Committee Chairman
are entitled to receive fees at a higher level than those of
the other Directors, reflecting their additional duties and
responsibilities. Annual fees are pro-rated where a change
takes place during the financial year.
The Directors’ Remuneration Policy of the Company is to
pay its non-executive Directors fees that are appropriate for
the role and the amount of time spent in discharging their
duties, that are broadly in line with those of comparable
real estate investment companies and that are sufficient
to attract and retain suitably qualified and experienced
individuals which therefore supports the long term strategic
objectives of the Group.
In addition to the annual fee, under the Company’s Articles
of Association, if any Director is requested to perform any
special duties or services outside his ordinary duties as
a Director, he may be paid such reasonable additional
remuneration as the Board may from time to time
determine.
Directors’ Remuneration Components
Component
Director
Annual fee
Chairman
Annual fee
Non-executive Directors
Additional fee
Chairman of the Audit
Committee
Annual Fee
£’000
45
30
5
Additional fee All Directors
Discretionary
Purpose of Remuneration
Commitment as Chairman of
a public company
Commitment as non-executive Directors
of a public company
For additional responsibilities and time
commitment
For extra or special services performed
in their role as a Director
Expenses
All Directors
n/a
Reimbursement of expenses incurred in
the performance of duties as a Director
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CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION POLICY (Cont.)
Voting at the AGM
The Directors’ remuneration report for the year ended
30 June 2019 and the Directors’ remuneration policy
were approved by shareholders at the AGM held on 25
November 2019. The results taken on a poll were as
follows:
Directors’ Remuneration Report
For – number of votes cast
386,124,106
Against - number of votes cast
Total votes cast
Number of votes withheld
5,600
386,129,706
-
Directors’ Remuneration Policy
For – number of votes cast
386,124,10 6
Against - number of votes cast
Total votes cast
Number of votes withheld
5,600
386,129,706
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Directors and Officers liability insurance cover is maintained
by the Company on behalf of the Directors.
Directors are entitled to be paid all expenses properly
incurred in attending Board or shareholder meetings or
otherwise in or with a view to the performance of their
duties.
As all Directors are non-executive and there are no
employees, the Company does not operate any share
option or other long-term incentive schemes and the
Directors’ fees are not subject to any performance criteria.
No pension or other retirement benefits schemes are
operated by the Company for any of its Directors.
Letters of appointment
No Director has a service contract with the Company.
The Directors are appointed under letters of appointment.
Their appointment and any subsequent termination or
retirement is subject to the Articles of Association. The
Directors’ letters of appointment provide that, upon the
termination of a Director’s appointment, that Director must
resign in writing and all records remain the property of the
Company. A Director’s appointment can be terminated in
accordance with the Articles of Association and without
compensation. There is no notice period specified in the
Articles of Association for the removal of Directors and all
Directors are subject to re-election by shareholders every
year from the date they were last re-elected.
Approach to recruitment remuneration
The remuneration package for any new Chairman or non-
executive Director will be the same as the prevailing rates
determined on the bases set out above. The Board will
not pay any introductory fee or incentive to any person to
encourage them to become a Director, but may pay the
fees of search and recruitment specialists in connection
with the appointment of any new non-executive Director.
Views of shareholders
Any views expressed by shareholders on the fees being
paid to Directors would be taken into consideration by the
Board when reviewing levels of remuneration. No views
have been expressed to date.
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CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
The Board presents its Directors’ Remuneration Report in
respect of the year ended 30 June 2020. The Board has
prepared this report in accordance with the Large and
Medium-Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2008 (as amended).
An ordinary resolution for the approval of the Directors’
Remuneration Report will be put to shareholders at the
next AGM of the Company.
The law requires the Company’s Auditor to audit certain
of the disclosures required. Where disclosures have been
audited, they are indicated as such. The Auditor’s opinion
is included in the Auditor’s Report on pages 83 to 91.
Annual Statement from the Chairman
I am pleased to present the Directors’ Remuneration
Report for the financial year ended 30 June 2020.
As the Board has no executive Directors, it does
not consider it necessary to establish a separate
Remuneration Committee. The Board as a whole
is therefore responsible for decisions regarding
remuneration. The Board consists entirely of non-
executive Directors and the Company has no employees.
Companies are required to seek shareholder approval of
the Remuneration Report each year and of the Directors’
Remuneration Policy on at least a three-yearly basis.
The vote on the Directors’ Remuneration Report is an
advisory vote, whilst the Directors’ Remuneration Policy
is subject to a binding vote. Resolutions to approve the
Remuneration Policy, as outlined on page 80 of this
report, and the Directors’ Remuneration Report will be
put before shareholders at the forthcoming AGM of the
Company. Any change to the Directors’ Remuneration
Policy following its approval would require shareholder
approval. There will be no significant change in the way
the Directors’ Remuneration Policy will be implemented in
the course of the next financial year.
The Directors are remunerated for their services at such
rate as the Board shall from time to time determine. The
Board has set three levels of fees: one for the Chairman,
one for other Directors, and an additional fee that is paid
to the Director who chairs the Audit Committee. Fees
are reviewed annually in accordance with the Directors’
Remuneration Policy. The fee for any new Director
appointed will be determined on the same basis.
The Directors’ fees have been set at a rate of £45,000
per annum in respect of the Chairman and £30,000 per
annum in respect of the other Directors, with an additional
£5,000 to the Chairman of the Audit Committee. No
person provided advice or services to the Board in respect
of the consideration of Directors’ remuneration.
Following a review of Directors’ fees subsequent to the
year-end, no changes are currently being proposed. There
were no other payments for extra services in the period
ended 30 June 2020 (2019: £nil).
Directors’ fees for the period (audited)
The Directors who served during the year and prior period
received the following total fixed fee remuneration:
Steve Smith (Chairman)
Steffan Francis
Rod MacRae (Audit Committee Chairman)
Jim Prower (appointed 20 May 2019)
Year ended 30
June 2020
£’000
Year ended
30 June 2019
£’000
4 5
30
3 5
30
140
45
30
35
4
1 1 4
% change
-
-
-
+650%
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CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT (Cont.)
During the year and prior year, no taxable benefits were received by any of the Directors.
The amounts paid to the Directors were for services as non-executive Directors.
Under the Company’s Articles of Association, the total aggregate remuneration and benefits in kind of the Directors of
the Company is subject to a maximum of £300,000 in any financial year. Any change to this would require shareholder
approval.
Relative importance of spending on pay
Year ended 30
June 2020
£’000
Year ended
30 June 2019
£’000
Directors’ aggregate remuneration
Dividends paid to all shareholders*
140
19,812
1 1 4
24,765
*includes all dividends paid in relation to the year ended 30 June 2020 and year ended 30 June 2019.
Total shareholder return
The graph below shows the total shareholder return (as required by company law) of the Company’s Ordinary Shares
relative to a return on a hypothetical holding over the same period in the FTSE 250, FTSE All Share REITS and FTSE
350 REITS. Total shareholder return is the measure of returns provided by a Company to shareholders reflecting share
price movements and assuming reinvestment of dividends.
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CORPORATE GOVERNANCE DIRECTORS’ REMUNERATION REPORT (Cont.)
Loss of office
The Directors do not have service contracts with the Company but are engaged under letters of appointment under
which there is no entitlement to compensation for loss of office.
Directors’ interests (Audited)
There is no requirement under the Company’s Articles of Association or the terms of their appointment for Directors to
hold shares in the Company.
As at 30 June 2020, the following Directors (including their connected persons) had beneficial interests in the following
number of shares in the Company:
Number of
ordinary shares 2020
Number of
ordinary shares 2019
Steve Smith (Chairman)
Steffan Francis
Rod MacRae (Audit Committee Chairman)
Jim Prower
80,000
60,000
100,000
22,000
80,000
50,000
100,000
-
There have been no changes to Directors’ share interests between 30 June 2020 and the date of this report.
The shareholdings of the Directors are not significant and therefore do no compromise their independence.
None of the Directors or any person connected with them has a material interest in the Company’s transactions,
arrangements or agreements during the year.
The Company maintains Directors and Officers liability insurance cover, at its expense, on the Directors’ behalf.
Statement of voting at general meetings
The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where
there are substantial votes against resolutions in relation to Directors’ remuneration, the Company will seek the reasons
for any such vote and will detail any resulting actions in an announcement.
The Company’s forthcoming AGM will be an opportunity for shareholders to vote on the Directors’ Remuneration Policy
and the Directors’ Remuneration Report.
Approval
The Directors’ Remuneration Report was approved by the Board on 5 October 2020.
On behalf of the Board.
Steve Smith
Chairman
5 October 2020
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Independent Auditors
Report to the members
of The PRS REIT Plc
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
Opinion
We have audited the financial statements of The PRS
REIT Plc (the ‘parent company’) and its subsidiaries
(the ‘Group’) for the year ended 30 June 2020 which
comprise the Consolidated Statement of Comprehensive
Income, Consolidated and Company Statements
of Financial Position, Consolidated and Company
Statements of Changes in Equity and Consolidated
and Company Statements of Cash Flows and notes
to the financial statements, including a summary of
significant accounting policies. The financial reporting
framework that has been applied in their preparation
is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union
and, as regards the parent company financial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
the financial statements give a true and fair view of
the state of the Group’s and of the parent company’s
affairs as at 30 June 2020 and of the Group’s profit for
the year then ended;
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the Companies Act 2006; and
other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to principal risks, going
concern and viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the
ISAs (UK) require us to report to you whether we have
anything material to add or draw attention to:
the disclosures in the annual report set out on pages
50 to 53 that describe the principal risks and explain
how they are being managed or mitigated;
the Boards’ confirmation set out on page 68 in
the annual report that is has carried out a robust
assessment of the Group’s principal risks, including
those that would threaten its business model, future
performance, solvency or liquidity;
the Boards’ statement set out on page 63 in the
financial statements about whether the Board
considered it appropriate to adopt the going concern
basis of accounting in preparing the financial
statements and the Board’s identification of any
material uncertainties to the Group and the parent
company’s ability to continue to do so over a period of
at least twelve months from the date of approval of the
financial statements;
the financial statements have been prepared in
whether the Directors’ statement relating to
accordance with the requirements of the Companies
Act 2006 and, as regards the group financial
statements, Article 4 of the IAS regulations.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report.
We are independent of the Group and parent company
in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed
public interest entities and we have fulfilled our
going concern required under the Listing Rules in
accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit;
or
the Boards’ explanation set out on page 63 in the
annual report as to how it has assessed the prospects
of the Group, over what period it has done so and
why it considers that period to be appropriate, and
its statement as to whether it has a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due
over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
Summary of our audit approach
Key audit matters
Group
- Valuation of Investment Property
Parent Company
- No key audit matters
Materiality
Group
- Overall materiality: £7,860,000 (2019: £4,490,000)
- Performance materiality: £5,890,000 (2019: £2,245,000)
Parent Company
- Overall materiality: £6,070,000 (2019: £3,152,000)
- Performance materiality: £4,550,000 (2019: £1,576,000)
Scope
Our audit procedures covered 100% of Group rental income, Group profit before tax,
and Group total assets, and was performed to the materiality levels set out above.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the Group and the parent company financial
statements of the current period and include the most
significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those
which had the greatest effect on the overall audit strategy,
the allocation of resources in the audit and directing the
efforts of the engagement team. These matters were
addressed in the context of our audit of the Group and
the parent company financial statements as a whole, and
in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
total value of the portfolio at 30 June 2020 was
£577 million. The Group either acquires completed sites or
sites that are ready to develop with full planning consent
having been granted, the latter form investment properties
under construction. The properties are predominately
located in the north of England and the Midlands.
The Directors’ assessment of the value of the investment
properties at year end date, is considered a key audit
matter due to the magnitude of the total amount, the
potential impact of the movement in value on the reported
results, and the subjectivity and complexity of the
valuation process.
We have determined that there are no key audit matters
to communicate in our report in relation to the Parent
Company.
The valuation is carried out by external valuers, Savills (UK)
Limited, in line with the methodology set out in note 16.
Valuation of investment properties
This is detailed in the Audit Committee report on pages
76 to 78; the significant accounting judgements and
estimates on pages 106 to 107; significant accounting
policies on pages 104 to 106 and notes to the financial
statements on pages 112 to 113.
Risk of material mis-statement
The Group owns or controls through a portfolio of
Special Purpose Vehicles (SPV’s) a portfolio of investment
properties which includes residential properties only. The
How the matter was addressed in the audit
We audited the independent valuations of investment
properties to ensure that where appropriate they had been
prepared on a consistent basis for all properties, including
those under construction, and in accordance with RICs
standards and are considered to be appropriate and
correctly recorded in the financial statements and in line
with the Accounting Standards. We assessed the external
valuer’s qualifications and expertise and considered their
terms of engagement. We also considered their objectivity
and any other existing relationships with the group and
concluded that there was no evidence that the valuer’s
objectivity had been compromised.
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
We engaged a property valuation specialist as our auditor
expert to assist in the review of the valuations. They
provided us with sector specific data to assist in our
challenge of the assumptions applied by the valuer. In
addition, we selected a sample of 8 sites that were either
individually material or had valuation or yield movements
that were higher or lower than expected from our overall
review of the portfolio and requested they complete a
detailed valuation review.
We discussed with the Investment Adviser and the
valuer the overall movement in property values giving
consideration to whether properties were fully developed
or under construction and recognising the similarity
of tenant profiles. We also specifically discussed any
properties whose movement was not consistent with
overall movements of the entire portfolio, to gain an
understanding of why these exceptions were reasonable.
All sites were valued at fair value using a methodology
consistent with the previous year. We discussed both
methodologies with the Investment Adviser, the valuer,
and the auditor’s expert to ensure these were the most
appropriate valuation methodologies for each property
type.
For assets under construction we assessed the stage
of development by reference to the stage of works
completed to date and the amount still to be completed
to the underlying documentation and forecasts.
We tested inputs provided by the asset manager to
the valuer to ensure these reflected the key observable
inputs for each property and considered whether market
data for a sample of properties was consistent with the
valuation report.
Key observations
We concluded that the fair values of the investment
properties being adopted by the group were appropriate.
Our application of materiality
When establishing our overall audit strategy, we set
certain thresholds which help us to determine the
nature, timing and extent of our audit procedures. When
evaluating whether the effects of misstatements, both
individually and on the financial statements as a whole,
could reasonably influence the economic decisions of
the users we take into account the qualitative nature and
the size of the misstatements. Based on our professional
judgement, we determined materiality as follows:
Group
Parent company
Overall materiality
£7,860,000 (2019: £4,490,000)
£6,070,000 (2019: £3,152,000)
Basis for determining
overall materiality
1.2% of Total assets
1.3% of Total assets
Rationale for benchmark
applied
Total assets used as a benchmark as
assessed that the shareholders will
be primarily interested in the growth
in the value of property, represented
by the property valuation.
Total assets used as a benchmark as
assessed that the shareholders will
be primarily interested in the growth
in the value of property, represented
by the investments held by the parent
company in its property holding
subsidiaries.
Performance materiality
£5,890,000 (2019: £2,245,000)
£4,550,000 (2019: £1,576,000)
Basis for determining
performance materiality
Materiality levels for
transactions where
materiality levels are lower
than overall materiality
75% of overall materiality
75% of overall materiality
The income statement was tested to
the lower Performance Materiality
figure of £487,500 to reflect that
the income statement values are
significantly lower than those in the
Statement of Financial Position.
The income statement was tested to
the lower Performance Materiality
figure of £487,500 to reflect that
the income statement values are
significantly lower than those in the
Statement of Financial Position.
Reporting of
misstatements to the
Audit Committee
Misstatements in excess of £50,000
and misstatements below that
threshold that, in our view, warranted
reporting on qualitative grounds.
Misstatements in excess of £50,000
and misstatements below that
threshold that, in our view, warranted
reporting on qualitative grounds.
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
An overview of the scope of our audit
The Group consists of 47 active components, all of which
are based in the UK. All 47 entities were subject to full
scope audit procedures by RSM UK Audit LLP.
Other information
The Directors are responsible for the other information.
The other information comprises the information included
in the annual report set out on pages 2 to 85, other than
the financial statements and our Auditor’s report thereon.
Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears
to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we
are required to determine whether there is a material
misstatement in the financial statements or a material
misstatement of the other information. If, based on the
work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard
to our responsibility to specifically address the following
items in the other information and to report as uncorrected
material misstatements of the other information where we
conclude that those items meet the following conditions:
Fair, balanced and understandable set out on page 69 -
the statement given by the Directors that they consider
the annual report and financial statements taken as
a whole is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the group’s performance, business model and
strategy, is materially inconsistent with our knowledge
obtained in the audit; or
Audit committee reporting set out on pages 76 to 78 –
the section describing the work of the audit committee
does not appropriately address matters communicated
by us to the audit committee; or
Directors’ statement of compliance with the UK
Corporate Governance Code set out on page 67 - the
parts of the Directors’ statement required under the
Listing Rules relating to the company’s compliance
with the UK Corporate Governance Code containing
provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK
Corporate Governance Code.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Directors’ remuneration
report to be audited has been properly prepared in
accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the
course of the audit:
the information given in the Strategic Report and the
Report of the Directors’ for the financial year for which
the financial statements are prepared is consistent with
the financial statements; and
the Strategic Report and the Report of the Directors’
have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the
group and the parent company and their environment
obtained in the course of the audit, we have not identified
material misstatements in the Strategic Report or the
Report of the Directors’.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
adequate accounting records have not been kept by
the parent company, or returns adequate for our audit
have not been received from branches not visited by
us; or
the parent company financial statements and the part
of the Directors’ remuneration report to be audited
are not in agreement with the accounting records and
returns; or
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INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC
certain disclosures of Directors’ remuneration specified
by law are not made; or
we have not received all the information and
explanations we require for our audit.
financial statements are free from material misstatement,
whether caused by fraud or error, rests with management
who should not rely on the audit to discharge those
functions.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement set out on page 66 the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view,
and for such internal control as the Directors determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the parent
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting
unless the Directors either intend to liquidate the Group
or the parent company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in
the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the
basis of these financial statements.
As part of our audit, we will consider the susceptibility
of the Group and parent company to fraud and other
irregularities, taking account of the business and control
environment established and maintained by the directors,
as well as the nature of transactions, assets and liabilities
recorded in the accounting records. Owing to the inherent
limitations of an audit, there is an unavoidable risk that
some material misstatements of the financial statements
may not be detected, even though the audit is properly
planned and performed in accordance with the ISAs.
However, the principal responsibility for ensuring that the
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
Auditor’s report.
Other matters which we are required to
address
Following the recommendation of the Audit Committee,
we were appointed by the Board of Directors on 25 April
2017 to audit the financial statements for the period
ending 30 June 2018 and subsequent financial periods.
The period of total uninterrupted engagements is three
years covering the periods ending 30 June 2018 to 30
June 2020.
The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the parent
company and we remain independent of the Group and
the parent company in conducting our audit.
Our audit opinion is consistent with the additional report
to the Audit Committee.
Use of our report
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company
and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Euan Banks (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP,
Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
WC1B 3ST
5 October 2020
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Financial Statements
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2020
Rental Income
Non-recoverable property costs
Net rental income
Administrative Expenses
Directors’ remuneration
Investment advisory fee
Other administrative expenses
Total administrative expenses
Gain from fair value adjustment on investment property
Operating profit
Finance income
Finance cost
Profit before taxation
Taxation
Total comprehensive income for the year attributable to
the equity holders of the Company
Earnings per share attributable to the equity holders of
the Company:
Notes
5
6
7
9
10
16
11
12
13
30 June
2020
£’000
12,945
(2,728)
10,2 17
(140)
(4,339)
(1,681)
(6,160)
15,806
19,863
220
(3,676)
16,407
30 June
2019
£’000
5,970
(1,054)
4,916
(123)
(4,402)
(1,354)
(5,879)
15,609
14,6 46
7 8 9
(864)
14,5 7 1
-
-
16,4 07
14,5 7 1
IFRS earnings per share (basic and diluted)
14
3.3p
2.9p
All of the Group activities are classed as continuing and there were no comprehensive gains or losses in the period
other than those included in the statement of comprehensive income.
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Company No. 10638461
As at 30 June 2020
ASSETS
Non-current assets
Investment property
Current assets
Trade receivables
Other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Non-current liabilities
Accruals and deferred income
Interest bearing loans and borrowings
Current liabilities
Trade and other payables
Total liabilities
Net assets
EQUITY
Called up share capital
Share premium account
Capital reduction reserve
Retained earnings
Total equity attributable to the equity holders of the Company
30 June
2020
£’000
30 June
2019
£’000
Notes
16
18
18
19
20
21
20
23
24
25
577, 1 1 9
577, 1 1 9
1 9 1
3,463
59,304
62,958
640,077
4,598
145,244
149,842
19, 314
169, 156
470, 92 1
4,953
245,005
18 6,748
34, 215
470, 921
362,275
362,275
89
5,379
229,946
235,4 1 4
5 9 7,689
2,954
100,000
1 02,954
20,41 0
1 2 3,364
474,325
4,953
245,005
206,559
1 7 ,808
474,325
IFRS net asset value per share (basic and diluted)
26
95.1p
95.8p
As at 30 June 2020, there is no difference between IFRS NAV per share and the EPRA NAV per share.
These consolidated group financial statements were approved by the Board of Directors and authorised for issue on
5 October 2020 and signed on its behalf by:
Steve Smith
Chairman
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
Attributable to equity holders of the Company
Share
capital
£’000
4,943
-
10
-
-
4,953
Share
premium
account
£’000
Capital
reduction
reserve
£’000
244,025
-
233,800
-
961
19
-
245,005
-
-
(27,241)
206,559
Retained
earnings
£’000
3,237
14,5 7 1
-
-
-
17,808
Total
equity
£’000
486,005
14,5 7 1
971
19
(27,241)
474,325
At 30 June 2018
Profit for the year
Share capital issued
Share capital issue credit
Dividend paid
At 30 June 2019
Profit for the year
-
-
-
16,407
16,407
Dividend paid
At 30 June 2020
-
4,953
-
245,005
(19,811)
186,748
-
34,2 1 5
(19,811)
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Cash flows from operating activities
Profit before tax
Finance income
Finance costs
Fair value adjustment on investment property
Cash generated by / (used in) operations
Increase in trade and other receivables
(Decrease) / Increase in trade and other payables
Net cash (used in) / generated from operating activities
Cash flows from investing activities
Purchase of investment property at fair value through
profit and loss
Finance income
Net cash used in investing activities
Cash flows from financing activities
Bank and other loans
Finance costs
Issue of shares
Cost of share issue
Dividends paid
Net cash generated from financing activities
Notes
11
12
16
30 June
2020
£’000
16,4 07
(220)
3,6 7 6
(15,806)
4,0 57
(1,680)
(3,677)
(1,300)
30 June
2019
£’000
14,5 7 1
(789)
8 6 4
(15,609)
(963)
(1,684)
3,02 6
379
(193,772)
(216,292)
236
(193,536)
823
(215,469)
21
21
15
50,000
(5,995)
-
-
(19,8 1 1 )
24,1 9 4
100,000
(2,877)
9 7 1
(156)
(27,241)
70,6 9 7
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
(170,642)
229,9 4 6
(144,393)
374,3 3 9
Cash and cash equivalents at end of year
19
59,3 0 4
229,9 4 6
The accompanying notes are an integral part of this cash flow statement.
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COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
ASSETS
Non-current assets
Investment in subsidiaries
Current assets
Other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
EQUITY
Called up share capital
Share premium account
Capital reduction reserve
Retained earnings
Total equity attributable to the equity holders of the
Company
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30 June
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£’000
30 June
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£’000
Notes
17
18
19
20
23
24
25
456,349
456,349
86,1 6 4
2,0 1 2
88,1 7 6
544,525
121 ,409
121 ,409
423, 1 1 6
4,953
245,005
186,74 8
(13,590)
423,1 1 6
325,7 0 1
325,7 0 1
34,3 1 7
88,945
123 ,262
448,963
647
647
448,3 1 6
4,953
245,005
206,559
(8,201)
448,3 1 6
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and
has not presented its own income statement in these financial statements. The loss attributable to the Parent
Company for the year ended 30 June 2020 amounted to £5.4 million (year ended 30 June 2019: loss of £4.7
million).
These financial statements were approved by the Board of Directors on 5 October 2020 and signed on its behalf by:
Steve Smith
Chairman
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FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
Share
capital
£’000
4,943
-
10
-
-
4,953
Share
premium
account
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
244,025
-
233,800
-
(3,469)
(4,732)
479,299
(4,732)
961
19
-
245,005
-
-
(27,241)
206,559
-
-
-
(8,201)
971
19
(27,241)
448,3 1 6
At 30 June 2018
Loss for the year
Share capital issued in the year
Share capital issue credit
Dividends paid
At 30 June 2019
Loss for the year
-
-
-
(5,389)
(5,389)
Dividends paid
At 30 June 2020
-
4,953
-
245,005
(19,8 1 1)
186,74 8
-
(13,590)
(19,811)
423, 1 1 6
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COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Cash flows from operating activities
Loss before tax
Finance income
Cash used in operations
Increase in trade and other receivables
Increase / (Decrease) in trade and other payables
Net cash generated from / (used in) operating activities
Cash flows from investing activities
Investment in subsidiaries
Finance income
Net cash used in investing activities
Cash flows from financing activities
Issue of shares
Cost of share issue
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
30 June
2020
£’000
30 June
2019
£’000
Notes
(5,389)
(58)
(5,447)
(51,863)
120,7 6 2
63,45 2
(4,732)
(686)
(5,41 8)
(4,638)
(489)
(10,545)
(130,648)
74
(130,574)
(221,429)
73 1
(220,698)
-
-
(19,8 1 1)
(19,8 1 1)
(86,933)
88,945
971
(156)
(27,241)
(26,426)
(257,669)
346,6 1 4
17
15
Cash and cash equivalents at end of year
19
2,0 1 2
88,9 45
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Notes to the
Financial Statements
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NOTES TO THE FINANCIAL STATEMENTS
1. General information
Capital risk management
The PRS REIT plc (“the PRS REIT”,
“the Company” or “the Group”) is a
public limited company incorporated
on 24 February 2017 in England and
having its registered office at Floor
3, 1 St. Ann Street, Manchester,
M2 7LR with Company Number
10638461. The Company did not
commence trading until 31 May 2017
when the IPO was completed. The
Company is quoted on the Specialist
Fund Segment of the Main Market
of the London Stock Exchange. The
nature of the Group’s operations and
its principal activities are set out in the
Chairman’s statement.
2. Financial risk management
The Group’s business activities
are set out in the Strategic Report
on pages 4 to 53. These activities
expose the Group to a number
of financial risks. The following
describes the Group’s objectives,
policies and processes for managing
these risks and the methods used
to measure them. The Group only
operates in the UK and transacts
in sterling. It is therefore not directly
exposed to any foreign currency
exchange risk. The Board of Directors
oversees the management of
these risks. The Board of Directors
reviews and agrees policies for
managing each of these risks that are
summarised below.
The Group’s objectives for managing capital are to safeguard the Group’s
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an
efficient capital structure to manage the cost of capital. The capital
structure of the Group consists of cash and cash equivalents, equity and
debt. The Group meets its objectives by aiming to achieve a steady growth
by mitigating risk, which will generate regular and increasing returns to the
shareholders. The Group also seeks to minimise the cost of capital and
optimise its capital structure. At 30 June 2020 the Group had no short
term debt (2019: nil). There were no changes in the Group’s approach to
capital management during the year.
Financial instruments
The Group’s principal financial assets and liabilities are those that arise
directly from its operations: trade and other receivables, trade and other
payables and cash and cash equivalents. The Group’s other financial
liabilities are loans, the main purpose of which is to finance the acquisition
and development of the Group’s investment property portfolio.
Financial assets
Trade and other receivables
Cash and other cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Interest bearing loans
Total financial liabilities
Amortised cost
2020
£’000
2019
£’000
3,654
59,304
62,958
23,9 1 2
145,244
169,1 5 6
5,468
229,946
235,4 1 4
23,364
100,000
123,364
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NOTES TO THE FINANCIAL STATEMENTS
Market risk
Risk relating to investment property
Investment in property is subject to varying degrees of
risk. Some factors that affect the value of the investment
in property include:
changes in the general economic climate;
competition from available properties; and
government regulations, including planning,
environmental and tax laws.
Interest rate risk
The Group has limited interest rate risk on its loan from
Scottish Widows. At 30 June 2020, the amount of loan
drawn amounted to £150 million and carries a fixed
rate interest of 3.138%. From time to time, certain of
the Group’s cash resources are placed on short-term
fixed deposits or on short-term notice accounts to take
advantage of preferential rates otherwise cash resources
are held in current, floating rate accounts.
Credit risk
Credit risk is that a counterparty will not meet its obligations
under a financial instrument or customer contract leading
to a financial loss. The Group is exposed to credit risk both
from its property activities and financing activities.
Credit risk relating to property activities
The Group receives property rental income from its
investments in PRS assets. Risk is mitigated as PRS
assets consist of residential family housing with multiple
tenants in multiple locations. Rental income is paid
monthly in advance. Rental income outstanding and due
to the Group as at 30 June 2020 amounted to £191,000
(2019: £89,000).
Credit risk arising related to financial instruments
including cash deposits
Risk arises as a result of the cash deposits with banks
and financial institutions. The Board of Directors believe
the credit risk on short-term deposits and current account
balances are limited as they are held with banks with high
credit ratings. As at 30 June 2020, short-term deposits
and current account balances were held with the following
banks:
Royal Bank of Scotland plc
Barclays Bank PLC
Lloyds Banking Group plc
Company credit risk relating to amounts due
from Group undertakings
All balances are considered to be recoverable and are not
past due. The total expected credit loss (“ECL”) provision
relating to loans and receivables for the Company is £nil
(2019: £nil).
Liquidity risk
The Group seeks to manage liquidity risk to ensure
sufficient liquidity is available to meet the requirements
of the business and to invest cash assets safely and
profitably. The Board reviews regularly available cash
to ensure that there are sufficient resources for capital
expenditure and working capital requirements. As at 30
June 2020, the Group’s amount of current financial assets
was in excess of its current financial liabilities by £44
million (2019: £210 million). The table below summarises
the maturities of the Group’s non-derivative financial
liabilities as at 30 June 2020 and 30 June 2019.
2020
Trade and other payables
Loans
2019
Trade and other payables
Loans
On
demand
£’000
5
-
5
5
-
5
< 3
months
£’000
1 1 ,608
1 ,1 3 0
12 ,738
12,948
784
13 ,732
3 to 12
months
£’000
7,70 1
3,390
11 ,091
1 to 5
years
£’000
> 5
years
£’000
Total
£’000
4,598
1 8 ,080
22,678
-
196,193
196,193
23,9 1 2
218 ,793
242,705
7,457
2,354
9,8 1 1
2,954
1 2 ,552
1 5 ,506
-
123,728
123,728
23,364
139,41 8
162,782
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NOTES TO THE FINANCIAL STATEMENTS
3. Basis of preparation
The financial statements of the Group have been prepared
in accordance with International Financial Reporting
Standards (“IFRS”) as adopted for use in the European
Union. The Company has prepared its financial statements
in accordance with IFRS as adopted for use in the
European Union and in compliance with the applicable
provisions of the Companies Act 2006.
The financial statements have been prepared on the
historical cost basis, except where IFRS requires an
alternative treatment. The principal variations from historical
cost relate to investment properties (IAS40) which are
measured as fair value through profit and loss.
The financial information is presented in Pounds Sterling,
which is also the functional currency, and all values are
rounded to the nearest thousand pounds except where
otherwise stated.
3.1 Going concern
The consolidated and Company financial statements
have been prepared on a going concern basis. The
Group’s cash balances at 30 June 2020 were £59 million
of which £6 million has been accessed since the year
end. The Group had debt borrowing as at 30 June 2020,
of £150 million, and has secured further facilities of £300
million comprising £175 million of investment debt and
£125 million of development debt facilities. A portion of
the development debt facilities were utilised subsequent
to the year-end to enable the Group to continue to
develop asset 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.
Capital commitments outstanding as at 30 June 2020
were £172 million. The Group’s ERV as at 30 June 2020,
was £19.1 million from 2,082 homes and has increased to
£24.3 million from 2,634 homes as at 30 September 2020.
This has increased the Company’s recurring income and
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, only 1,850 homes require to
generate income to cover monthly cash outlays.
As a result of the COVID-19 crisis we are monitoring
closely the effects of the lockdown imposed during April
and May 2020 and the potential for a further lockdown
later in 2020 and the potential impact on our suppliers and
customers. For further information see the COVID-19 and
Going concern review on pages 9 to 11.
Therefore, the Directors believe the Group and Company
are well placed to manage its 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 2020.
3.2 Business combinations
The Group acquires subsidiaries that own investment
properties. At the time of acquisition, the Group considers
whether each acquisition represents the acquisition of
a business or the acquisition of an asset. The Group
accounts for an acquisition as a business combination
where an integrated set of activities is acquired in addition
to the property.
Where such acquisitions are not judged to be the
acquisition of a business, they are not treated as business
combinations. Rather, the cost to acquire the corporate
entity is allocated between the identifiable assets and
liabilities of the entity based upon their relative fair values at
the acquisition date. Accordingly, no goodwill or additional
deferred tax arises.
3.3 Adoption of new and revised standards
Other than as disclosed below, the accounting policies
applied are the same as those applied in the financial
statements for the period ended 30 June 2019.
Standards and interpretations in issue
but not yet effective
At the date of authorisation of these financial statements
the following standards, which have not been applied
in these financial statements, were in issue but not yet
effective. These standards, which are effective for annual
periods beginning on or after 1 January 2020, unless
otherwise stated, have been adopted by the EU.
Amendments to References to the Conceptual
Framework in IFRS Standards;
Amendments to IFRS 16, Covid-19 rent concession;
Amendments to IFRS3, definition of a business as key; and
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors: Definition of Material
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The Company is currently assessing the impact of these
amendments to the accounting standards. The Directors
do not anticipate that the adoption of these revised
standards and interpretations will have a significant impact
on the figures included in the financial statements in the
period of initial application.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases. The new standard
results in almost all leases held by a lessee being
recognised on the balance sheet as an asset and
liability, with the historical distinction between operating
and finance leases removed. IFRS 16 applies to leases
previously classified as operating leases where the Group
is lessee. IFRS 16 has not impacted operating leases held
by the Group where the Group is lessor, therefore the
standard does not have a material impact on the Group.
The accounting for lessors has not significantly changed.
The Group adopted IFRS 16 using the modified
retrospective method of adoption with the date of initial
application of 1 July 2019. Under this method, the
standard is applied retrospectively with the cumulative
effect of initially applying the standard recognised at the
date of initial application with no comparative period
restatement.
As a lessor
The Group leases residential property to individual
qualifying tenants on assured short-hold tenancies
which are no longer than twelve months. The tenancy
agreements do not contain any non-lease elements such
as insurance or common area maintenance.
As a lessee
The Group has entered into ground leases on some of
its sites. The impact of IFRS 16 is a £1 million increase
in investment property and a corresponding increase in
liabilities of £1 million.
The adoption of IFRS 16 has an immaterial impact on net
assets and underlying profit before tax. Therefore, the
adoption of IFRS 16 will have an immaterial impact on
alternative performance measures.
Summary of new accounting policies
Set out below are the new accounting policies of the
Group upon adoption of IFRS 16, which have been
applied from the date of initial application, 1 July 2019.
Right-of-use (“ROU”) assets
The Group recognises ROU assets at the commencement
date of the lease. ROU assets are measured at fair value.
The cost of ROU assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date
less any lease incentives received.
Lease liabilities
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present value
of lease payments to be made over the lease term.
The lease payments include fixed payments less any
lease incentives receivable and variable lease payments
that depend on an index or a rate. The variable lease
payments that do not depend on an index or a rate are
recognised as an expense in the period on which the
event or condition that triggers the payment occurs.
In calculating the present value of lease payments,
the Group uses the incremental borrowing rate at the
lease commencement date if the interest rate implicit
in the lease is not readily determinable. After the
commencement date, lease payments are allocated
between the liability and finance cost with the amount of
the lease liability being increased to reflect the accretion
of interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, change in the lease
term or change in the in-substance fixed lease payments.
4. Summary of significant accounting policies
Basis of Consolidation
The financial statements comprise of the financial
information of The PRS REIT plc and its subsidiary
undertakings. Subsidiaries are all entities over which
the Group has control. The financial information of the
subsidiaries is included in the consolidated financial
statements from the date that control commences. All
intra group transactions are eliminated on consolidation.
Segmental reporting
For the current year and prior year, the Directors regard
the Group as having just one reportable segment,
Property, and the business only operates in the United
Kingdom. Segmental information is not therefore
disclosed in these financial statements.
Investment property
Property that is held for long-term rental yields or for
capital appreciation or both is classified as investment
104
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NOTES TO THE FINANCIAL STATEMENTS
property under IAS 40. Investment property, is measured
initially at its cost including related transactions costs.
After initial recognition, investment property is carried at
fair value. Investment properties under construction are
initially recognised at cost including related transaction
costs. Subsequently, the assets are re-measured at fair
value at each reporting date by where:
Fair value (at the date of valuation) = total development
cost plus expected final uplift in valuation multiplied by
% of site development completed; where
The receivables due to the Company from subsidiaries
are loans, these are stated at cost less any allowance for
expected credit losses.
Cash
Cash and cash equivalents comprise cash in hand, cash
at bank, cash held in treasury deposits and restricted
cash. Further details are provided in note 19.
Trade and other payables
Expected final uplift = Expected Investment value on
completion less gross development cost
Trade and other payables are not interest bearing and are
stated at their amortised cost.
This method of valuation is the same as that reported
at 30 June 2019 and the Board believes this is a much
simpler and more transparent method of valuation than
the residual approach historically adopted. Importantly, it
provides a true worth and fair value of the assets during
the construction phase.
The investment properties are externally valued by
Savills. Savills are qualified external valuers who hold a
recognised and relevant professional qualification. Gains
or losses arising from changes in the fair value of the
Group’s investment properties are included in profit from
operations in the income statement of the period in which
they arise. Investment property falls within level 3 of the
fair value hierarchy as defined by IFRS 13. Further details
are provided in note 16.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently carried at amortised cost less
provision for impairment. Where the time value of money
is material, receivables are carried at amortised cost
using the effective interest method. Impairment provisions
are recognised based on the expected credit loss model
detailed within IFRS 9. The excepted credit losses on
financial assets are estimated based on the Group’s
historical credit loss experience adjusted for factors that
are specific to the debtors, general and, where material,
local economic conditions and an assessment of both
the current and forecast direction of conditions at the
reporting date. We have engaged with tenants who have
encountered financial difficulties during the COVID-19
pandemic and entered into payment plans where
appropriate. Rent and legal insurance policies are in place
and we currently consider the risk of bad debts to be
immaterial, although the situation remains under constant
review. As at 30 June 2020 the Group’s loss allowance
for expected credit losses on trade receivables was
£24,000 (2019: £13,000).
Taxation
Taxation on the profit or loss for the period not exempt
under UK REIT regulations is comprised of current and
deferred tax. Tax is recognised in the Consolidated
Statement of Comprehensive Income except to the
extent that it relates to items recognised as a direct
movement in equity, in which case it is recognised as a
direct movement in equity. Current tax is expected tax
payable on any non REIT taxable income for the period,
using tax rates enacted or substantively enacted at the
reporting date.
Deferred tax is accounted for using the balance sheet
liability method in respect of temporary differences
arising from differences between the carrying amount
of assets and liabilities in the financial statements and
the corresponding tax basis used in the computation
of taxable profit. In principle, deferred tax liabilities
are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available
against which deductible temporary differences can be
recognised.
Deferred tax is calculated at the rates that are expected
to apply when the asset or liability is settled. Deferred tax
is charged or credited in the consolidated statement of
comprehensive income, except when it relates to items
credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
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NOTES TO THE FINANCIAL STATEMENTS
Revenue Recognition
Rental income arises from assured shorthold tenancies
on investment properties with a period no longer than 12
months and is accounted for on an accruals basis.
Expenses
All expenses are recognised in the Consolidated
Statement of Comprehensive Income on an accruals
basis.
Finance income
Finance income is recognised as it accrues on cash
balances and treasury deposits held by the Group.
Finance costs
Interest is charged as it accrues on bank loans held by the
Group.
Costs of borrowing
Borrowing costs including legal and professional fees are
capitalised and are amortised over the debt term.
Share issue costs
The costs of issuing equity instruments are accounted for
as a deduction from equity.
Significant accounting judgements, estimates
and assumptions
The preparation of the Group’s financial information
requires the Directors to make judgements, estimates
and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities and the
disclosure of contingent liabilities at the reporting date.
However, uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
In the process of applying the Group’s accounting policies,
the Directors have made the following judgements
which have the most significant effect on the amounts
recognised in the consolidated financial statements:
(i) Acquisition of subsidiaries – as a group of assets
and liabilities
During the period, the Group acquired a further six
property owning special purpose vehicles. The Directors
considered whether these acquisitions meet the definition
of the acquisition of a business or the acquisition of a
group of assets and liabilities. It was concluded that
acquisitions did not meet the criteria for the acquisition of
a business as outlined in IFRS 3 as they did not have an
integrated set of activities and assets that were capable
of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs or
other economic benefits directly to investors. Furthermore,
a business consists of inputs and process applied to
those inputs that have the ability to create outputs. The
fair value of identifiable assets and liabilities is allocated
on the basis of their relative fair values at the date of
purchase.
106
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NOTES TO THE FINANCIAL STATEMENTS
The Directors have reviewed the fair value of the assets and liabilities as at the date of the acquisitions which were as
follows:
Sigma PRS Investments
(Houghton Regis II) Limited
Sigma PRS Investments
(Houghton Regis Parcel 8A II) Limited
Sigma PRS Investments
(Houghton Regis Parcel 8 II) Limited
Sigma PRS Investments
(Brackenhoe) Limited
Sigma PRS Investments
(Owens Farm II) Limited
Sigma PRS Investments
(Dawley Road II) Limited
Investment
properties
acquired
£’000
Other
receivables
£’000
Other
payables
£’000
Total
consideration
paid
£’000
5,360
4,954
1 ,405
2,757
8,1 7 0
3 8 8
23,034
-
-
-
-
5,360
4,954
1 ,405
2,757
(49)
8,1 3 8
-
388
(49)
23,002
-
-
-
17
-
17
Investment property is measured at fair value as at the date of the acquisition of the subsidiary by an independent
valuation expert.
Other receivables and other payables are taken as being the value recorded in the accounts of the company
acquired, being the amounts actually recoverable or payable.
(ii) Fair value of investment property
The fair value of any property, including investment property under construction is determined by an independent
property valuation expert to be the estimated amount for which a property should exchange on the date of the
valuation in an arm’s length transaction. The valuation experts use recognised valuation techniques applying
principles of both IAS40 and IFRS13.
The key assumptions that are used in the fair value assessment of completed assets are estimated rental value, net
investment yield and gross to net deductions. The key assumptions that are used in the fair value assessment of
assets under construction are investment value on completion and, gross development costs, taking into account
construction costs spent and forecast costs to completion.
The valuations are prepared in accordance with the Royal Institution of Chartered Surveyors (“RICS”) Valuation –
Professional Standards January 2014 (“Red Book”).
5. Rental income
Gross rental income from investment property
2020
£’000
12,945
12,945
2019
£’000
5,970
5,970
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The Group’s investment property consists of residential housing for the private rented sector and therefore has
multiple tenants across multiple sites. As a result, it does not have any significant customers.
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NOTES TO THE FINANCIAL STATEMENTS
6. Non-recoverable property costs
Other property expenses and irrecoverable costs
2020
£’000
2,728
2,728
2019
£’000
1,054
1,054
Non-recoverable property costs represent direct operating expenses in relation to rental income arising on investment
properties.
7. Directors’ remuneration
Directors’ emoluments
2020
£’000
140
140
2019
£’000
123
123
The Directors are remunerated for their services at such rate as the Board shall from time to time determine.
8. Particulars of employees
The Group had no employees during the year or prior year other than the Directors.
9. Investment advisory fees
Advisory fee
2020
£’000
4,339
4,339
2019
£’000
4,402
4,402
Sigma PRS Management Ltd is appointed as the Investment Adviser of the Company. Under the current Investment
Management Agreement, the Advisory Fee shall be an amount calculated in respect of each month, in each case based
upon the Adjusted Net Asset Value on the following basis:
(a) 1 per cent per annum of the Adjusted Net Asset Value up to, and including, £250 million;
(b) 0.90 per cent per annum of the Adjusted Net Asset Value in excess of £250 million and up to, and including, £500
million;
(c) 0.80 per cent per annum of the Adjusted Net Asset Value in excess of £500 million and up to, and including, £1
billion; and
(d) 0.70 per cent per annum of the Adjusted Net Asset Value in excess of £1 billion.
The appointment of the Investment Adviser shall continue in force unless and until terminated by either party giving to the
other not less than 12 months’ written notice, such notice not to expire earlier than 31 May 2023.
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NOTES TO THE FINANCIAL STATEMENTS
10. Administrative expenses
Legal and professional fees
Administration and secretarial fees
Audit and tax fees
Valuation fees
Depositary fees
Financial adviser and broker
Insurance
Public relations
Regulatory fees
Sundry expenses
Subscriptions
Write off of receivables
Costs of acquisition of subsidiaries
Disallowed VAT
Services provided by the Group’s Auditors and its associates
The Group has obtained the following services from its Auditor and its associates:
Audit of the Group financial statements
Audit of the subsidiary financial statements
Agreed upon procedures on the half year financial statements
11. Finance income
Interest on short term deposits
2020
£’000
133
1 1 7
313
365
5 1
60
37
124
172
23
29
24
30
203
1,6 8 1
2020
£’000
98
84
1 9
201
2020
£’000
220
220
2019
£’000
210
1 5 1
1 57
227
43
60
27
66
169
1 2
26
1 3
28
165
1,354
2019
£’000
80
50
1 8
14 8
2019
£’000
789
789
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NOTES TO THE FINANCIAL STATEMENTS
12. Finance cost
Amortisation of debt legal costs and arrangement fees
Interest on bank loans
2020
£’000
242
3,434
3,676
2019
£’000
69
795
864
13. 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.
Current and deferred tax
Corporation tax charge/(credit) for the period
Total current income tax charge/(credit) in the income statement
-
-
-
-
2020
£’000
2019
£’000
The tax charge for the year/period is less than the standard rate of corporation tax in the UK of 19 per cent. The
differences are explained below.
Profit before tax
Tax at UK corporation tax standard rate of 19%
Change in value of exempt investment properties
Exempt REIT income
Amounts not deductible for tax purposes
Unutilised residual current period tax losses not recognised in
deferred tax
Difference in deferred tax rates
2020
£’000
16,407
3,1 1 7
(3,003)
(470)
8
348
-
-
2019
£’000
14 ,571
2,768
(2,966)
(719)
5
816
96
-
From 1 April 2017 to 30 June 2020, the standard rate of corporation tax in the UK was 19%.
REIT exempt income includes property rental income that is exempt from UK Corporation Tax in accordance with
Part 12 of CTA 2010.
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NOTES TO THE FINANCIAL STATEMENTS
14. Earnings per share
Earnings per share (“EPS”) amounts are calculated by dividing profit for the period attributable to ordinary
equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period.
As there are no dilutive instruments, only basic earnings per share is quoted below.
The calculation of basic and diluted earnings per share is based on the following:
2020
£’000
2019
£’000
Net profit attributable to ordinary shareholders
16,407
14, 5 7 1
EPRA adjustments:
Changes in value of investment properties
EPRA Net profit / (loss) attributable to ordinary shareholders
Weighted average number of ordinary shares
Earnings per share (pence)
EPRA profit / (loss) per share (pence)
(15,806)
6 0 1
(15,609)
(1,038)
495,277,294
3.3
0.1
495,180,5 47
2.9
(0.2)
15. Dividends
The following dividends were paid during the current year and prior year:
Dividends on ordinary shares declared and paid:
Dividend of 2.5p for the 3 months to 30 June 2018
Dividend of 1.0p for the 3 months to 30 September 2018
Dividend of 1.0p for the 3 months to 31 December 2018
Dividend of 1.0p for the 3 months to 31 March 2019
Dividend of 2.0p for the 3 months to 30 June 2019
Dividend of 1.0p for the 3 months to 30 September 2019
Dividend of 1.0p for the 3 months to 31 December 2019
Proposed dividends on ordinary shares:
3 months to 30 June 2019: 2.0p per share
3 months to 31 March 2020: 1.0p per share
3 months to 30 June 2020: 1.0p per share
See note 32 for further information on proposed dividends.
2020
£’000
2019
£’000
-
-
-
-
9,905
4,953
4,953
19,8 1 1
-
4,953
4,953
9,906
12,382
4,953
4,953
4,953
-
-
-
27,2 4 1
9,905
-
-
9,905
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NOTES TO THE FINANCIAL STATEMENTS
16. Investment property
The freehold, leasehold and part freehold part leasehold interests in the properties held within the PRS REIT were
independently valued as at 30 June 2020 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). 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 accord with the requirements of IFRS 13 and the Royal Institution
of Chartered Surveyors’ (“RICS”) Valuation – Global Standards 2017 incorporating the IVSC International Valuation
Standards (the “RICS Red Book”). The valuation basis conforms to International Valuation Standards and is based on
market evidence of investment yields, expected gross to net income deduction rates and actual and expected rental
values.
The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing
the independent valuation are reviewed by the Board.
At 30 June 2018
Properties acquired on acquisition of subsidiaries
Property additions - subsequent expenditure
Change in fair value
Transfers to completed assets
At 30 June 2019
Right of use assets
Properties acquired on acquisition of subsidiaries
Property additions - subsequent expenditure
Change in fair value
Transfers to completed assets
At 30 June 2020
Completed
Assets
£’000
Assets under
Construction
£’000
43,635
34,665
-
1,605
73,020
1 52,925
1 ,019
8,1 7 0
-
2,290
66,898
231 ,302
77,474
1 1 ,787
179 ,1 0 5
14,004
(73,020)
209,350
-
14,864
1 74,985
13,5 1 6
(66,898)
345,8 1 7
Total
£’000
1 2 1 ,109
46,452
179,1 0 5
1 5,609
-
362,275
1 ,01 9
23,034
174,985
15,806
-
577,1 1 9
The historic cost of completed assets and assets under construction as at 30 June 2020 was £540.2 million (2019:
£341.2 million).
The carrying amount of investment property pledged as security as at 30 June 2020 was £ 212.1 million (2019: nil).
During the current financial year, the Group adopted the new accounting standard IFRS 16, Leases, and has recognised
a right-of-use asset within investment property in relation to ground rents payable on certain investment property sites.
112
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NOTES TO THE FINANCIAL STATEMENTS
Fair Values
IFRS 13 sets out a three-tier hierarchy for financial assets and liabilities valued at fair value. These are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly; and
Level 3 unobservable inputs for the asset or liability.
Investment property falls within Level 3.
The investment valuations provided by the external valuation expert are based on RICS Professional Valuation
Standards, but include a number of unobservable inputs and other valuation assumptions. The significant
unobservable inputs and the range of values used are:
Type
Investment yield
Gross to net assumption
Range
4.05% to 4.85%
22.5% to 25.0%
Development assets are valued based on total development cost plus expected final uplift in valuation multiplied by
% of site development completed. The range of % completions was from 24% to 99%. The final investment value
uses the assumptions stated above.
The impact of changes to the significant unobservable inputs for completed and development assets are:
2020
Impact on
statement of
comprehensive
income
£’000
2020
Impact on
statement
of financial
position
£’000
2019
Impact on
statement of
comprehensive
income
£’000
2019
Impact on
statement
of financial
position
£’000
Improvement in yield by 0.125%
Worsening in yield by 0.125%
Improvement in gross to net by 1%
Worsening in gross to net by 1%
16,780
(15,856)
7,973
(6,938)
1 6 ,780
(15,856)
7,973
(6,938)
1 0 ,4 1 1
(9,934)
4,647
(4,742)
1 0 ,4 1 1
(9,934)
4,647
(4,742)
17. Investment in Subsidiaries
Company
Cost at the start of the period
Additions during the period
Cost at the end of the period
2020
£’000
325,701
130,648
456,349
2019
£’000
104,273
221,428
325,7 0 1
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NOTES TO THE FINANCIAL STATEMENTS
The Group comprises a number of companies, all subsidiaries included within these financial statements
are noted below:
Ownership Name of Entity
The PRS REIT Development Company Limited
The PRS REIT Development Company II Limited
The PRS REIT Holding Company Limited
The PRS REIT Investments LLP
The PRS REIT Investments II LLP
The PRS REIT Memberco Limited
The PRS REIT Memberco II Limited
The PRS REIT (LBG) Borrower Limited
The PRS REIT (LBG) Holding Company Limited
The PRS REIT (LBG) Investments LLP
The PRS REIT (LBG) Memberco Limited
The PRS REIT (SW) Borrower Limited
The PRS REIT (SW) Holding Company Limited
The PRS REIT (SW) Investments LLP
The PRS REIT (SW) Memberco Limited
The PRS REIT (SW II) Holding Company Limited
The PRS REIT (SW II) Borrower Limited
The PRS REIT (SW II) Memberco Limited
The PRS REIT (SW II) Investments LLP
The PRS REIT (Barclays) Memberco Limited
The PRS REIT (Barclays) Holding Company Limited
The PRS REIT (Barclays) Borrower Limited
Sigma PRS Investments I Limited
Sigma PRS Investments II Limited
Sigma PRS Investments VI Limited
Sigma PRS Investments IV Limited
Sigma PRS Investments VIII Limited
Sigma PRS Investments (Baytree II) Limited
Sigma PRS Investments (Brackenhoe) Limited
Sigma PRS Investments (Cable Street II) Limited
Sigma PRS Investments (Carr Lane II) Limited
Sigma PRS Investments (Darlaston II) Limited
Sigma PRS Investments (Darlaston Phase 2 II) Limited
Sigma PRS Investments (Dawley Road II) Limited
Principal Activity
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Sigma PRS Investments (Owens Farm) Limited
Property Investment
Sigma PRS Investments (Sutherland School II) Limited
Property Investment
Sigma PRS Investments (Whitworth Way II) Limited
Property Investment
Sigma PRS Investments (Houghton Regis) Limited
Property Investment
Sigma PRS Investments (Houghton Regis II) Limited
Property Investment
Sigma PRS Investments (Houghton Regis Parcel 8II) Limited
Property Investment
Sigma PRS Investments (Houghton Regis Parcel 8A II) Limited Property Investment
The PRS REIT (Airfields II) Limited
Property Investment
Property Investment
The PRS REIT (Airfields) Limited
Property Investment
The PRS REIT (Bilston Urban Village) Limited
Sigma PRS Investments (Newton Le Willows II) Limited
Sigma PRS Investments (Our Lady’s) Limited
Country of
Incorporation
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
114
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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NOTES TO THE FINANCIAL STATEMENTS
Ownership Name of Entity
The PRS REIT (Brickkiln Place) Limited
The PRS REIT (Cable Street) Limited
The PRS REIT (Durham Street) Limited
The PRS REIT (East Hill) Limited
The PRS REIT (Eaton Works) Limited
The PRS REIT (Entwistle Road) Limited
The PRS REIT (Heathfield Lane) Limited
The PRS REIT (LB 5) Limited
The PRS REIT (Newhaven) Limited
The PRS REIT (Norwich Street) Limited
The PRS REIT (Potteries) Limited
The PRS REIT (QVS) Limited
The PRS REIT (Redcar) Limited
The PRS REIT (Reginald Road) Limited
The PRS REIT (Riverside College) Limited
The PRS REIT (Roch Street) Limited
The PRS REIT (Romanby Shaw) Limited
The PRS REIT (Sutherland School) Limited
The PRS REIT (Tower Hill 3) Limited
The PRS REIT (Whitworth Way) Limited
Sigma PRS Investments (Baytree II) Limited
Sigma PRS Investments (Cable Street II) Limited
Sigma PRS Investments (Carr Lane II) Limited
Sigma PRS Investments (Dawley Road) Limited
Sigma PRS Investments (Darlaston II) Limited
Sigma PRS Investments (Darlaston Phase 2 II) Limited
Sigma PRS Investments (Houghton Regis Parcel 8) Limited
Sigma PRS Investments (Houghton Regis Parcel 8A) Limited
Sigma PRS Investments (Newton LE Willows II) Limited
Sigma PRS Investments (Owens Farm II) Limited
Sigma PRS Investments (Sutherland School II) Limited
Sigma PRS Investments (Whitworth Way II) Limited
Sigma PRS Investments III Limited
Sigma PRS Investments V Limited
Sigma PRS Investments VII Limited
Sigma PRS Investments IX Limited
The PRS REIT (Beehive) Limited
The PRS REIT (Bombardier) Limited
The PRS REIT (Bullcote Lane) Limited
The PRS REIT (Christopher Street) Limited
The PRS REIT (Harlow Phase II) Limited
The PRS REIT (Hexthorpe Phase A) Limited
The PRS REIT (Hexthorpe Phase B) Limited
The PRS REIT (Hilton Park) Limited
The PRS REIT (Manor Boot) Limited
The PRS REIT (Minky Works) Limited
The PRS REIT (Rugby) Limited
The PRS REIT (Station Road) Limited
The PRS REIT Investments Holding Company Limited
Principal Activity
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Country of
Incorporation
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
The registered office for the subsidiaries across the Group is: Floor 3, 1 St. Ann Street, Manchester, M2 7LR,
except for Sigma PRS Investments I Limited whose registered office is: 18 Alva Street, Edinburgh, EH2 4QG.
N
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NOTES TO THE FINANCIAL STATEMENTS
18. Trade and other receivables
Trade receivables
Receivables from group undertakings
Accrued income
Social security and other taxes
Prepayments and other receivables
Group
2020
£’000
1 9 1
-
65
691
2,707
3,654
Company
2020
£’000
-
85,723
5
-
436
86,1 6 4
Group
2019
£’000
89
-
1 3 2
1 ,037
4,2 1 0
5,468
Company
2019
£’000
-
34,076
21
-
220
34 , 3 1 7
Trade and other receivables are shown after deducting a provision for bad and doubtful debts of £35,000 (2019:
£13,000). The provision for doubtful debts is calculated as an expected credit loss on trade and other receivables in
accordance with IFRS 9. The charge to the income statement in relation to write-offs and provisions made against
doubtful debts was £24,000 (2019: £13,000). The expected credit loss provided for and written off is determined on
an individual basis. In the current reporting period, an additional review of tenant debtors was undertaken to assess
recoverability in light of the COVID-19 pandemic.
At the end of the reporting period, the Company had no provision for expected loss allowances (2019: £nil) in relation to
balances receivable from subsidiaries as recovery of the amounts due is considered probable.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. The
Group’s maximum exposure on credit risk is the carrying value of trade receivables as presented above. As at 30
June 2020, £109,000 of trade receivables are more than thirty days old (2019: £55,000). The Group has no pledge as
security on trade receivables.
19. Cash and cash equivalents
Restricted cash
Cash held with solicitors
Cash at bank
Group
2020
£’000
54,3 1 5
-
4,989
59,304
Company
2020
£’000
Group
2019
£’000
Company
2019
£’000
-
-
2,012
2,012
1 25,000
7,569
97,377
229,946
-
-
88,945
88,945
Restricted cash comprises £54.3 million (2019: £125 million) in funds held in a bank account controlled by one of the
Group’s lenders and are released to free cash once certain loan conditions are met.
116
THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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NOTES TO THE FINANCIAL STATEMENTS
20. Trade and other payables
Current Liabilities
Trade payables
Payables to group undertakings
Accruals and deferred income
Other creditors
Social security and other taxes
Non-Current Liabilities
Accruals and deferred income
Group
2020
£’000
Company
2020
£’000
Group
2019
£’000
Company
2019
£’000
8,849
-
10,460
-
5
19,314
4,598
23,9 1 2
1,007
119,7 1 6
679
2
5
121,409
-
121,409
1 2 ,953
-
7,438
14
5
20,41 0
2,954
23,364
499
-
1 4 1
2
5
647
-
647
21. Interest bearing loans and borrowings
Group
2020
£’000
Company
2020
£’000
Group
2019
£’000
Company
2019
£’000
100,000
50,000
(5,774)
144,2 2 6
1,019
145,244
-
-
-
-
-
-
-
100,000
-
100,000
-
100,000
-
-
-
-
-
-
Non-current liabilities
Bank loans at 1 July
Loans advanced in the year
Capitalised loan costs*
Bank loans at 30 June
Lease liability
Total loans and borrowings
*Included in prepayments in prior year.
Bank loans
Through its subsidiaries the Company has granted fixed and floating charges over certain investment property assets
to secure the loans. At 30 June 2020 and 30 June 2019, the only other asset secured was £25 million of cash
collateral.
The Group’s borrowing facilities are with Scottish Widows and Lloyds Banking Group plc. At 30 June 2020, these
comprised two fixed-rate term facilities from Scottish Widows for an aggregate of £250 million with a weighted average
maturity of 17.6 years and a revolving credit facility with Lloyds Banking Group plc for £150 million.
At 30 June 2020, the Company had drawn down £150 million from the fixed rate term facilities with Scottish Widows,
which can be utilised when investment property
is pledged as security. The Group’s maximum loan to value ratio can be no more than 45%. As at 30 June 2020 the
Group’s loan to value was 25% (2019: nil).
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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2020
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NOTES TO THE FINANCIAL STATEMENTS
Reconciliation of movements of borrowings to cash flows arising from financing activities:
Balance as at 1 July
Proceeds from borrowings
Interest paid
Arrangement and commitment fees
Other – non cash movement
22. Leases
2020
£’000
2019
£’000
100,000
50,000
(3,360)
(2,635)
221
144,226
-
100,000
(675)
-
675
100,000
Lease liabilities as lessee
During the current financial year, the Group adopted the new accounting standard IFRS 16, Leases. The lease
liabilities recognised as a result of IFRS 16 are shown in the table below, the Group has no other leases.
Lease liabilities
Group
2020
£’000
1,019
Group
2019
£’000
1,05 1
Amounts recognised in the income statement in non-recoverable
property costs
32
32
Lease liabilities as lessor
The future minimum lease payments receivable under non-cancellable operating leases in respect of the Group’s
property portfolio are as follows:
Receivable within 1 year
Group
2020
£’000
9,350
9,350
Group
2019
£’000
5,352
5,352
The Group’s receivable leases are assured shorthold tenancies usually for periods for up to one year.
118
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NOTES TO THE FINANCIAL STATEMENTS
23. Share capital
Share capital represents the nominal value of consideration received by the Company for the issue of Ordinary Shares.
Group and Company
2020
No. of
shares
2020
Share
capital
£’000
2019
No. of
shares
Balance at the beginning of year
Shares issued in relation to
management contract
Balance at end of year
495,277,294
4,953
494,348,0 1 8
-
-
929,276
495,277,294
4,953
495,277,294
2019
Share
capital
£’000
4,943
10
4,953
The Company was admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange on
31 May 2017.
24. Share premium reserve
The share premium relates to amounts subscribed for share capital in excess of nominal value.
Group and Company
2020
£’000
2019
£’000
Balance at beginning of year
Share premium arising on shares issued in relation to management
contract
Share issue credit/(expense) in relation to the Placing Programme
Balance at end of year
245,005
244,025
-
-
245,005
9 6 1
19
245,005
25. Capital reduction reserve
The capital reduction reserve is a distributable reserve to which the value of share premium, as a result of the IPO,
has been transferred. Dividends can be paid from this reserve.
Balance at beginning of year
Dividend paid of 2.5p per share for the period ended 30 June 2019
Dividend paid of 1.0p per share for the period ended 30 September 2018
Dividend paid of 1.0p per share for the period ended 31 December 2018
Dividend paid of 1.0p per share for the period ended 31 March 2019
Final dividend paid of 2.0p per share for the year ended 30 June 2019
Dividend paid of 1.0p per share for the period ended 30 September 2019
Dividend paid of 1.0p per share for the period ended 31 December 2019
2020
£’000
2019
£’000
206,559
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-
-
-
(9,905)
(4,953)
(4,953)
233 , 8 0 0
(1 2 ,382)
(4,953)
(4,953)
(4,953)
-
-
-
Balance at end of year
186,748
206, 5 5 9
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NOTES TO THE FINANCIAL STATEMENTS
26. IFRS Net Asset Value per share
Basic NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary
equity holders of the parent by the number of Ordinary Shares outstanding at the end of the year. As there are no dilutive
instruments, only basic NAV per share is quoted below.
Net asset values have been calculated as follows:
Net assets at end of year (£’000)
Shares in issue at end of year
Basic IFRS NAV per share (pence)
2020
2019
470, 921
495,277,294
95.1
474,325
495,277,294
95.8
The NAV per share calculated on an EPRA basis is the same as the IFRS NAV per share for the year ended 30 June
2020 and the year ended 30 June 2019.
27. Controlling parties
As at 30 June 2020 and 30 June 2019, there was no ultimate controlling party.
28. Consolidated entities
The Group consists of a parent company, The PRS REIT plc, incorporated in the UK and a number of subsidiaries held
directly and indirectly by The PRS REIT plc, which operate and are incorporated in the UK.
The Group owns 100% equity shares of all subsidiaries as listed in note 17 and has the power to appoint and remove
the majority of the Board of Directors of those subsidiaries. The relevant activities of the subsidiaries are determined by
the Board of Directors based on simple majority votes. Therefore the Directors of the Group concluded that the Group
has control over all these entities and all these entities have been consolidated within the financial statements.
29. Capital commitments
The Group has entered into contracts with unrelated parties for the construction of residential housing with a total value
of £628.5 million (2019: £525.8 million). As at 30 June 2020, £172.3 million (2019: £260.2 million) of such commitments
remained outstanding.
30. Related party disclosure
The number of shares owned by the Directors of the Company as at 30 June 2020 along with dividends they received
during the period is as follows:
Company Director
Roderick MacRae
Steffan Francis
Steve Smith
Jim Prower
No. of shares held
Dividends received
2020
100,000
60,000
80,000
22,000
2019
2020
2019
100,000
50,000
80,000
-
£4,000
£2,300
£3,200
£880
£5,500
£ 1 ,650
£4,400
-
For the current year, Directors’ fees of £140,000 (2019: £114,000) were incurred.
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NOTES TO THE FINANCIAL STATEMENTS
31. Transactions with Investment Adviser
On 31 March 2017, Sigma PRS Management Ltd (“Sigma PRS”) was appointed as the Investment Adviser of the
Company.
For the year ended 30 June 2020, fees of £4.3 million (2019: £4.4 million) were incurred and payable to Sigma PRS
in respect of investment advisory services. At 30 June 2020, £1.1 million (2019: £0.4 million) remained unpaid.
For the year ended 30 June 2020, development fees of £7.3 million (2019: £7.3 million) were incurred and payable
to Sigma PRS. At 30 June 2020, £0.7 million (2019: £0.7 million) remained unpaid.
For the year ended 30 June 2020, administration and secretarial services of £90,000 (2019: £90,000) were incurred
and payable to Sigma Capital Property Ltd, a fellow subsidiary of the ultimate holding company of the Investment
Adviser. At 30 June 2020, £23,000 (2019: £23,000) remained unpaid.
For the year ended 30 June 2020, Sigma PRS acquired 750,000 (2019: 3,194,274) shares in the Company. The
shares purchased during the year were acquired in the market at an average price of 94.9 pence per share. Of
the 3,194,274 shares acquired in the prior year, 929,276 were new shares issued by the Company at a price of
104.5 pence per share. The remaining 2,264,998 shares acquired in the prior year were purchased in the market
at an average price of 100 pence per share. Sigma PRS’s shareholding as at 30 June 2020 was 4,389,852 (2019:
3,639,852), which represents 0.73% (2019: 0.89%) of the issued share capital in the Company. All the shares
acquired in the year and prior year were in accordance with the Development Management Agreement between the
Company and Sigma PRS.
For the year ended 30 June 2020, Sigma PRS received dividends from the Company of £179,000 (2019: £99,000).
During the year, the Company acquired the following subsidiaries from Sigma Capital Group plc, the ultimate holding
company of the Investment Adviser:
Name of Entity
Sigma PRS Investments (Houghton Regis) Limited Sigma PRS Investments
(Houghton Regis II) Limited
Sigma PRS Investments (Houghton Regis Parcel 8) Limited Sigma PRS
Investments (Houghton Regis Parcel 8 II) Limited
Sigma PRS Investments (Houghton Regis Parcel 8A) Limited
Sigma PRS Investments (Houghton Regis Parcel 8A II) Limited
Sigma PRS Investments (Brackenhoe) Limited
Sigma PRS Investments (Owens Farm) Limited &
Sigma PRS Investments (Owens Farm II) Limited
Sigma PRS Investments (Dawley Road) Limited &
Sigma PRS Investments (Dawley Road II) Limited
Consideration
£5.4 million
£1.4 million
£5.0 million
£2.8 million
£8.2 million
£0.4 million
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32. Post balance sheet events
Dividends
On 18 June 2020, the Company declared a dividend of 1.0p per ordinary share in respect of the third quarter of the
current financial year. The dividend was paid on 17 July 2020 to shareholders on the register as at 26 June 2020.
On 7 August 2020, 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 18 September 2020 to shareholders on the register as at 21 August
2020.
Acquisition of Investment Properties
Since the year end and to the date of this report, the Company acquired 100% of the ordinary share capital of the
following subsidiaries for total consideration of £11.8 million, from Sigma Capital Property Ltd for development of
investment property:
Sigma PRS Investments (Bury St Edmunds) Limited
Sigma PRS Investments (Bury St Edmunds II) Limited
Sigma PRS Investments (Lea Hall) Limited
Sigma PRS Investments (Lea Hall II) Limited
Subsequent to the year end in September 2020, the REIT acquired two development sites with planning permission
for the construction of 188 homes once completed at Hexthorpe in Doncaster from a third party house builder for
consideration of £2.2 million.
Additional debt facilities
In September 2020, an additional £50 million of development debt facilities were approved with Barclays Bank PLC.
COVID-19
Subsequent to the year end, the COVID-19 pandemic has led to uncertainty in all walks of life. The impact on the Group
and Company and how it is placed is discussed throughout these financial statements. The Directors believe that the
business is resilient, the delivery model and processes substantially mitigate the Group’s exposure to construction and
other operational risks, and we have a robust balance sheet and low gearing. Our customer base is diversified and the
underlying demand for good quality rental housing is strong.
The Directors continue to carefully monitor the COVID-19 situation and are responding appropriately. The Group’s
partnership with Countryside Properties, as well as preparations for Brexit, means that we had already undertaken
significant advance bulk-purchasing of building materials before the current crisis, which will help to ensure cost stability
and supply. Countryside Properties’ new factories, producing modular homes, also improves efficiencies in the delivery
process. The delivery model, including fixed price contracts, also substantially reduces the PRS REIT’s exposure to
development risk. During construction suspension, the Group bears little cash flow exposure with spend being tied to
work undertaken and independently certified.
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Floor 3, 1 St Ann Street,
Manchester
M2 7LR
0333 999 9926
www.theprsreit.com