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Floor 3, 1 St Ann Street
Manchester
M2 7LR
0333 999 9926
www.theprsreit.com
Annual Report &
Financial Statements
For the year ended 30 June 2023
Highlights
06
Highlights
Strategic
Report
Corporate
Governance
12
Chairman’s Statement
16
IFRS and EPRA Performance
Measures
18
Market Dynamics
20
Portfolio Analysis
34
Investment Strategy
and Business Model
36
Investment Adviser’s Report
48
Environmental, Social
and Governance
54
Principal Risks and Uncertainties
58
Stakeholder Engagement and
Section 172 Statement
66
Chairman’s Introduction
68
Directors
69
Advisers
70
Report of the Directors
76
Statement of Directors’
Responsibilities
78
Corporate Governance Statement
86
Audit Committee Report
90
Nomination & Remuneration
Committee Report
94
Management Engagement
Committee Report
96
Directors’ Remuneration Policy
98
Directors’ Remuneration Report
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Independent
Auditor’s Report
Financial
Statements
Notes
104
Independent Auditor’s
Report to the Members
of the PRS REIT plc
121
Notes to the Financial
Statements
148
Supplementary Information
114
Consolidated Statement of
Comprehensive Income
115
Consolidated Statement of Financial
Position
116
Consolidated Statement of Changes in
Equity
117
Consolidated Statement of Cash Flows
118
Company Statement of Financial
Position
119
Company Statement of Changes in
Equity
120
Company Statement of Cash Flows
HIGHLIGHTS
HIGHLIGHTS
Portfolio now at
5,129 COMPLETED
HOMES
Assets are performing strongly,
and rental demand continues to grow.
Key points
Financial
Revenue
Net rental income
Operating profit
Profit after tax
Basic earnings per share
EPRA earnings per share1
Adjusted earnings per share excluding amortised
debt costs2
Net assets at 30 June
IFRS NAV and EPRA NTA per share3
Year to
30 June 2023
Year to
30 June 2022
Change
£49.7m
£40.2m
£58.9m
£42.5m
7.7p
3.1p
3.5p
£660m
120.1p
£42.0m
+18%
£34.3m
+17%
£127.0m
-54%
£115.9m
-63%
21.4p
-64%
3.0p
3.4p
£639m
116.4p
+3%
+3%
+3%
+3%
1 A full reconciliation between IFRS profit and EPRA earnings can be found in note 16 of the Financial Statements
2 Finance costs adjusted to exclude amortised debt costs of £2.1m (2022: £2.2m)
3 A reconciliation of IFRS NAV to EPRA NTA can be found in note 29 of the Financial Statements
6
The PRS REIT plc Annual Report & Financial Statements 2023
Operational
At 30 Sept
2023
At 30 June
2023
At 30 June
2022
Year-on-
year change
Number of completed homes
5,129
5,080
4,786
+6%
Estimated rental value (“ERV”) per annum
£57.6m
£55.0m
£47.8m
+15%
Number of contracted homes
395
444
693
-36%
ERV per annum
£3.1m
£3.8m
£7.2m
-47%
Completed and contracted sites
71
71
68
+4%
ERV per annum of completed and contracted sites*
£60.7m
£58.8m
£55.0m
+7%
Rent collected (as a percentage of total rent
invoiced for the period)
*based on all completed units being occupied/income producing
98%
99%
99%
–
The PRS REIT plc Annual Report & Financial Statements 2023
7
NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE HIGHLIGHTS
Net asset value increased to £660m/120.1p per
share at 30 June 2023 (2022: £639m/116.4p per
share), underpinned by strong ERV growth
> as at 30 June 2023, ERV was estimated to be £5.1m higher
than passing rent (2022: £2.7m higher), another indicator of
the strong rental market
> EPRA NTA increased by 3% to 120.1p per share
(2022: 116.4p)
Portfolio grew by 294 homes over the year to 5,080
completed homes at 30 June 2023, up 6% (2022:
802 new homes added; 4,786 completed homes)
> gross arrears at £1.0m at 30 June 2023
(30 June 2022: £0.6m)
> like-for-like blended rental growth4 of c.7% over the year on
stabilised sites (where all units were completed and either
all, or nearly all, had been let at the end of the comparative
period)
- re-lets to new tenants achieved c.12% rental growth
(2022: c.10%)
> affordability (average rent as a proportion of gross household
income) very strong at 22% as at 30 June 2023 (2022: 25%)
> continued high levels of customer satisfaction – 98% of
tenants surveyed six months into their tenancy stated they
were happy with their home (2022: 95%)
> ERV of the 5,080 homes is up to £55.0m p.a. (2022: 4,786
homes with ERV of £47.8m)
> further 444 homes with an ERV of £3.8m p.a. were under
way at 30 June 2023
> property costs were well managed - small increase to
19.1% (2022: 18.2%) mainly reflected the increased number
of assets out of warranty and the slightly older age of the
portfolio
As at 30 September 2023 the ERV of the completed
and contracted homes was £60.7m p.a.
Average net investment yield on the portfolio
softened to 4.47% (30 June 2022: 4.13%)
Decrease in operating profit to £58.9m (2022:
£127.0m) reflects the lower gains from fair value
adjustments on investment property compared to
the prior year - £25.4m vs. £99.7m
> ERV continued to grow strongly in FY23
> yields softened in FY23 to 4.47% from 4.13% while FY22
saw yields tighten from 4.3% to 4.13%
> yield movements in FY23 have however been more than
offset by the increase in ERV
Completed assets continued to perform strongly
over the year:
> rent collection at 99% for FY 2023 (2022: 99%)
> occupancy at 97% at 30 June 2023 (2022: 98%)
EPRA loan to value (‘LTV’) on portfolio low at 37%
(2022: 34%)
Approx. 82% of the current £427m of investment
debt is fixed at an average interest rate of 3.8%
(post July 2023 re-financing)
Adjusted EPS, excluding amortised debt costs but
including non-utilisation fees, was 3.5p (2022: 3.4p)
Total dividends of 4.0p per share declared
(2022: 4.0p)
4 Like-for-like blended rental growth on stabilised sites is defined as the annual rental growth on sites where all units have been completed and either
all or nearly all have been let
8
The PRS REIT plc Annual Report & Financial Statements 2023
Steve Smith, Chairman of the PRS REIT, commented:
“The PRS REIT remains a leader in the single-family rental
sector. Almost 300 new rental family homes were added to
the portfolio during the financial year, with a further 49 added
over the first quarter of the new financial year. This has taken
the number of completed homes in the portfolio at the end of
September to 5,129.
“Our homes continue to rent extremely strongly. Our
developments are attractive places in which to live, and are
well-located. They are affordable – tenants’ average spend on
rent is currently 22% of gross household income, and we pay
significant attention to customer service.
“We are well-advanced in the delivery of an initial portfolio of
around 5,500 homes, providing over £1 billion of assets with
an anticipated rental income stream of over £60 million a year.
“Our model is highly resilient. Following our debt refinancing
in July, more than 80% of our long-term investment debt is at
favourable fixed rates for an average 16 years, and the portfolio
gearing is low at 37%.
Q1 FY24 (three
months to 30
September 2023) –
portfolio performance
remains very strong
> portfolio expanded to 5,129
completed homes, with ERV of
£57.6m p.a. at 30 September 2023
> further 395 homes with an ERV of
£3.1m p.a. under way
> occupancy high at 98%
> like-for-like rental growth of 9.8%
> affordability (average rent as a
proportion of gross household
income) excellent at 22%
Steve Smith,
Chairman of the PRS REIT,
> rent collection* very strong at 98%
“Prospects are very positive. The structural shortage of high-
quality rental homes in the UK and rising demand place the
Company in a strong position. Our high-quality, professionally-
managed, single-family rental homes are helping to fix an urgent
social problem.”
Once all the existing
sites are completed
and homes let, the
portfolio will comprise
over 5,500 homes, with
ERV of £60.7m p.a.
Outlook
Prospects remain very positive
> supported by structural shortage of quality
family rental homes in the UK; the number of
properties available to rent is at a 14-year low5
> under supply exacerbated by private landlords
exiting rental market, weak sales market and
rising rental demand
> Propertymark reported in September
2023 that the number of new applicants
registered in August per member branch
was up by 32% year-on-year and that the
number of properties available to rent per
member branch in August was an average
of 11, unchanged on the same month a
year ago
> British Property Federation reported in July
2023 that only c.9,200 suburban build-to-
rent homes were in planning and c.9,100
units were under construction
Target dividend of 4.0p per share
for FY24; this is expected to
be covered on a run-rate basis
during FY24 with YTD coverage
at a run rate of 90%
5 TwentyCi https://www.twentyci.co.uk/resources/
The PRS REIT plc Annual Report & Financial Statements 2023
9
NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE STRATEGIC
REPORT
Chairman’s Statement
Introduction
I am pleased to present The PRS REIT plc’s (the “PRS REIT”, or the “Company”,
or the “Group”) audited financial results for the year ended 30 June 2023. The
Company’s portfolio of completed rental homes continues to perform very well and,
in the second half of the financial year, passed the milestone of 5,000 homes. The
Group is now over 90% through its current delivery programme.
Largest portfolio of single-family rental homes in the UK
The PRS REIT’s portfolio remains the largest portfolio of
single-family rental homes in the UK. During the year, a total of
294 new rental homes were added to the portfolio, taking the
number of completed homes by the financial year-end to 5,080
(30 June 2022: 4,786 completed homes), a 6% increase. A
further 444 homes were contracted at that date and were at
varying stages of the construction process.
The estimated rental value (“ERV”) of the 5,080 completed
homes is £55.0 million per annum (30 June 2022: £47.8
million per annum on 4,786 completed home), a 15% rise. The
percentage increase in rental value over the year compared to
the percentage increase in the number of completed homes
over the same period mainly reflects rental growth over the
period. The 444 homes under way have an ERV of £3.8 million
per annum.
The portfolio’s assets are predominantly spread across the
major regions of England. At 30 June 2023, there were 71
sites in total (2022: 68 sites) ranged across the North-West,
North-East, Yorkshire, the Midlands, the South-East (excluding
London) and East of England, with one site in North Wales and
another in Central Scotland.
12
The ERV of our portfolio, some 5,500 homes in total, including
those still in the delivery process, is around £60.7 million per
annum.
Strong asset performance
The PRS REIT’s assets performed extremely strongly throughout
the financial year. Occupancy and rent collection (measured
as rent collected relative to rent invoiced in any given period)
remained high, with rent collection at 99% (2022: 99%) and
occupancy at 97% at 30 June 2023 (2022: 98%), with 4,932
homes occupied out of 5,080 completed homes. Including
those homes where a letting had been agreed, but occupancy
had not commenced, occupancy was 98% (2022: 99%).
Like-for-like rental growth over the year on stabilised sites
(where all units were completed and let, or nearly all let at
the end of the comparative period) was 7.5%. This reflects a
blended growth rate of c.12% on re-lets to new tenants and
c.7% on renewals with existing tenants. Gross rent arrears
remained modest despite the growth in the portfolio, standing at
£1.0 million at 30 June 2023 (2022: £0.6 million).
The PRS REIT plc Annual Report & Financial Statements 2023 CHAIRMAN’S STATEMENT (Cont.)
Homes remain very affordable. The portfolio’s affordability ratio,
measured as average rent as a proportion of gross household
income, is currently at 22% (2022: 25%). This is significantly
better than Homes England’s guidance that rent should be less
than 35% of tenants’ gross household income. It reflects both
the strong tenant base and wage increases.
Net rental income over the financial year increased by 17% to
£40.2 million (2022: £34.3 million). The rise was driven by a
combination of a full year’s rental income on properties that had
been completed and let part-way through the prior financial
year, increased unit numbers and rental growth.
The portfolio’s outstanding asset performance to date
demonstrates the continuing market need for high-quality family
rental homes. Supply side issues have worsened over the
year, with private landlords continuing to exit the market, while
demand has been further fuelled by rising interest rates and
general economic uncertainty. These factors have put further
obstacles in place for potential homeowners.
In its latest Housing Insight Report, published in September
2023, Propertymark, the leading professional body for estate
and letting agents, commercial agents, auctioneers, valuers and
inventory providers, stated that the number of new applicants
registered in August 2023 per member branch was up by
32% year-on-year, and that the number of properties available
to rent per member branch in August was an average of 11,
unchanged from August 2022. This “remains drastically below
what is needed to keep up with current demand”. Propertymark
expects this gap to widen as more people come to the market
to look for a home with very few properties available to rent.
Research by TwentyCi, which provides UK residential property
data, shows that the number of UK homes available to rent
has dropped to a 14-year low. The Company’s experience of
tenants bidding above asking prices to secure rental property
reflects this mismatch of supply versus demand.
The Company’s Investment Adviser’s Report provides further
commentary on housing delivery and asset performance over
the year.
Financial Results
Revenue, which is generated wholly from rental income,
increased by 18% year-on-year to £49.7 million (2022: £42.0
million). This reflected a combination of the increase in the
portfolio and strong rental growth. Non-recoverable property
costs rose slightly to 19.1% of revenue (2022: 18.2%), mainly
reflecting the increasing number of assets out of warranty and
marginally increased maintenance costs. After these were
deducted, net rental income for the financial year was £40.2
million (2022: £34.3 million), an increase of 17% year-on-year.
Expenses in the year rose to £8.3 million (2022: £7.5 million) as
the portfolio grew, with the increase also reflecting some cost
inflation.
The gain from the fair value adjustment on investment property
reduced significantly, as expected, to £25.4 million (2022: £99.7
million) and reflects the combined impact of ERV and average
net investment yield movements.
ERV on completed and let properties at 30 June 2023 was
approximately £5.1 million (2022: £2.7 million), higher than
passing rent, and reflects continuing demand for the Company’s
product. The fair value of investment property is based on the
valuer's estimate of ERV rather than actual passing rent.
Operating profit decreased by 54% to £58.9 million (2022:
£127.0 million), which reflected the expected decrease in gains
from fair value adjustments on investment property. These gains
are non-cash items.
Finance costs were higher at £16.5 million (2022: £11.1 million)
as the Company drew down and utilised the variable rate LBG
/ RBS investment debt facility during the year. The movement
in interest rates over the period of 3.75% (from 1.25% in June
2022 to 5.0% in June 2023) applied to the average balance of
floating rate investment debt drawn, resulted in an increase in
the interest expense of c.£2 million, which negatively affected
EPS by 0.4p. The impact of the increase in interest rates in the
period was mitigated by the quantum of lower cost fixed rate
investment debt with Scottish Widows. Finance income from
short-term deposits in the year was £49,000 (2022: £4,000),
again reflecting the increase in interest rates during the financial
year.
Profit after taxation decreased by £73.4 million or 63% to
£42.5 million (2022: £115.9 million) while basic and diluted
earnings per share reduced by the same proportion to 7.7p
(2022: 21.4p) on an IFRS basis.
The Group’s IFRS net asset value (“NAV”) per share and EPRA
net tangible asset (“NTA”) per share at 30 June 2023, both
increased to 120.1p (31 December 2022: 117.1p and 30 June
2022: 116.4p). This is a year-on-year increase of 3% and a 3%
increase over the prior six months.
Net assets at 30 June 2023 were 3% higher year-on-year at
£660 million (30 June 2022: £639 million). This is after paying
dividends of £22.0 million in the year (2022: £21.4 million).
Dividends
For the year to 30 June 2023, aggregate dividends of 4.0p per
share were declared and paid to shareholders (2022: 4.0p per
share). Including the dividend paid on 1 September 2023, total
dividends paid since the Company’s inception in May 2017
amount to 26.0p per share.
The year’s dividend of 4.0p was almost fully covered on a run-
rate EPRA EPS basis at the end of the financial year. Dividend
cover will continue to grow as construction, completions and
lettings advance. The Company is targeting a dividend of 4.0p
per share for the new financial year ending 30 June 2024. This
is expected to be covered on a run-rate basis during FY24.
13
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE CHAIRMAN’S STATEMENT (Cont.)
Debt Facilities
The Company had £440 million of committed debt facilities
available for utilisation as at 30 June 2023. This comprised
£400 million of investment debt facilities and £40 million of
development debt facilities. Just after the financial year-end, the
total was increased to £460 million (£427 million of investment
debt facilities and £33 million of development debt facilities)
following a debt refinancing process, which is detailed below.
Debt refinancing
At the beginning of July 2023, the Company completed the
refinancing of its £150 million revolving credit facility (“RCF”)
provided by The Royal Bank of Scotland plc (“RBS”) and
Lloyds Banking Group plc. A £102 million fixed-rate debt facility
was agreed for 15 years with Legal and General Investment
Management and a £75 million floating-rate debt facility was
agreed for two years with RBS. The latter facility provides
the Company with the flexibility to refinance this element at a
potentially lower rate over the two year term of the loan. An
interest rate cap was also put in place on the floating rate debt
in order to hedge against downside risk on further interest rate
movements.
Approximately two-thirds (£115 million) of the total debt of
£177 million was immediately deployed, specifically the entire
£102 million fixed-rate facility and £13 million of the floating-
rate facility, to fund already completed and stabilised sites. The
balance of floating-rate debt (£62 million) is expected to be
drawn down to fund sites completing and stabilising before the
end of calendar year 2024.
Separately, the Barclays Bank PLC development debt facility of
£40 million was reduced to £33 million in September 2023.
The PRS REIT now has total fixed long-term debt facilities of
£352 million, with an average blended interest rate of 3.8%. This
compares favourably with the average net investment yield of
4.47% as at 30 June 2023.
> Approximately 82% of the Company’s overall debt is now
covered by long-term facilities, which have an average
term of 16 years. This compared to 63% of overall debt
previously covered by long-term facilities, with an average
term of 17 years.
> The two new facilities have significantly lengthened the
maturity of the Company’s overall debt facilities.
> The average term for all debt has increased to
13.7 years at 30 June 2023, from 10.9 years at
31 December 2022.
> Future annual debt amortisation costs will also reduce
reflecting lower arrangement fees and a longer period of
amortisation.
Following the refinancing, 82% of the £427 million of investment
debt is fixed rate at an average of 3.8%.
Approximately £390 million of debt facilities have been drawn
to date, with the remainder presently forecast to be utilised
over the next 18 months as the current phase of construction
finishes and homes are let.
The portfolio’s gearing remains low at 37% EPRA LTV (2022:
34%), and, as determined by the Company’s Investment Policy,
the debt facilities are subject to the maximum gearing ratio of
45% of gross asset value.
Our lending partners are: Scottish Widows (£250 million); Legal
and General Investment Management (£102 million); The Royal
Bank of Scotland plc (£75 million); and Barclays Bank PLC
(£33 million). The latter £33 million debt facility is available to be
drawn as development debt, which enables multiple sites to be
developed simultaneously.
Environmental, Social and Governance
(“ESG”) Practices
The PRS REIT is a member of the UK Association of Investment
Companies and applies its Code of Corporate Governance to
ensure best practice in governance.
The Board is responsible for determining the Company’s
investment objectives and policy and has overall responsibility
for the Company’s activities. This includes the review of
investment activity and performance.
The Board delegates the day-to-day management of the
business, including the management of ESG matters, to the
Investment Adviser, Sigma PRS Management Ltd (“Sigma
PRS”), which is also a signatory and participant of the United
Nations Global Compact. Sigma PRS is a subsidiary of Sigma,
part of PineBridge Investments, a private, global asset manager
with over US$140bn in assets under management at June
2023.
Details of ESG policies and activities are contained in the
Investment Adviser’s Report.
Board Changes
We are delighted to announce the appointment of Karima
Fahmy as an Independent Non-Executive Director. She
succeeds Jim Prower, who will be retiring from the Company at
the forthcoming Annual General Meeting on 4 December 2023.
On behalf of the Board, I am pleased to welcome Karima and
to thank Jim for his valuable contribution over his tenure as a
non-executive director.
Karima is a corporate lawyer with extensive experience of
the UK property market. She worked at Grosvenor Group
(“Grosvenor”), the international property group, latterly as
General Counsel until 2020. She was a member of Grosvenor’s
UK Executive Committee, and was involved in all aspects of
Grosvenor's property business, advising on a range of ventures,
14
The PRS REIT plc Annual Report & Financial Statements 2023 CHAIRMAN’S STATEMENT (Cont.)
As we have said previously, the business model remains
firmly supported by market fundamentals. Population growth,
changing household formations and low new housing volumes
continue to drive demand. Our homes are built to be attractive
and comfortable and are well-located and professionally
managed. We expect them to continue to rent very well into the
future. The July debt refinancing has provided a high degree of
certainty over financing costs.
The PRS REIT is a market leader and the Board remains
confident about prospects, with affordability – average rent as a
proportion of gross household income – and asset performance
both very strong.
Steve Smith
Chairman
9 October 2023
including new community schemes and placemaking projects.
Prior to that, she worked at Hogan Lovells, the global law
firm, advising both listed and unlisted companies. She is also
Non-executive Director of Latimer Developments Limited and
of BCP FuturePlaces Limited. Latimer Developments Limited
is the development arm of the Clarion Housing Group, the UK’s
largest housing association, and BCP FuturePlaces Limited
is the urban regeneration company created by Bournemouth,
Christchurch and Poole (BCP) Council.
In addition, Karima is an Independent Board Member of
University of Cambridge Property Board and Non-executive
Director of Bournemouth University. She is a trustee of United
Learning Trust, a schools group, a trustee of Clarion Futures,
Clarion Housing Group's charitable foundation, and trustee of
Great Ormond Street Hospital’s Children's Charity, where she is
also a Member of its Property & Development Committee.
On 21 March 2023, the Board was pleased to appoint
Geeta Nanda, an existing non-executive director as Senior
Independent Non-executive Director.
Outlook
During the first quarter of the new financial year, 49 new
homes were added to the portfolio, taking the total number of
completed homes at 30 September 2023 to 5,129. The ERV of
completed homes has increased accordingly to £57.6 million
per annum (30 September 2022: 4,856 completed homes with
an ERV of £49.4 million per annum).
Asset performance remains strong. Rent collection in the first
quarter was 98% (2022: 99%) and total occupancy was at 98%
at the end of September (30 September 2022: 98%), with 4,995
homes occupied out of the total of 5,129. A further 68 homes
were reserved for applicants who had passed referencing
and paid rental deposits. Total arrears at 30 September 2023
were low at £1.1 million. Like-for-like blended rental growth on
stabilised sites was 9.8%.
We are targeting a total dividend of 4.0p per share* for the new
financial year, and will declare the interim dividend for the first
quarter of the financial year in November 2023.
As ever, my fellow Directors and I would like to express our
thanks to all involved in the creation and management of this
pioneering venture in the single-family homes rental market. This
includes our investors, housebuilding partners, financiers and
supporters in government. The PRS REIT is providing much
needed housing for families and individuals and forging a new
direction for the UK’s housing market.
* 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.
15
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE IFRS and EPRA
Performance Measures
Under the European Real Estate Association (“EPRA”) best
practice recommendations (“BPR”) for financial disclosures by
public real estate companies, three measures for reporting net
asset value are available, EPRA Net Tangible Assets (“NTA”),
EPRA Net Reinstatement Value (“NRV”), and EPRA Net
Disposal Value (“NDV”).
The Group considers EPRA NTA to be the most relevant
measure for its operating activities, and has adopted this as the
Group’s primary measure of net asset value.
EPRA NRV is not considered an appropriate disclosure measure
for the PRS REIT as the Group has acquired, constructed and
developed the vast majority of assets and this would therefore
equate to adjusted historic construction cost.
The valuation of the Group’s assets is undertaken in accordance
with RICS guidance. However, this does not include any
adjustment to reflect the size and scale of the Group’s overall
portfolio of assets. The Board’s view is that collective marketing
of the portfolio would attract a higher valuation reflecting yield
compression attributable to the size and scale of the overall
portfolio. In the absence of comparable market evidence for
such a portfolio, EPRA NDV is not considered an appropriate
measure.
16
The PRS REIT plc Annual Report & Financial Statements 2023 IFRS AND EPRA PERFORMANCE MEASURES (Cont.)
KPI
Explanation
Performance
Year to
30 June 2023
Year to
30 June 2022
IFRS NAV
(see note 29)
EPRA NTA
(see note 29)
IFRS EPS
(see note 16)
EPRA EPS
(see note 16)
EPRA Earnings
(see note 16)
Unadjusted net asset value
120.1p per share
116.4p per share
EPRA Net Tangible Asset is net asset value
adjusted to include properties and other investment
interests at fair value and to exclude certain items
not expected to crystallise in a long-term property
business model.
120.1p per share
116.4p per share
Unadjusted earnings per share
7.7p per share
21.4p 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.
EPRA Earnings is a measure of operational
performance and represents the net income
generated from the operational activities excluding
changes in value of investment properties.
3.1p per share
3.0p per share
£’000
17,099
£’000
16,162
4.1%
3.9%
EPRA Net Initial Yield
(‘NIY’)
(see supplementary
information, page 149)
Annualised rental income based on the cash rents
passing at the balance sheet date, less non-
recoverable property operating expenses, divided
by the market value of the property, increased with
(estimated) purchasers’ costs.
EPRA Cost Ratio
including direct vacancy
costs
(see supplementary
information, page 149)
EPRA Loan to Value (LTV)
(see supplementary
information, page 150)
Administrative and operating costs (including costs
of direct vacancy) divided by gross rental income.
35.9%
36.1%
The Group’s net debt expressed as a percentage of
the investment property portfolio.
36.6%
34.0%
17
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Market Dynamics
18
The PRS REIT plc Annual Report & Financial Statements 2023 MARKET DYNAMICS (Cont.)
The growth opportunity available in the UK Build-to-Rent
(“BTR”) sector is significant. While the market continues to
grow, the total number of BTR homes built in the UK remains
very modest. In a report on UK BTR published in September
20216, JLL, a global commercial real estate and investment
management company, concluded that the sector has potential
to increase 10 times in size if it achieves equivalence with the
US market.
The British Property Federation in July 20237 reported that
the number of BTR homes in the UK, completed, under
construction or in planning, stood at 253,402 at 30 June 2023.
This represented an increase of 12% on 2022. Of these 253,402
BTR homes at 30 June 2023, around 35% (c.88,100) were built,
21% (c.53,500) were under construction, and 44% (c.111,800)
were in planning.
In addition, the report showed that the overwhelming number of
BTR homes built remains in urban rather than suburban settings
and are flatted rather than single-family homes, which is the
PRS REIT’s focus. The number of urban BTR homes in planning
stood at around 103,000 against around 9,200 suburban BTR
homes in planning. The report also showed that the UK single-
family rented housing sector is growing but that numbers are
small, with nearly c.28,000 homes at the end of June 2023, of
which c.9,600 were complete, c.9,100 units under construction
and c.9,200 in the planning pipeline.
The total number of rental properties in the UK has not
increased significantly since 2016 although demand for rental
accommodation continues to rise. According to Zoopla, a
leading UK aggregator of property listings, the ongoing chronic
imbalance between supply and demand has pushed rents
higher across all parts of the UK. It forecasts continued demand
and rental inflation into H2 20238.
Landlords in the buy-to-let sector, still the largest provider of
rental properties in the UK, have been under greater pressures
and confidence is low according to the National Landlords
Association. Its Landlord Confidence Index in Q1 20239 showed
landlord confidence at -28 (the negative number indicating more
landlords are negative about the next twelve months than are
positive). It stated that the record proportion of landlords who
had increased rents in the last twelve months are doing so for
negative reasons, including the pipeline of regulatory changes
and in response to cost inflation and rising interest rates.
Private landlords have faced greater pressures since 2016 when
an extra 3% was added on stamp duty for additional home
purchases. This was followed by reform on mortgage interest
rate relief. Proposed rental reform measures in the Government’s
Renters (Reform) Bill have further added to pressures on private
landlords. These include the proposed abolition of fixed-term
tenancies and reform of the grounds for repossession. The
Government’s proposed change to increase the minimum
energy efficiency standard that a rental property must reach
before it can be legally let from EPC E to EPC C, and higher
interest rates give further cause for concern for private landlords,
although the minimum energy efficiency standard proposal was
subsequently dropped in September 2023.
According to the National Landlords Association10, even though
rental demand is high, the proportion of landlords looking to
reduce their portfolio over the next twelve months continues to
rise and landlords “planning to sell” are now at record highs,
with 30% planning to cut the size of their portfolios. Hamptons,
the property consultancy, reports that 140,000 landlords left the
sector last year and expects the run-rate of landlords leaving the
sector to be 100,000 per year for the next five years.
Challenges to home ownership have not eased, further fuelling
rental demand. Increased interest rates have created new
pressures for prospective homeowners wishing to purchase
their first home and for homeowners with mortgages due for
renewal. The median house price to income ratio, according
to the Office for National Statistics11 is currently 8.16, and on
4 August 2023, the average interest rate on a two-year fixed
mortgage was 6.85% according to financial data provider,
Moneyfacts, with the average rate on a five-year fixed mortgage
at 6.35%. By comparison, the PRS REIT’s homes remain very
affordable. At 30 September 2023, the average household
income of a PRS REIT tenant was £51,000 (30 September
2022: £41,000) and the average rent was £934 per calendar
month (2022: £849), meaning that rent as a proportion of
household income was 22% (2022: 25%). We believe that it is
reasonable to assume this improvement reflects a combination
of wage inflation and the emergence of a wealthier cohort of
disenfranchised would-be home buyers.
In summary, it is clear that the market opportunity in BTR
remains significant and that the sector remains an important
means of fulfilling a social need and meeting demand for high-
quality, well-managed rental housing in the UK.
Private Rented Sector Reform
In June 2022, the Government published a policy paper,
which set out its long-term vision for the private rented sector.
Titled “A fairer private rented sector”12, it contained plans to
fundamentally reform the private rented sector in the country
and level up housing quality. Subsequently, in May 2023, the
Government introduced the Renters (Reform) Bill to Parliament.
The Bill is little changed from the 2022 policy paper, which
we reported on in June 2022. We are in favour of proposals
that support the rights of tenants to a decent home while also
supporting responsible landlords. As a professional landlord, the
PRS REIT is in the market for the long-term and does not view
the Bill as likely to impact adversely the Company’s operations.
6 Jones Lang LaSalle (JLL), UK Build To Rent (BTR) Report, September 2021
7 British Property Federation, Build-to-Rent Report, Q2 2023
8 Zoopla Rental Market Report, June 2023
9 National Residential Landlords Association, Landlord Confidence Index (LCI) No.17: 2023 Q1
10 National Residential Landlords Association, Landlord Confidence Index (LCI) No.18: 2023 Q2
11 Office for National Statistics, Housing Purchase Affordability, UK: 2022
12 Department for Levelling Up, Housing & Communities, A Fairer Private Rented Sector, June 2022
19
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Portfolio Analysis
As at 30 June 2023, the value of the Group’s completed
property portfolio was £1 billion (2022: £962 million). The
investment value of all sites at that date was £1.1 billion on
completion (2022: £1 billion) with their current ERV at £58.8
million (2022: £55 million).
Property Portfolio by Regional Split –
at 30 June 2023
The portfolio is geographically diversified and the regional
split by investment value at 30 June 2023 was as follows:
> North West 51% (2022: 52%);
> West Midlands 21% (2022: 21%);
> South East 11% (2022: 12%);
> Yorkshire 11% (2022: 9%);
> North East 3% (2022: 3%);
> Wales 2% (2022: 2%); and
> Scotland 1% (2022: 1%).
Other Metrics – at 30 June 2023
> Rent roll: the rent roll at 30 June 2023 was £55.0 million
(2022: £47.8 million) and the average rent was £10,831 per
annum or £903 per month (2022: £10,004 per annum or
£834 per month).
> Average size of site: the average size of site was 74 (2022:
78) housing units.
> Properties by bedroom number: the split between 1, 2,
3 and 4-bed properties was approximately 3%, 26%,
62% and 9% respectively (2022: 3%, 26%, 62% and 9%
respectively).
> Housebuilder relationships: the split for units under
construction was – Countryside 96%, Vistry 3%, and
Seddon 1% (2022: Countryside 86%, Vistry 8%, Seddon
5%, and EQUANS (formerly Engie) 1%).
> Gross-to-net: the deduction from gross to net rent across
the portfolio for the year ended 30 June 2023 was 19.1%
(2022: 18.2%).
> Bad debt: bad debts expense for the year was £0.2 million
(2022: £0.4 million) and the bad debt provision at the year-
end was £0.5 million (2022: £0.3 million) reflecting a prudent
approach in the current economic climate.
20
The PRS REIT plc Annual Report & Financial Statements 2023 NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE PORTFOLIO ANALYSIS (Cont.)
Age Groupings
The largest age grouping across the customer base at the time of sampling on 30 June 2023 was 26-35 years. This age group
represented 47% of the total customer base, and was also the largest group in 2022 although it accounted for a lower proportion of
the total customer base at 38%. All other age groups are broadly in line with 2022, with the exception of those aged 65 years and
over, where the proportion of residents has reduced by almost half from a low percentage.
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2023
2022
Under 25
26-35
36-45
46-55
56-65
65+
Household Income Bracket
Across the mid ranges of household incomes, 2023 groupings are similar to 2022, although there is a notable rise in households
above the £45,000 gross income bracket.
The greatest changes between 2023 and 2022 are in the lowest and highest income brackets. There has been a decrease of c.50%
in the lowest income households, earning £25,000 or less. This grouping has reduced to 12% of households over the course of
the year. We assume that rising rents have impacted those on the lowest incomes. Households with income of £65,000 and over
have increased to over a quarter of the customer base and households in the income bracket £55,000 - £65,000 have also risen
sharply year-on-year. We believe that this reflects would-be home buyers turning to the rental market as interest rates have risen and
constrained mortgage affordability.
2023
2022
Under £25k
£25k-£35k
£35k-£45k
£45k-£55k
£55k-£65k
£65k+
30%
25%
20%
15%
10%
5%
0%
22
The PRS REIT plc Annual Report & Financial Statements 2023 PORTFOLIO ANALYSIS (Cont.)
Tenancies with Children
Approximately 40% of households included children. This is broadly unchanged from last year. It is reasonable to assume that
some in the 26-35 year-old group are moving into the homes with the intention of starting a family, but the high volume of
renters without children may indicate a tendency to defer or abandon family formation. The two largest groupings of tenants
with children are those with two or four children. This is similar to the prior year.
70%
60%
50%
40%
30%
20%
10%
0%
2023
2022
None
One Child
Two Children
Three Children
Four+ Children
Distance Travelled
The distance travelled by tenants from their previous address to their new ‘Simple Life’13 home is also recorded. The two
largest categories are those travelling less than 3 miles and greater than 50 miles. As the brand is nationwide, we believe that
this shows increasing brand awareness and that the model for site selection in and around major conurbations is capturing
residents moving for employment reasons.
30%
25%
20%
15%
10%
5%
0%
2023
2022
< 3 miles
3 -10 miles
10 - 50 miles
> 50 miles
All 2023 statistics are based on new applicant data between July 2022 and June 2023. Both sets of data are based on successful
applicants only reflective of the whole Simple Life Homes regional brand.
13 ‘Simple Life’ - The PRS REIT’s rental homes are marketed under the ‘Simple Life’ brand.
23
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE PORTFOLIO ANALYSIS (Cont.)
Property Portfolio – North West
2,968 Number of units
51%
of Portfolio by Investment Value
Address
Empyrean (Lower Broughton 5), Salford M7 1GA
Reynolds Place (Eaton Works), Walkden M28 3GW
Canalside (Whitworth Way), Wigan WN6 7QF
Prescot Park (Carr Lane), Prescot L34 1NS
Coppenhall Place (Bombardier), Crewe CW1 3JB
Beehive Mill, Bolton BL3 2NF
Holyoake Road, Walkden M28 3DL
Baytree Lane, Middleton M24 2EL
Hilton Park (Chadwick Street), Leigh WN7 1RL
Brookside Grange (Roch Street), Rochdale OL16 2NG
Earle Street, Newton-le-Willows WA12 9XD
Highfield Green (Tower Hill 3), Knowsley L33 1DF
Abbotsfield (Reginald Road), St Helens WA9 4HX
Shrewsbury Close (Tintern Avenue), Middleton M24 6JQ
Brookfield Vale Phase 1, Blackburn BB2 3TZ
Havenswood (Newhaven Business Park), Eccles M30 0HH
Hollystone Bank (Riverside College), Runcorn WA7 4DS
Durban Mill, Oldham OL8 4JT
Our Lady’s (Our Lady’s School), Little Hulton M28 0HF
Norwich Green (Norwich Street), Rochdale OL11 1LL
Coral Mill, Newhey, Rochdale OL16 3SS
Brookfield Vale Phase 2, Blackburn BB2 3TZ
Queen Victoria Place (Queen Victoria Street), Blackburn BB2 2QG
Hamilton Square (Howe Bridge Mill), Atherton M46 6JQ
Juniper Grove (Leach Lane), St Helens WA9 4PJ
Woodford Grange (Woodford Lodge Phase 1&2), Winsford CW7 4EH
Rochwood Rise (Entwisle Road), Rochdale OL16 2LJ
Woodbine Road (Mackets Lane), Halewood, Liverpool L25 9PB
Belmont Place (Owens Farm), Hindley Green WN2 4XS
Ribblesdale Place, Accrington BB5 5BQ
Highfield Green (Tower Hill 2), Knowsley L33 1DF
Chase Park, Ellesmere Port CH65 5DE
Harewood Close (Durham Street,) Rochdale OL11 1AH
24
SCOTLAND
NORTH
EAST
NORTH
WEST
YORKSHIRE
WEST
MIDLANDS
WALES
Units
298
SOUTH
WEST
148
SOUTH
EAST
145
140
131
127
123
110
103
100
97
96
92
88
85
84
83
80
73
70
69
69
68
59
55
54
54
50
50
47
42
40
38
The PRS REIT plc Annual Report & Financial Statements 2023 Property Portfolio – West Midlands
1,168 Number of units
21%
of Portfolio by Investment Value
Address
James Mill Way (Cable Street), Wolverhampton WV2 2QD
Dracan Village at Drakelow Park Phase 1, Burton-on-Trent DE15 9UA
Sutherland Grange (Sutherland School), Trench, Telford TF2 7JR
Stonefield Edge (Bilston Urban Village), Wolverhampton WV14 0LA
Ward’s Keep (Heathfield Lane Phases 1&2), Darlaston WS10 8QY
Silkin Green, Hinkshay Road, Telford TF4 3PF
Galton Lock (Mafeking Road), Smethwick B66 2EG
Stanley Park (Stanley Potteries), Stoke ST6 3PP
Baberton Grange, Plough Hill, Nuneaton CV10 9NZ
Dracan Village at Drakelow Park Phase 2, Burton-on-Trent DE15 9UA
Kingsmakers View Wolvey, Hinkley, LE10 3JF
Bluebell Manor (Dawley Road), Telford TF1 2LT
Lea Hall Gardens, Handsworth B20 2AP
Spirit Quarters, Monkswood Crescent, Coventry CV2 1FG
Brickkiln Place (Brickkiln Ph1&2), Wolverhampton WV3 0BS
Spirit Quarters, Milverton Crescent, Coventry CV2 1GN
Ashbank Heights, Werrington, Stoke, ST9 0JR
Brickkiln Place (Brickkiln Ph3), Wolverhampton WV3 0BS
Charlton Gardens, Phase 1, Telford, TF1 6BN
Charlton Gardens, Phase 2, Telford, TF1 6BN
SCOTLAND
NORTH
EAST
NORTH
WEST
YORKSHIRE
WEST
MIDLANDS
WALES
SOUTH
WEST
SOUTH
EAST
Units
164
154
123
123
109
78
63
63
50
41
32
31
31
29
24
20
16
7
7
3
25
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE PORTFOLIO ANALYSIS (Cont.)
Property Portfolio – Yorkshire
574 Number of units
11%
of Portfolio by Investment Value
Address
Prince’s Gardens (Manor Top Phase 2), Sheffield S2 1EY
Prince’s Gardens (Manor Top Phase 1), Sheffield S2 1EY
Ashfield Park, Station Road, Normanton WF6 2ND
Pullman Green (Hexthorpe Phase 1), Doncaster DN4 0BE
East Hill Gardens (East Bank Road), Sheffield S2 3PX
Yew Gardens, Granby Road, Doncaster DN12 1JU
Pullman Green (Hexthorpe Phase 2), Doncaster DN4 0BE
Holybrook (Romanby Shaw), Bradford BD10 0EH
Pullman Green (Hexthorpe Phase 4), Doncaster DN4 0BE
Park Grange House (Norfolk Park), Sheffield S2 3RE
SCOTLAND
NORTH
EAST
NORTH
WEST
YORKSHIRE
WEST
MIDLANDS
WALES
SOUTH
WEST
SOUTH
EAST
Units
85
78
72
69
58
53
49
47
39
24
26
The PRS REIT plc Annual Report & Financial Statements 2023 SCOTLAND
NORTH
EAST
NORTH
WEST
PORTFOLIO ANALYSIS (Cont.)
YORKSHIRE
WEST
MIDLANDS
WALES
SOUTH
WEST
SOUTH
EAST
Property Portfolio – South East
381 Number of units
11%
of Portfolio by Investment Value
Address
Milard Grange (Houghton Regis Parcel 6), Houghton Regis LU6 6JZ
Millard Grange (Houghton Regis Parcel 8), Houghton Regis LU6 6JZ
Base at Newhall (Harlow Phase 2), Harlow CM17 9LR
Base at Newhall (Harlow Phase 1a), Harlow CM17 9LR
Fornham Place at Marham Park (Marham Park Parcel C),
Bury St Edmunds IP31 6NG
Fornham Place at Marham Park (Marham Park Parcel D),
Bury St Edmunds IP31 6NG
Units
129
113
74
28
21
16
27
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Property Portfolio – North East
160 Number of units
3 %
of Portfolio by Investment Value
PORTFOLIO ANALYSIS (Cont.)
SCOTLAND
NORTH
EAST
NORTH
WEST
YORKSHIRE
SCOTLAND
Address
Bracken Grange (Brackenhoe), Middlesborough TS4 3AE
Kirkleatham Green, Redcar TS10 4GY
Units
WEST
MIDLANDS
80
80
WALES
Property Portfolio – Wales
99 Number of units
2 %
of Portfolio by Investment Value
NORTH
EAST
NORTH
WEST
SOUTH
EAST
YORKSHIRE
SOUTH
WEST
WEST
MIDLANDS
WALES
SOUTH
WEST
SOUTH
EAST
Address
Dutton Fields (Airfields), Deeside CH5 2RD
Units
99
28
The PRS REIT plc Annual Report & Financial Statements 2023 Property Portfolio – Scotland
75 Number of units
1%
of Portfolio by Investment Value
Address
Bertha Park, Perth PH1 3JE
PORTFOLIO ANALYSIS (Cont.)
SCOTLAND
NORTH
EAST
NORTH
WEST
YORKSHIRE
Units
75
WEST
MIDLANDS
WALES
SOUTH
WEST
SOUTH
EAST
29
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Development Portfolio
- Mix by Property Size
Total 1 Bed
Total 2 Bed
Total 3 Bed
Total 4 Bed
0
0
5
50
0
10 150
1
0
0
1
5
0
200
2
0
0
2
250
5
0
300
3
0
0
Coral Mill
24
39
6
Durban Mill
8
64
8
Woodbine Road
12
38
Baytree Lane
8
Prince's Gardens - Phase 1
East Hill Gardens
35
Woodford Grange
8
82
23
5
58
41
Highfield Green - Phase 2
34
8
20
20
Park Grange House
24
Shrewsbury Close
Hamilton Square
Juniper Grove
10
10
12
Prince's Gardens - Phase 2
Yew Gardens
9
Spirit Quarters - Monkswood Crescent
27
76
2
41
43
54
44
2
8
0
0
31
Spirit Quarters - Milverton Crescent
19
1
Holybrook
Chase Park
Prescot Park
7
3
6
33
7
23
14
18
107
Wards Keep
16
24
53
16
9
14
15
92
8
Earle Street
6
18
58
Canalside
James Mill Way
Empyrean
39
40
Abbotsfield
20
Hollystone Bank
Hilton Park
8
40
23
Galton Lock
11
46
Highfield Green - Phase 3
28
Sutherland Grange
18
99
64
37
6
68
6
68
81
105
19
189
10
4
24
Havenswood
24
24
26
10
Stonefield Edge
57
50
16
Reynolds Place
4
65
59
20
Harewood Close
Rochwood Rise
10
11
28
43
Norwich Green
17
53
Brookside Grange
12
Our Lady's
5
42
62
42
6
4
30
The PRS REIT plc Annual Report & Financial Statements 2023 DEVELOPMENT PORTFOLIO (Cont.)
494 9%
Total 4 Bed
Total 1 Bed
175 3%
Total 2 Bed
1,408 26%
3,348 62%
Total 3 Bed
TOTAL
5,425
Coppenhall Place
24
Beehive Mill
38
Silkin Green
11
Queen Victoria Place
17
Base at Newhall - Phase 2
14
Milard Grange - Parcel 6
6
59
47
49
Dutton Fields
32
Belmont Place
6
33
11
Ashfield Park
26
46
Stanley Park
18
45
93
82
8
4
11
108
61
14
7
15
6
Bracken Grange
Kirkleatham Green
39
40
41
40
Coppice Hill - Parcel 8
25
88
Brickkiln Place - Phase 1 & 2
10
10
4
Brickkiln Place - Phase 3
6
1
Bluebell Manor
17
14
Fornham Place at Marham Park - Parcel C
8
13
Lea Hall Gardens
28
3
Pullman Green - Phase 1
23
42
4
Pullman Green - Phase 2
14
Holyoake Road
35
60
Ribblesdale Avenue
12
33
2
52
11
Base at Newhall - Phase 1a
Fornham Place at Marham Park - Parcel D
19
9
8
8
Dracan Village at Drakelow Park Phase 1
37
109
8
Dracan Village at Drakelow Park Phase 2
13
26
2
Brookfield Vale Phase 1
28
51
6
Brookfield Vale Phase 2
12
Bertha Park
22
53
49
4
4
Baberton Grange, Plough Hill
10
Pullman Green - Phase 4
Kingsmaker View, Wolvey, Hinkley
4
36
12
27
32
Charlotte Gardens, Phase 1, Telford Phase 1
2
5
Charlotte Gardens, Phase 2, Telford Phase 2
3
Ashbank Heights, Werrington, Stoke
2
12 2
31
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Awards
Awards
INSIDER NW RESIDENTIAL PROPERTY AWARDS
HOME VIEWS AWARDS
Sustainability and Social Impact 2023
Top Rated North East Development 2022 (Bracken Grange)
(Winner)
(Finalist)
PROPERTY WEEK RESI AWARDS
INSIDER MIDLANDS PROPERTY AWARDS
Social Impact 2023
(Finalist)
Large Development of the Year 2023 (Stonefield Edge)
(Shortlisted)
THE YORKSHIRES
LOVE TO RENT AWARDS
Best Large Development 2022 (Pullman Green)
BTR Social Impact Award 2023
(Winner)
(Shortlisted)
THE HERALD PROPERTY AWARDS
Development of the Year 2022 (Bertha Park)
(Finalist)
32
The PRS REIT plc Annual Report & Financial Statements 2023
AWARDS (Cont.)
INSIDER NW RESIDENTIAL PROPERTY AWARDS
HOME VIEWS AWARDS
Operator of the Year 2023
Top Rated Midlands Development 2022
(Shortlisted)
(Sutherland Grange, Silkin Green, Stonefield Edge, Wards Keep)
PROPERTY WEEK RESI AWARDS
Landlord of the Year 2023
(Finalist)
THE YORKSHIRES
ESG Excellence Award 2022 (Pullman Green)
(Shortlisted)
WHATHOUSE? AWARDS
Best Sustainable Development 2022 (Bertha Park)
(Winner)
(Finalist)
LOVE TO RENT AWARDS
BTR Tech Award 2023
(Shortlisted)
LOVE TO RENT AWARDS
SFH BTR Development 2023 (Stonefield Edge)
(Shortlisted)
33
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Investment Strategy
and Business Model
Business Activities
The PRS REIT plc is a public limited company incorporated in
England on 24 February 2017. Together with its subsidiaries,
it is the only quoted Real Estate Investment Trust (“REIT”) to
focus purely on the Private Rented Sector (“PRS”).
The Company completed its IPO on 31 May 2017, raising initial
gross proceeds of £250 million through the issue of 250 million
ordinary shares of one pence each at an issue price of £1 each,
and the shares were admitted to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange.
Since then, the Company has raised additional funds through
two placings and through gearing, taking its total available
resources to £983 million (gross). On 2 March 2021, the
Company transferred its entire issued share capital to the
premium listing segment of the Official List of the FCA and to
the London Stock Exchange’s premium segment of the Main
Market.
Investment Objective, Policy and Business
Model
The PRS REIT is seeking to provide investors with an attractive
level of income, together with the prospect of income and
capital growth, through the establishment of a large-scale
portfolio of newly-constructed residential rental homes in or near
towns and cities in the UK for the private rented sector.
The Company’s scalable business model is able to deliver new
homes across multiple geographies and sites. It utilises the
Investment Adviser’s PRS property delivery and management
platform (the "Sigma PRS Platform").
The Company’s portfolio of homes is targeted at the family
market, which is the largest segment within the private rented
sector. The Company has concentrated on traditional housing,
with broad appeal across the demand spectrum, and its
portfolio comprises differing house types, built to standardised
specifications. They cater for different life stages, including
smaller houses for young couples and retirees, and larger
houses for growing families. The Company has also invested in
some low-rise flats in appropriate locations to broaden its rental
offering.
The Company’s homes are located across multiple sites in the
UK, outside London. Sites are predominantly in the Midlands
and North, with locations chosen for their accessibility to main
road and rail links, good primary schooling, and to centres
of economic activity, which promote long-term employment
prospects. The new-build nature of the assets means that they
benefit from a 10-year building warranty, typically from the
NHBC (National House Building Council), and manufacturers’
warranties. Homes are let on Assured Shorthold Tenancies (as
defined in the Housing Act 1988) to qualifying tenants.
The sourcing of assets is undertaken by Sigma PRS and the
Company has been building its portfolio in two ways.
> In the first instance, Sigma PRS has selected suitable
development sites (“PRS development sites”) which
already have detailed planning permission and then agreed
a fixed price design & build contract with one of Sigma
PRS’s construction partners. Sigma PRS then manages the
delivery process on behalf of the Company.
Assets are acquired with detailed planning consent and
fixed price design & build contracts, thereby minimising the
Company’s exposure to development risk. Construction risk
has been further mitigated with standard fixed-price design
& build contracts, containing liquidated damages clauses
for non-performance, financial retentions for one year after
completion, and a parent company guarantee ensuring the
satisfactory performance by the contractor and an indemnity
for losses incurred. Over three-quarters of the Company’s
assets have been sourced through this way.
> In the second instance, assets have been acquired by
entering into forward purchase agreements with Sigma
Capital Group Limited (“Sigma”), the ultimate holding
company of Sigma PRS. The assets are acquired once fully
completed and let. Typically, they have been constructed
by the same construction partners and supply chain as
other assets whose development is described above,
thereby ensuring homogeneity of the Company’s housing
stock. Completed and stabilised developments may also
be purchased from other third-parties using approved
construction partners.
In both instances, assets are acquired at the valuation provided
by the independent valuer. The PRS REIT retains the right-of-
first-refusal to acquire and develop any sites sourced by Sigma
PRS that meet the Company’s investment objective and policy
subject to the availability of funding.
Achieving Scale and Reducing Risk
The Sigma PRS Platform
The Investment Adviser has been utilising Sigma’s well-
established PRS property delivery and management platform
to scale the PRS REIT’s portfolio and to minimise development
and operational risks. Specifically, the Sigma PRS Platform
facilitates the efficient sourcing and development of investment
opportunities.
34
The PRS REIT plc Annual Report & Financial Statements 2023 The Sigma PRS Platform comprises relationships with
construction partners, central government, and local authorities.
Key construction partners include Countryside Partnerships,
Vistry, Seddon, and EQUANS (formerly Engie). Homes England,
an executive non-departmental public body sponsored by the
Ministry of Housing, Communities & Local Government, works
closely with Sigma in the common goal of accelerating new
housing delivery in England.
All pre-development risks are identified and underwritten
by Sigma and its partners, and development sites have an
appropriate certificate of title, detailed planning consent and
a fixed price design & build contract with one of Sigma’s
housebuilding partners. During the construction phase, many
of the properties are pre-let and subsequently occupied as they
complete.
Through its wide network of relationships, the Sigma PRS
Platform sources land for development sites, and has delivered
a variety of high-quality house types efficiently and in volume.
This underpins the PRS REIT’s objective to build at scale and
across multiple geographies.
Multiple Geographies
By creating assets across multiple locations and in different
regions, the PRS REIT’s concentration risk has been reduced.
The Company has targeted a mix of locations, which
demonstrate higher yielding profiles (predominantly those
in the North of England) and/or greater potential for capital
appreciation (often in the South of England). Proximity to good
primary schools remains a key requirement, reflecting the
Company’s focus on family rental.
In addition, no investment has been made in any single
completed PRS site or PRS development site that exceeds
10% of the aggregate value of the total assets of the Company
at the time of commitment.
‘Simple Life’ Brand
The PRS REIT’s rental homes are marketed under the ‘Simple
Life’ brand. The brand has created an identity for the PRS
REIT’s product and aims to set a ‘gold standard’ in the private
rented sector, by providing high-quality, sensibly-priced
rental homes, which are supported by high customer service
standards.
The PRS REIT’s long-term approach to the ownership of its
assets provides reassurance to residents that tenancies have
longevity. The Group also actively fosters initiatives that help to
create a sense of community within the Group's developments.
Investment Restrictions
The Group observes the following investment restrictions:
> the Group only invests in private rented residential houses
and apartments located in the UK (predominantly in
England);
INVESTMENT STRATEGY AND BUSINESS MODEL (Cont.)
> the Group invests in assets that require development by
means of the Group’s forward funding model, (so long as
when completed they fall within the Company’s investment
policy). However, it does not undertake development
without planning consent being in place or if the gross
committed (but unspent) construction costs to the Group
of all such forward funded development exceeds 25% of
the aggregate gross value of total assets of the Group at
the time of commitment, as determined in accordance with
the accounting principles adopted by the Group from time
to time (the “gross asset value”). Any forward funded
development will only be for investment purposes;
> in order to further manage risk in the portfolio, no
investment by the Group in any completed PRS site or
PRS development site exceeds 10% of the aggregate
value of the gross asset value of the Group at the time of
commitment); and
> the Group does not invest in other alternative investment
funds or closed ended investment companies.
Equity and Debt Financing
Three tranches of equity have been raised to date: £250 million
(gross) at the Company‘s IPO on 31 May 2017; £250 million
(gross) in February 2018; and £55.6 million (gross) in September
2021.
The PRS REIT utilises gearing to enhance equity returns.
The level of borrowing is prudent for the asset class, whilst
maintaining flexibility in the underlying security requirements
and the structure of both the PRS portfolio and the Group. The
Group has raised debt from banks and institutions, with equity
from Homes England and the capital markets. In line with the
Company’s Investment Policy, the aggregate borrowings of the
Group are always subject to an absolute maximum, calculated
at the time of drawdown of the relevant borrowings, of not more
than 45% of the gross asset value, although the Investment
Adviser expects actual gearing to settle to around 40%
following stabilisation of the portfolio. See further detail of debt
facilities in the Investment Adviser’s Report.
Derivatives
The PRS REIT uses derivatives for efficient portfolio
management. In particular, the Company may engage in full
or partial interest rate hedging or otherwise seek to mitigate
the risk of interest rate increases on borrowings incurred, in
accordance with the gearing limits as part of the management
of the PRS Portfolio. In July 2023, as part of the debt
refinancing process, an interest rate cap was put in place on the
RBS £75 million floating rate debt to hedge against downside
risk on further interest rate movements. This is in addition to
the fixed-rate borrowings with Scottish Widows and Legal and
General Investment Management.
REIT Status
The Company will conduct its affairs so as to enable it to
remain qualified as a REIT for the purposes of Part 12 of
the Corporation Tax Act 2010 (and the regulations made
thereunder).
35
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Investment Adviser’s Report
Sigma PRS Management Ltd (“Sigma PRS”), a wholly-owned subsidiary of Sigma Capital Group Limited, is the Company’s
Investment Adviser. It is pleased to provide a report on the PRS REIT’s activities and progress for the year ended 30 June 2023 and
to outline the portfolio’s performance in the first quarter of the new financial year ending 30 June 2024.
Operational Review
Development Activity and Acquisitions
A total of 294 homes were added to the PRS REIT’s portfolio in the financial year to 30 June 2023. This compared with 802 in the
prior year and reflects the advanced stage of the rollout of the portfolio, with fewer sites under active development as the portfolio
approaches maturity.
The total number of completed homes in the portfolio at the end of June 2023 stood at 5,080, an increase of 6% on the same point
last year (2022: 4,786). The homes are located predominantly across six of the eight major regions of England, and their combined
estimated rental value (“ERV”), was £55.0 million per annum as at 30 June 2023 This is a 15% increase in the portfolio’s estimated
rental value over the year (30 June 2022: ERV of completed homes stood at £47.8 million per annum).
At the beginning of the year, four development sites were acquired. They are located in Warwickshire, Shropshire, South Yorkshire
and Staffordshire, and when completed, will add a combined 97 new homes to the portfolio.
The Company’s assets now reflect a difference between ERV, used for valuation, and actual passing rent paid by tenants. As at
30 June 2023, ERV was estimated to be £5.1 million higher than passing rent (2022: £2.7 million higher). This reflects the strength
of demand for the Company’s portfolio of assets. The fair value of the Group’s investment properties as at 30 June 2023 is based
on ERV as opposed to passing rent. All estimates were compiled independently by Savills.
The table below provides further information on development activity over the financial year, and includes data for the first quarter of
the new financial year ending 30 June 2024, as well as comparative data for the financial year ended 30 June 2022.
Number of completed homes
ERV per annum of completed homes
Completed sites
Contracted sites
Number of contracted homes
At
30 September
2023
5,129
£57.6m
63
8
395
At
30 June
2023
5,080
£55.0m
63
8
444
At
30 June
2022
4,786
£47.8m
58
10
693
ERV per annum of contracted homes
£3.1m
£3.8m
£7.2m
Construction Resource
The construction resource provided by the Sigma PRS Platform has national reach. It has underpinned the continued expansion of
the Company to key population centres across the UK, primarily in England, and supported the creation of a geographically diverse
portfolio.
There are many benefits for our construction partners in partnering with us. These include strengthening their ability to bid for land
with local councils and improving operational efficiencies with their own housing delivery. This partnership approach works well
and the model we operate of using standard family house types, fixed price design & build contracts, together with standardised
specification, helps to ensure that developments are built to budget. The standardisation of housing type also means that completed
assets can be maintained and managed more efficiently.
36
The PRS REIT plc Annual Report & Financial Statements 2023 Financial Results
Income statement
The Group’s revenue (which is wholly derived from rental
income) increased by nearly 18% over the year to £49.7 million
(2022: £42.0 million). After the deduction of non-recoverable
property costs, the net rental income was £40.2 million (2022:
£34.3 million). Administration expenses were slightly higher at
£8.3 million (2022: £7.5 million).
The gain from the fair value adjustment on investment property
was £25.4 million (2022: £99.7 million). The gain reflects a
combination of higher ERV offset partially by the negative
impact of higher yields in the current period as asset values
move inversely to yield. As against the comparative period, the
overall reduction in the level of the gain principally reflects a
higher level of ERV growth during the prior year. Operating profit
was £58.9 million (2022: £127.0 million).
Finance costs for the year were £16.5 million (2022: £11.1
million) reflecting the debt utilisation and associated costs during
the year as well as an increase in interest rates on variable rate
debt during the year. Finance income for the period from short-
term deposits was £49,000 (2022: £4,000). The profit after
taxation was £42.5 million (2022: £115.9 million).
The basic and fully diluted earnings per share on an IFRS basis
for the year were 7.7p (2022: 21.4p).
Dividends
The total dividend for the financial year under review amounted
to 4.0p (2022: 4.0p) per ordinary share, declared and paid
quarterly as follows:
> On 2 November 2022, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary
Share in respect of the period from 1 July 2022 to 30
September 2022, which was paid on 30 November 2022 to
shareholders on the register as at 11 November 2022.
> On 7 February 2023, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary Share in
respect of the period from 1 October 2022 to 31 December
2022, which was paid on 3 March 2023 to shareholders on
the register as at 17 February 2023.
> On 25 April 2023, the Company announced the declaration
of a dividend of 1.0 pence per Ordinary Share in respect of
the period from 1 January 2023 to 31 March 2023, which
was paid on 26 May 2023 to shareholders on the register as
at 5 May 2023.
> On 2 August 2023, the Company announced the
declaration of a dividend of 1.0 pence per Ordinary Share
in respect of the period from 1 April 2023 to 30 June 2023,
which was paid on 1 September 2023 to shareholders on
the register as at 11 August 2023.
INVESTMENT ADVISER’S REPORT (Cont.)
Balance Sheet
The principal items on the balance sheet are investment
property of £1.0 billion (2022: £961.9 million), cash and cash
equivalents of £13.2 million (2022: £48.7 million), long-term
loans of £248.4 million (2022: £246.7 million), short term loans
of £126.7 million (2022: £100.0 million) and trade and other
payables, accruals and deferred income of £20.1 million (2022:
£32.0 million).
Investment property includes completed assets and assets
under construction at fair value.
Debt Financing
At 30 June 2023, the PRS REIT had the following debt facilities:
> £150 million revolving credit facility (“RCF”) with Lloyds
Banking Group plc / The Royal Bank of Scotland plc
(“RBS”) for an initial term of three years, extended to mid-
July 2023. Interest was based on three-month Sterling
Overnight Interbank Average Rate (“SONIA”) plus applicable
margin and the loan was secured over assets allocated to
Lloyds Banking Group. As at 30 June 2023, £115 million
had been drawn (2022: £85.4 million);
> £100 million term loan of 15 years with Scottish Widows,
fully drawn as at 30 June 2023 (2022: fully drawn) and
maturing in June 2033. Interest is fixed at 3.1% and the loan
is secured over assets allocated to Scottish Widows;
> £150 million term loan of 25 years with Scottish Widows,
fully drawn as at 30 June 2023 (2022: fully drawn) and
maturing in June 2044. Interest is fixed at 2.8% and the loan
is secured over assets allocated to Scottish Widows; and
> £40 million (2022: £40 million) development debt facility with
Barclays Bank PLC, maturing in August 2025. Interest is
based on three-month SONIA plus applicable margin and
the loan is secured over assets allocated to Barclays Bank
PLC. As at 30 June 2023, £12.1 million had been drawn
(2022: £15.2 million drawn).
37
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE
INVESTMENT ADVISER’S REPORT (Cont.)
Post period debt refinancing
At the beginning of July 2023, the Company completed the
refinancing of the £150 million RCF provided by RBS and Lloyds
Banking Group plc. The RCF had been originally due to mature
in February 2023 and was extended on substantially the same
terms to mid-July 2023 (with an option to extend until October
2023).
A £102 million facility of fixed-rate debt for 15 years was agreed
with Legal and General Investment Management, together with
a £75 million floating-rate debt facility for two years with RBS.
The floating-rate facility provides the Company with the flexibility
to refinance this element of debt at a potentially more favourable
rate during the two-year term of the loan. An interest rate cap
was also put in place on the floating rate debt to hedge against
downside risk on further interest rate movements.
The Company immediately deployed almost two-thirds (£115
million) of the revised facilities (specifically the entire £102 million
fixed-rate facility and £13 million of the floating-rate facility) to
fund already completed and stabilised sites. The balance of £62
million of floating-rate debt is expected to be drawn down to
fund sites completing and stabilising before the end of calendar
year 2024.
Key performance indicators
In September 2023, the Barclays Bank PLC development debt
facility was reduced from £40 million to £33 million.
Gearing on the portfolio remains low at 37% EPRA LTV.
Approximately 82% of the £427 million of investment debt
is now fixed rate at an average of 3.8%, which compares
favourably against the average net investment yield for valuation
purposes of 4.47%.
The PRS REIT’s aggregate borrowings will always be subject
to an absolute maximum, calculated at the time of drawdown
of the relevant borrowings, of not more than 45% of the value
of the assets. Although the aggregate debt facilities total £460
million, the £33 million Barclays Bank PLC debt facility can
be drawn as development debt to enable a larger number
of sites to be developed simultaneously. Following practical
completion and stabilisation of lettings on sites partially funded
by development debt, the assets are refinanced using the
Company’s longer-term investment debt facilities. On this basis,
the total borrowings will not exceed the maximum gearing level
of 45% highlighted above.
The Company’s performance is tracked and the major key performance indicators (“KPIs”) are shown below:
KPI
June 2023
June 2022
Change
Rental income (gross)
£49.7m
£42.0m
+18%
Average rent per month per tenant
Number of properties available to rent
Average net investment yield
£903
5,080
4.5%
£834
4,786
4.1%
Non-recoverable property costs as a percentage of gross rent (gross to
net)
19.1%
18.2%
Fair value uplift on investment property
£25.4m
£99.7m
Operating profit
Earnings per share (‘EPS’)
EPRA EPS
Dividends declared per share in relation to the period
Dividends paid during the period
£58.9m
£127.0m
7.7p
3.1p
4.0p
4.0p
21.4p
3.0p
4.0p
4.0p
+8%
+6%
+8%
+5%
-75%
-54%
-64%
+3%
–
–
38
The PRS REIT plc Annual Report & Financial Statements 2023 INVESTMENT ADVISER’S REPORT (Cont.)
All the KPIs are in line with management expectations. Rental
income increases, non-recoverable property costs, operating
profit, and the number of properties available to rent reflect
the increased size of the portfolio and the progression of
development sites.
The valuation of the Group’s property assets is based on five key
drivers being, land purchase, cost to build, ERV, gross to net
income deductions, and yield. Rental income, being passing rent
receivable rather than ERV, and gross to net income deductions
or operating costs, are the key factors in determining net income.
Small variations in these can have a material impact on the
valuation of property or the net income levels. These drivers
therefore form the basis of the key performance indicators
measured and monitored by the Company.
As the majority of the property assets are now complete and let,
costs have already been incurred and the focus has moved to
rental income, operating expenses and average net investment
yield. Levels of rental income are dependent on the number of
completions and annual rent levels set at the time of renewals
and re-lets. Average rent of £903 per calendar month at June
2023 reflects growth of 8% over the average of £834 at June
2022 and is consistent with the like-for-like growth of 7.5%
during the financial year.
The number of completed homes is the other key determinant
of gross rental income. At the end of June 2023 the number of
completed homes stood at 5,080, up by 294 from 4,786 at the
same point in 2022. The delivery of the initial portfolio is nearing
an end, with the majority of assets completed and let.
Operating expenses determine the quantum of gross rental
income that is converted into net rental income. This, in turn,
determines the underlying profitability of the Group. In addition,
the independent valuers utilise industry standard assumptions
around long-term sustainable operating expenses in performing
their valuation work. Monitoring actual operating expense levels
against the industry standard assumptions is therefore key
in assessing overall asset performance and re-affirming the
assumptions utilised by the independent valuers. The prevailing
level of operating expenditure of 19.1% (2022: 18.2%) is lower
than the long-term sustainable assumption reflecting the age of
the assets in the portfolio.
Valuation of the Group’s property assets represents the
largest component of the balance sheet. Movements in the
valuation between balance sheet dates are therefore essential
in understanding profitability through the income statement
and asset strength on the statement of financial position. The
valuation uplift during the year reflects a combination of the
development surplus recognised on assets under construction
together with the impact of the revaluation of the portfolio at
the year end. The valuation uplift of £25.4 million (2022: £99.7
million) reflects the combined impact of ERV and average net
investment yield movements. Over the financial year, ERV has
grown from £47.8m to £55.0 million for completed homes,
an increase of 15%, of which unit numbers account for only
6%, while the average net investment yield has softened from
4.13% to 4.47%. As asset values move inversely to yield, the
ERV growth has more than offset the increase in net investment
yield.
The portfolio’s average rental affordability ratio (measured as
rent paid as a proportion of gross household income) is very
healthy at 22% in 2023 (2022: 25%). This is after like-for-like
rental growth of 7.5% over the financial year on stabilised sites
(2022: 5.1%). Like-for-like blended rental growth on stabilised
sites is the annual rental growth on sites where all units have
been completed and either all or nearly all have been let.
Post Period Review
Over the first quarter of the new financial year, 49 new homes
were added to the portfolio, taking the number of completed
homes at 30 September 2023 to 5,129, and the cumulative
ERV of completed homes to £57.6 million per annum. At the
end of September 2023, there were an additional 395 homes
with a combined ERV of £3.1 million per annum, under way.
The portfolio’s total ERV of completed and not-yet-completed
homes therefore amounted to £60.7 million at 30 September
2023.
The Company continues to work with one of its principal house
building partners to resolve a planning issue in respect of one of
its sites. Further details can be found in Note 18.
The table below provides further information of delivery activity
over the first quarter of the new financial year.
Number of completed PRS homes
At
30 September
2023
5,129
At
30 June
2023
5,080
ERV per annum of completed homes
£57.6m
£55.0m
Number of contracted homes
ERV per annum of contracted homes
The refinancing of the variable rate interest investment debt facility is detailed on page 38.
395
£3.1m
444
£3.8m
39
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE INVESTMENT ADVISER’S REPORT (Cont.)
Resident feedback
All tenants receive a tenant satisfaction survey email one week into their tenancy and then approximately six months later. This helps
the Investment Adviser to monitor tenants’ experience with the lettings and moving-in teams and then again once settled into their
tenancies. Tenants are also surveyed when renewing their tenancies.
The following table provides data based on tenant satisfaction results for the 12-month period from July 2021 to the end of June
2022, in comparison to results for the 12-month period from July 2022 to the end of June 2023.
Question
July 2021 – June
2022
July 2022 – June
2023
Move in
survey
6-month
survey
% of tenants who said the team made it easy to apply
93%
% who said they were kept well-informed during the application process 88%
% who said they received all the information they required
% who said they would recommend ‘Simple Life’
% of tenants who said they were still happy with their home
% who said they were happy with the service provided
% who said they felt they had been kept well-informed
% who said they felt their Asset Manager was responsive and were
satisfied with the service provided
% who said the communal areas were well maintained
% who said they feel part of a community
% who said they felt their maintenance requests were fixed in a timely
manner
% who said they would recommend ‘Simple Life’
84%
95%
95%
89%
83%
76%
86%
85%
76%
94%
% of tenants who were happy with their ‘Simple Life’ experience so far
96%
% of people who renewed their tenancies because they love the
property
% who renewed because they love the area
% who renewed because of the rent (value for money)
Renewal
survey
% who renewed because ‘Simple Life’ offers a better service than a
‘one-off’ landlord
49%
40%
9%
2%
% of people who see themselves staying with ‘Simple Life’ for 4 years or
more
62%
% who see themselves staying for 3 years or more
% who said they would recommend ‘Simple Life’
78%
91%
96%
89%
91%
96%
98%
89%
88%
89%
84%
85%
77%
95%
96%
58%
20%
5%
17%
58%
76%
94%
All results are based on responses on a range from ‘neutral’ to ‘strongly agree’. Tenants are given the option to respond on a range
from ‘disagree’ to ‘strongly disagree’, these responses are not included in the results reported above.
40
The PRS REIT plc Annual Report & Financial Statements 2023 INVESTMENT ADVISER’S REPORT (Cont.)
Overall the results from the latest survey are in line with those
of the prior year, with the majority showing an improvement in
customer satisfaction.
Tenant Initiatives
Affordability and Energy Calculator
The biggest increase from the previous year was the feedback
on Asset Management, with 89% saying their asset manager
was responsive and that they were satisfied with the service
provided (2022: 76%). This question was introduced last year to
enhance insight and provide another measure of asset manager
performance across sites.
It is encouraging to see that across the three surveys the
proportion of residents who would recommend Simple Life to
friends and family has increased by 5% year-on-year.
The strength of the Simple Life brand continues to grow. Over
the past 12 months the Simple Life website received c.1.6
million page views and over 16,000 enquiry submissions. The
number of leads obtained through the website continued to
exceed enquiries coming from third-party websites, such as
Rightmove. Site signage, recommendation and online search
continue to be the largest sources of enquiries of those coming
through the Simple Life website.
As reported previously, an affordability calculator, based on the
Investment Adviser’s referencing criteria, is built into the Simple
Life website. It is designed as an aid to assist prospective
residents to determine how much monthly rent they can afford
relative to their earnings and outgoings.
Following the energy efficiency modelling that Sigma undertook
last year, the Simple Life website now offers an energy efficiency
calculator against our most common property types. Users are
able to input their usage habits and property details to obtain an
energy bill estimate.
Rental Availability
The Simple Life website lists the availability of rental homes in
real-time. As well as giving potential renters a better service,
it also facilitates a more efficient uptake of homes. In 2023,
an ‘all-available properties’ page was introduced, enabling
users to view all available properties according to their search
criteria. This also helps to give prospective residents an idea of
comparable rental prices where a specific development has no
live availability.
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‘My Simple Life’ Mobile App
The bespoke resident mobile app, ‘My Simple Life’, which was
launched in August 2021, provides a convenient and efficient
‘one-stop shop’ for residents’ needs and is available on Google
and Apple devices. It provides:
> easy access to all important documents, including tenancy
agreements, inventories, EPC, gas and EICR certificates;
> information on homes, including floorplans and
measurements;
> information on home appliances, including manuals;
> access to statements of account, with certain payments
enabled via the app;
> access to an open forum, enabling residents on the same
development to engage with each other;
> the ability to report maintenance problems;
> exclusive affiliate offers and discounts;
> latest news;
> information on the local area; and
> the ability to leave feedback.
New services were added to the app over the financial year.
These included the following:
> content presentation by property type (apartment or house);
> a notification log;
> a new meter-reading section, which enables residents to
access meter readings and request new meter readings,
including ‘push’ notifications when a new reading is ready to
view; and
> a dedicated health and wellbeing (“H&W”) section.
App enhancements that are scheduled over the coming year
include functionality that will enable tenants to:
> add images to forum topics and comments – particularly
relevant for ‘lost and found’ inquiries and furniture swaps;
and
> upload health and wellbeing content to the H&W hub.
INVESTMENT ADVISER’S REPORT (Cont.)
the simple life chat
42
The PRS REIT plc Annual Report & Financial Statements 2023 INVESTMENT ADVISER’S REPORT (Cont.)
Affiliate Offers
> the average length of time participants had been renting was
The Investment Adviser has increased the range of affiliate
offers that are available to tenants. These are promoted through
the My Simple Life mobile app. New offers agreed this year
include discounts from Sparkling Cleaning, Sculpt Pilates, Grow
Gorgeous, ESPA, Dot. (Professional Organisers), Wash Doctors,
Virgin Wines, Simply Cook, Leaf Envy and Smol. These offers
supplement existing affiliate offers from Oddbox, Sky, Argos,
Dunelm, Wayfair, AO, Pretty Little Thing, Appleyard London
Florists, and The Modern Milkman.
Podcast
The Investment Adviser’s ‘Simple Life Chat’ podcast gained a
new host this year, which was Capital Radio presenter, Russ
Morris. He continues to address the experience of renting
and explores topics of interest to residents, with experts and
residents participating in discussions.
New Market Research Survey
The Investment Adviser monitors the rental market on behalf of
the PRS REIT in order to enhance decision-making and identify
opportunities. During the year, it commissioned a major piece
of market research, which surveyed a broad cross-section
of some 2,000 UK renters, including some of the Company’s
tenants, and was supplemented by two focus groups. Some
interesting findings that emerged included the following:
> the average age of a UK renter is 44 years;
> the main reason for renting – reported by 71% of survey
participants – is lack of ability to buy;
just under 7 years;
> property location was a key factor for 89% of survey
participants;
> the average rent paid was £700 per calendar month;
> home office space was cited as a requirement by 44%
of participants, reflecting post-pandemic hybrid working
patterns; and
> environmentally-friendly features were sought by 61% of
participants.
The market research report can be viewed online at
www.theprsreit.com/company/the-private-rented-sector-
marketplace/.
Online reviews
Simple Life is registered with Trustpilot and tenants are routinely
invited to leave reviews. This helps the Investment Adviser to
identify any areas that need improvement. There are over 750
reviews on Trustpilot and Simple Life achieved an overall rating
of 4.2 stars out of 5.0. This is significantly above the average of
3.6 for the business category of Property Rental Agency.
Simple Life developments also feature on ‘Home Views’, a
dedicated review website for housing developments. They have
gained an average score of 4.28 out of 5.00 from approximately
750 resident reviews (with the BTR benchmark at 4.19). Nine
Simple Life developments were rated above the industry
benchmark for facilities, design, value and management.
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The PRS REIT plc Annual Report & Financial Statements 2023
43
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INVESTMENT ADVISER’S REPORT (Cont.)
Customer testimonials
A selection of customer testimonials are below.
44
“Just perfect. The layout of the greenery and roads
are fantastic. We even recommended it so much
we have friends moving in the area soon! The fact
all the front gardens are looked after really helps
us during our busy lives. Always kept well and the
staff are so friendly.”
Aimee (Newhall resident) on Home Views
“I love the design of the houses. Having a
kitchen that you can entertain in is a must for
me. The downstairs toilet means no visitors
are having to invade on your private space
upstairs. The property is warm and I’ve hardly
had to use the heating system although it’s
good to have a monitor in the bedroom for cold
mornings. Any issues I have had I have been
able to easily report them through the app and a
contractor has been sent to fix the issue almost
immediately.”
Jade (Stanley Park resident) on
Home Views
“The apartments themselves are very
well decorated and I have had a great time living
here. The apartments are spacious, and I have had
very few problems with the property, and when I
have, these have always been resolved quickly by
management. The furniture provided is very high
quality and adds greatly to the apartment. They
have been a very good landlord responding quickly
to repairs and have enjoyed some of the organised
activities such as free pizza for the opening of the
communal garden.”
Emily W (Empyrean resident) on Home Views
The PRS REIT plc Annual Report & Financial Statements 2023 “The design of the house is superb, particularly
the en-suite room. I really like that appliances
are included with the property and the garden is
fantastic! The property manager is easy to contact
and they are quick to resolve an issue. Overall the
property is outstanding.”
Adam (Durban Mill resident) on Home Views
“The development is lovely; everyone seems
very friendly and are respectful to the space. The
location is ideal as you are close to town but aren’t
in the centre of everything, which is ideal for me
as I have a young baby. The house is gorgeous and
Simple Life are very supportive when there are any
maintenance issues.”
Emily C (Beehive Mill resident) on
Home Views
“We are very happy with our house.
It is perfect for our family and very clean and
new. We have had great communication with the
management team and if we have had a problem
or something damaged they work hard to get it
fixed asap. Even the rent is very affordable. We are
very happy with the location it is a 20min walk to
most areas and lots of parks for our kids.”
Chris Webb (Silkin Green resident) on
Home Views
INVESTMENT ADVISER’S REPORT (Cont.)
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INVESTMENT ADVISER’S REPORT (Cont.)
“I recently approached Simple Life with a
view to renting a home. I spoke to a representative,
Jade. She guided us through the process, made
herself available at any time - nothing was too
much trouble. Such customer service is now rare I
feel she must be such an asset to Simple Life.”
Janet Wilkinson (Simple Life resident) on
Trust Pilot
“Simple Life do exactly what they say;
they make renting simple. The home I rent is of
outstanding specifications, maintenance is quick
and easy and their app is really useful for tracking
your rent account and logging repairs. Overall,
Simple Life are an outstanding company who make
renting simple!”
Adam (Simple Life resident) on Trust Pilot
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The PRS REIT plc Annual Report & Financial Statements 2023 INVESTMENT ADVISER’S REPORT (Cont.)
“From moving into our new forever
home, has been absolutely wonderful, Simple Life
have made it stress free from the very start. I have
a lot of health issues which they are aware of,
especially Junior. He’s been absolutely amazing
and very helpful throughout. He is very considerate
and compassionate when dealing with any issues
I’ve had. Junior goes above and beyond to help
guide me through everything in relation to Simple
Life, I think personally every office needs a Junior,
thank you so so much.”
Dawn (Simple Life resident) on Trust Pilot
“The quality of the rental property
provided by “Simple Life” Is truly impressive. The
property is impeccably clean, well-maintained, and
equipped with all the necessary amenities. It is
evident that the company takes great pride in their
properties, as everything is in excellent condition.
I feel comfortable and at home from the moment I
stepped through the door.”
Ion Postolachi (Simple Life resident) on
Trust Pilot
Summary and Outlook
The PRS REIT’s assets continue to perform very strongly as figures for the first quarter of the new financial year show. Demand
remains high, occupancy very strong, rent collection extremely robust and affordability well within the guidance provided by
Homes England. We expect this to continue, with the structural undersupply of rental homes and other fundamental market drivers
supporting the sector. In the near term, higher mortgage rates and general economic uncertainty will also act as stimulants to the
rental market.
We are in the final phase of housing delivery for the PRS REIT’s initial portfolio. At completion, it is expected to comprise around
5,500 homes with an ERV of £60.7 million per annum, consolidating the PRS REIT’s position as the leader in single-family rental
homes in the UK. We continue to focus our efforts on steering through remaining delivery, providing our residents with a high
standard of customer care, and ensuring all our developments are attractive, sustainable, and neighbourly places in which to live.
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and Governance
ESG statement
The Company’s Investment Adviser, Sigma PRS, undertakes the
day-to-day management of the Company’s ESG strategy and
takes responsibility for managing the Company’s ESG priorities
at both a Company level and at asset level. Sigma PRS reports
on ESG matters to the PRS REIT’s Board on a quarterly basis.
Approach
The Company recognises that it is a long-term stakeholder in
the communities and neighbourhoods it creates and takes this
responsibility very seriously. Its Investment Adviser engages
with leading industry ESG bodies for support in achieving the
Company’s ESG goals.
> The Investment Adviser is a signatory of the United Nations
Global Compact (“UN Global Compact”). This is a special
initiative of the United Nations Secretary-General, which
is designed to encourage business leaders to implement
universal sustainability principles and, in particular, the UN
Global Compact’s Ten Principles and so help to deliver
the UN’s Sustainable Development Goals (“SDG”). The
Ten Principles are derived from the Universal Declaration
of Human Rights, the International Labour Organisation’s
Declaration on Fundamental Principles and Rights at Work,
the Rio Declaration on Environment and Development, and
the United Nations Convention Against Corruption. The UN
Global Compact is the world’s large corporate sustainability
initiative.
> The Investment Adviser has also committed to SDG
Ambition guides, which support the UN’s goals. It is
particularly focusing on the UN’s target of Land Degradation
Neutrality (“LDN”) and its LDN principles. Objectives include
zero deforestation and enhanced biodiversity through tree
and wildflower planting programmes.
> The Investment Adviser is also cognisant of legislative
developments in relation to the Government’s Biodiversity
net gain (“BNG”) strategy, which aims to safeguard
habitat for wildlife, and its encouragement of the energy
performance efficiency of rental homes.
> The PRS REIT is a member of European Public Real Estate
Association (“EPRA”), a not-for-profit association that
represents the publicly-traded European real estate sector.
EPRA’s mission is to promote, develop and represent the
European public real estate sector by, amongst other things,
providing better information to investors and stakeholders,
actively engaging in public and political debate, and
promoting best practices.
> The Investment Adviser regularly monitors the changing
legislative and reporting landscape, including the EU
Sustainable Finance Disclosure Regulation (“SFDR”), the UN
Principles of Responsible Investment (“PRI”), the Task Force
on Climate-Related Financial Disclosures (“TCFD”), the
Taskforce on Nature-related Financial Disclosures (“TNFD”),
the EU’s Corporate Sustainability Reporting Directive
(“CSRD”), as well as national and city-level regulations,
which are increasing.
The Investment Adviser has incorporated ESG factors into its
decision-making processes and operations. Its practices are
based on the following policy approaches in key areas:
Opportunity review
> ESG risks are assessed, reviewed and monitored, and
strategies for enhancement and/or mitigation are set. These
strategies are based on recognised frameworks such as
climate change and social needs.
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The PRS REIT plc Annual Report & Financial Statements 2023 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Investment decisions
> ESG issues are listed and addressed in a summary
investment paper, which informs decision-making at the
Investment Committee approval stage.
> ESG costs, including for ongoing community involvement,
are also determined and factored into investment decision-
making processes.
In the real estate sector, there is a continuing need for action in
areas including energy and water consumption, non-fossil fuel
heating provision and biodiversity. In developing the Company’s
ESG agenda, the Investment Adviser has embedded best
practices, and works closely with supply chain and construction
partners to ensure that their policies and activities comply with
the PRS REIT’s commitment to legislative requirements and
best practice.
Asset management
> Appropriate governance structures are established.
> Relevant laws and regulations are adhered to.
> ESG issues are monitored and managed.
> Impacts on the natural habitat surrounding PRS assets are
managed.
> Local community engagement and support plans are
established, reviewed and developed.
> Due diligence is performed on third parties e.g. service
providers.
> Policy reviews and updates are ongoing.
> Good practice is established.
> Continued research and review of carbon reduction
opportunities are ongoing.
> Investment restrictions are screened to ensure ongoing
compliance.
> The ability of investments to comply with ESG standards is
assessed.
Processes and strategies
As an industry leader in the provision of private rental homes,
the PRS REIT recognises its responsibilities regarding the
environment and also public priorities. The Government’s ‘10
Point Plan for a Green Industrial Revolution’, and “Net Zero
Strategy: Build Back Greener” set out pathways to accelerate
the UK’s attainment of net zero carbon emissions and
encompasses energy, production, transport, innovation and the
natural environment, with 2050 set as the endpoint of its net
zero goal.
Environmental Impact and Data
The Company is aware of the impact that its activities have on
the environment, and is committed to taking action to minimise
and mitigate any negative aspects as much as possible.
A particular focus for the Company is ensuring that the homes
in its portfolio are highly energy efficient. All homes added during
the financial year ended 30 June 2023 had an EPC rating of at
least a B, and across the Company’s portfolio 87% of homes
are rated A or B. The balance has an EPC rating of C. The
portfolio was therefore in compliance with the Government’s
proposed new Minimum Energy Efficiency Standard, requiring
all rental homes to have a minimum rating of C by 2028. The
Government dropped this measure in September 2023, in
policy change to take a more pragmatic, proportionate and
realistic approach to reaching net zero.
The total EPC data for the Company’s homes is as follows:
EPC Rating
No. of Homes
A
B
C
Total
47
4,352
681
5,080
%
1%
86%
13%
100%
The Company provides residents with access to clean and
renewable energy through the installation of electric vehicle
(“EV”) charging facilities and solar photovoltaic panels, where
possible. To date, 188 homes have access to EV chargers,
255 homes have been installed with wiring looms, which are
specially designed wiring systems that provide for greater
efficiency, protection and safety, and 18 EV chargers have been
installed at apartment blocks. Photovoltaic panels have been
installed at 966 homes.
Homes with photovoltaic
panels
% of portfolio with
photovoltaic panels
Estimated generated
kWh/yr
Estimated avoided CO2
emissions kg/yr
966
21%
592,584
148,864
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Sigma PRS is working closely with the Company’s construction
partners to understand and monitor the greenhouse gas
emissions and waste produced in the construction of homes.
Gathering relevant and meaningful data to help direct future
design and asset maintenance is important, and the Investment
Adviser is in discussion with building partners, Vistry and
Countryside Partnerships to develop a strategy and process for
data gathering in this area. Data collation is not an easy task as
there is no legal obligation on third parties such as suppliers and
customers to provide information. In the absence of relationship
and economic leverage, this process is therefore reliant on a
voluntary co-operation. Collaboration has involved participation
in a sustainability materiality assessment, which will be used to
discuss and agree targets.
Scope 1 and 2 emissions are those owned or controlled by a
company. Scope 3 emissions are a result of the activities of
the company but occur from sources not owned or controlled
by a company. Examples of Scope 1 include direct emissions
from fuel combustion on site such as boilers and fleet vehicles.
Scope 2 emissions relate to indirect emissions generated from
purchased energy such as electricity, and Scope 3 emissions
relate to emissions created by the products we buy from
suppliers and that our customers use.
Further details on the PRS REIT’s environmental, social and
governance activities can be found in its annual ESG Report,
which is available on the Company’s website at
www.theprsreit.com.
Social Engagement
The Company places great importance on engaging with the
communities in which its developments are sited. Over the last
twelve months, the Company has supported over 20 charities
and clubs across the country, either financially or practically,
through work undertaken by the Investment Adviser. Residents
are often involved in selecting these charities and organisations
and the Investment Adviser aims to ensure that residents will
readily identify with chosen causes.
A wide range of organisations and social initiatives were
supported over the year, ranging from local clubs promoting
girls’ football and women’s cricket and rugby, to smaller and
national charities.
Examples of initiatives that were supported include the
British Heart Foundation’s RevivR project, which teaches vital
cardiopulmonary resuscitation, and the NSPCC’s parenting
skills project, ‘Look, Say, Sing, Play’ as well as its Adolescence
programme in Liverpool, and its “The Net” project to raise
awareness of online safety for children in Doncaster and
Leeds. A new partnership was started with Alzheimer’s
Research UK. It has provided residents with the opportunity for
significant engagement, including visiting the charity’s research
laboratories.
The Investment Adviser seeks to establish productive
relationships with charity partners. During the year, visits were
organised with a number of charity partners, including Embassy
Village, Atherton and Leigh Foodbank, Knowsley Foodbank,
Salford Loaves and Fishes, Barnardo’s Gap Homes Project,
Speed of Sight, and Carluke Men’s Shed. They provided the
opportunity for the Investment Adviser to discuss how best to
provide ongoing support.
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The PRS REIT plc Annual Report & Financial Statements 2023 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Large-scale initiatives during the year included the Simple Life
Schools and Communities Biodiversity Project, which was
launched in partnership with Green the UK, and the DanceSing
Wellbeing initiative. The Simple Life Schools and Communities
Biodiversity Project is a countrywide project, which involves
communities and schools engaging in activities such as planting
trees, vegetables, and wildflowers.
The DanceSing Wellbeing initiative has resident wellbeing at
its heart and offers residents online access to a wide range of
activities that support physical and mental health.
We are pleased to provide below some of the feedback from
the charities and organisations with which we have been
involved.
“Knowsley foodbank started nearly 12
years ago. Now the Big Help Project Food
division has a team of eight people working from
our warehouse in Kirkby. We have three drivers,
two warehouse operatives, and three office-
based colleagues alongside a team of dedicated
volunteers. The warehouse handles all of the food
for our seven foodbanks and 17 food clubs. The
foodbank via food clubs has been successful in
expanding throughout Knowsley and the Liverpool
City Region and the Wirral.
“Last year we distributed over 275.5 tonnes of
food to across our foodbanks and food clubs in
total, which helped to feed 140,000 people; of this
261 tonnes was surplus food.(saved from going to
landfill).
“Donations for the foodbank are essential to
ensure that we maintain our support to those
people who are living in crisis and poverty. We
are grateful to those people and companies that
support us in our work as without them we could
not achieve what we do within the community.”
Michele Duckworth
Knowsley Foodbank
“Thank you so much for the donation
to Alzheimer’s Research UK. We’re so
grateful that Simple Life Homes/the PRS REIT
plc has supported our work to help bring about
life-changing treatments for dementia. Your
support makes a difference We’re making huge
advances in our understanding of dementia, and
the breakthroughs keep coming. Support like
yours has helped our scientists discover over 20
genes linked to Alzheimer’s disease, uncovering
new avenues of investigation in the search
for new treatments. Thank you once again for
your generous donation and we look forward to
supporting your efforts in raising awareness of
dementia with your local communities.
Simon McDermot,
Regional Fundraising Officer for Alzheimer’s
Research UK
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“I’m ecstatic to show you our new
hoodies which arrived yesterday. And one of our
new kit bags so far. I have to say again, a massive
thank you to you and your company for making this
happen. Feel like we are moving on up in the world”
“We really value your support, which
will help fund our vital service to equip women in
need with the clothes, coaching and confidence
to secure employment, gain financial stability and
change the trajectory of their lives.”
Resident Michelle Bryan,
Member of Runcorn Women’s Cricket Club
Rachel Shields,
Fundraising and Partnerships Manager,
at Smart Works Scotland
“Wow! Thank you so much! This is
fantastic news and really very much appreciated -
and needed!”
Jane
The Bereavement Café in Bolton
“We’re delighted that you have raised
funds for ground-breaking dementia research.
That is such a kind and generous thing to do.”
“WOW! That is amazing news, I know the team will
be so grateful.”
Octavia and Jade Snedeker,
Corporate Partnerships Officer
from Alzheimer’s Research UK
“Honestly, I cannot thank you enough.
This will benefit the girls so much; you’ve given us
a truly amazing opportunity.”
Becki Stewart,
Normanton U12 Girls Rugby team
“Again, I cannot thank you enough for
your support! For both Sandymoor and Runcorn
Women’s cricket team. Honestly, it is massively
appreciated what Simple Life have done for both
teams!”
David Nation,
Manager of U18 Sandymoor FC
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The PRS REIT plc Annual Report & Financial Statements 2023 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (Cont.)
Resident Focused Initiatives
Human Rights
The Investment Adviser's Report covers many of our resident-
focused initiatives. They are designed to create specific
opportunities for residents to engagement with each other and
to bring educational, social and other benefits. Two further
initiatives are highlighted below.
Outward Bound Trust
Sigma PRS partnership with The Outward Bound Trust,
‘Building for My Future’, continues to go from strength to
strength, with Simple Life residents offered the opportunity
to participate, fully funded by Sigma Capital Group. Young
people from schools and youth groups close to Simple Life
homes joined residents for a week of challenges and adventure.
Several young people went on to develop their skills at summer
courses, further enhancing the experience. A selection of
feedback from participants is below.
Lucja – “This was my second time going for a five-day course
with Simple Life Homes, at Outward Bound in Ullswater. Both
times have allowed me to stretch my abilities, especially this
time around as I took more of a leadership position becoming
more connecting with the people in my group. It helped me
build confidence, personal strengths and resilience. I am
thankful for this opportunity and hope to move into doing the
seven-day course to expand my strengths even further.”
Nanette – “I’m not a very active or social person but I wanted
to try something new and meet new people. I wasn’t sure
how it would be but I took the chance and I don’t regret it. I
even became good friends with my wonderful teammates and
I actually enjoyed the activities even though they were out of
my comfort zone. I can say it’s better to try than just to rule
something out because if I hadn’t tried this course I would have
missed out on a lot.”
Ben – “The time I spent with my team was some of the most
fun I’ve had in years. It really helped me get past some old
stress and get to know some amazing people, who I’m still in
contact with. I’d definitely recommend the week for anyone
looking to expand your horizons and hope you have as much
fun with it as I did. Pushing boundaries with their amazing staff
has got me in a healthy state of mind for my coming exams and
I’m sure it can help others too.”
Book Boxes and Guardians
In August 2022, Sigma PRS launched a Book Box programme
across several developments to encourage residents to
share books. To date 17 book boxes have been installed
providing a means of sharing and accessing free books to
over 1,417 homes and enhancing opportunities for community
engagement. The book boxes were sustainably made from
100% repurposed materials in partnership with a specialist
recycling company, Ground Neutral.
The obligations under the Modern Slavery Act 2015 (the “Act”)
are not applicable to the Company given its size. However, to
the best of its knowledge, the Group is satisfied that its principal
suppliers and advisors comply with the provisions of the Act.
The Company operates a zero-tolerance approach to bribery,
corruption and fraud.
Health and Safety
In order to maintain high standards of health and safety for
those working on sites, monthly checks by independent project
monitoring surveyors are commissioned to ensure that all
potential risks have been identified and mitigated. These checks
supplement those undertaken by construction and development
partners. The data is reported to the Board on a quarterly basis
in the event of a nil return, and immediately in the event of
an incident. There were no reportable incidents over the year
(2022: none).
Governance
Strong governance is essential to ensuring that risks are
identified and managed, and that accountability, responsibility,
fairness and transparency are maintained at all times.
The Company is subject to statutory reporting requirements and
to rules and responsibilities prescribed by the London Stock
Exchange and the Financial Conduct Authority. The Board has
a balanced range of complementary skills and experience, with
independent Non-executive Directors who provide oversight,
and challenge decisions and policies as they see fit. The Board
believe in robust and effective corporate governance structures
and are committed to maintaining high standards and applying
the principles of best practice.
Employee Diversity – Gender and Ethnicity
Directors of The
PRS REIT plc
Male
Female
White British
Asian / Asian British
2023
80%
20%
80%
20%
2022
80%
20%
80%
20%
53
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Principal Risks and Uncertainties
The Board is responsible for determining the nature and extent
of the principal risks that the Group is willing to take in achieving
its objectives and has carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten the business model, future performance, solvency
or liquidity. The Board recognises that its ability to manage
risk effectively throughout the organisation is central to the
Company’s success.
The Board continually consider emerging risks and during the
year under review, the weakening macroeconomic environment
in the UK, including higher interest rates, inflationary pressures,
and the risk of recession, together with the war in Ukraine, were
identified.
Risk management and risk appetite
The Group’s assets are made up of UK Build to Rent (“BTR”)
property. Its principal risks are therefore related to the UK BTR
market in general and also to the particular circumstances of
the individual properties and the tenants within the properties.
Taking this into account, the Group’s risk appetite policies and
procedures, alongside the appropriate controls and financial
reporting are regularly reviewed and updated to ensure they
remain in line with regulation and corporate governance.
The Company applies the ‘Three Lines of Defence’ model for
effective risk management and control:
> The first line of defence is performed by the management
team of the Investment Adviser who are responsible and
accountable for identifying and managing risk as part of their
objectives. As part of this the Investment Adviser produces
a risk register that it provides to the Audit Committee for
review and consideration at least twice per year.
54
> The second line of defence is the policies, frameworks and
challenge provided to ensure that the Investment Adviser
is effectively managing risk. This is performed by the Board
and reported on by the Audit Committee.
> The third line of defence is independent assurance provided
by the external auditor.
The below list sets out the current identifiable principal risks and
uncertainties which the Board are monitoring.
Valuation risk – investment property
The valuation of the Group’s property assets is primarily based
on five key drivers being, land purchase, cost to build, rental
income, 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
the detailed site selection and appraisal process, fixed price
building contracts at competitive rates to control costs, quality
product from house builders, project monitoring and review by
the Investment Adviser, 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.
The Company appoints an external valuation agent on a
three-year basis to provide continuity and stability, whilst also
representing a natural point for review and consideration. In
addition, the use of a separate independent valuation agent by
the providers of debt, and expert review by further independent
valuation agents appointed by the Group’s auditors, RSM,
ensures that there are a number of views and opinions on
valuation being considered and taken into account at any point.
The PRS REIT plc Annual Report & Financial Statements 2023 PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
Site selection
Access to land
As discussed under Valuation Risk, the principal drivers for the
valuation of the PRS REIT’s property assets are: land purchase,
cost to build, rental income, gross to net income deductions
and yield. Selection of sites which match the investment criteria
in terms of cost to purchase and build, ERV, gross net to
income deductions and yield are therefore critical to the success
of individual developments.
Site selection risk is mitigated by performing detailed appraisal
and assessment of all aspects of a site, including location,
access to transport links, education, amenities and employment
which are necessary to formalise a view on the likely viability
and profitability as a build to rent development. This process
also involves expert third party guidance from valuers, house
builders, and lettings agents. The process is particularly
important given the prevailing background of cost inflation
outpacing rental growth. The Investment Adviser’s process on
site assessment and appraisal necessarily involves a number of
individuals with different skill sets to ensure a balance of views
and full consideration of all factors.
The portfolio approach including broad geographic spread
adopted by the Investment Adviser also helps to mitigate the
associated risks.
The Company seeks to obtain and maintain a pipeline of
potential PRS properties and PRS development sites with
partners for future development. There is no certainty that
viable, commercially justifiable sites, with planning permission,
can continue to be sourced on acceptable terms. The
availability of viable, commercially justifiable sites with planning
permission may therefore adversely affect the ability of the PRS
REIT to continue to pursue further growth which could, in turn,
have a material adverse impact on the overall level of returns for
Shareholders.
The Board and the Investment Adviser manage this risk through
a number of long-term partnerships, including different local
councils and a variety of house builders, to maintain a wide
range of opportunities that are geographically spread.
Whilst the Company has signed Forward Purchase Agreements
(“FPA”) in respect of the sites to be acquired from the Sigma
Group, it has not committed to acquiring these sites. The FPA is
conditional on:
The strategy to date in the build to rent private residential
housing sector has been underpinned by strong relationships
with a small number of councils and house builders. In order
to continue to develop and grow the PRS REIT, access to
new development sites will be required. This may require the
Investment Adviser to establish new local authority partnerships
and house builder relationships in order to broaden the PRS
REIT’s access to residential development land at a price to fit
the PRS model and to other commercial developments.
Sourcing sites may require the PRS REIT and the Investment
Adviser to broaden the relationship base presently utilised to
identify sites. Housing demand, both owned and let, continues
to exceed supply in the UK and looks likely to continue to do
so for the foreseeable future. However, the availability of sites
is likely to represent a greater risk in terms of site selection
with the risk that less viable and financially attractive sites are
developed. Detailed appraisal and assessment of all aspects of
a site - location, access, transport links, education, amenities,
employment etc. - are necessary to formalise a view on the
likely viability and profitability as a build to rent development.
This will also involve expert third party guidance from
independent valuers, house builders and lettings agents. The
process is particularly important given the background of cost
inflation outpacing rental growth.
The Investment Adviser process of site assessment and
appraisal necessarily involves a number of individuals with
different skill sets to ensure a balance of views and full
consideration of all factors. There is also an ultimate sign off
by the Land Director, Regional Managing Director, Investment
Director, Lettings Director, Chief Financial Officer and Chief
Executive of the Investment Adviser. In terms of other mitigating
factors, it should be noted that development sites typically have
c.80-100 properties on them. In the unlikely eventuality that the
dynamics on a site - particularly rental demand and / or rental
value given that land cost and design & build cost are fixed
previously - then this would likely only impact the valuation and
financial returns on that site. The portfolio approach including
the broad geographic spread adopted by the PRS REIT and
the Investments Adviser means that while there are likely to be
some sites that do not materialise as expected, there are likely
to be as many winners as losers. On this basis, the approach
adopted should mitigate the associated risks.
> Practical completion of all units;
> Confirmation of good and marketable title;
> Tenant occupation and rent stabilisation; and
> Availability of funding.
As a result, the Board considers that the Company has a high
degree of flexibility in relation to the timing of site acquisitions,
and therefore the Company’s future funding requirements.
55
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
56
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, together with the favourable terms and economies of
scale derived from these 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
asset 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 Investments 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 so doing would not adversely affect the performance
of the Company. Events impacting the Investment Adviser 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 notes that on 9 September 2021, the entire share
capital of Sigma Capital Group Limited was acquired by a
wholly-owned indirect subsidiary of investment funds managed
by PineBridge Benson Elliott LLP. This represents a change
to the ultimate ownership of the Investment Adviser, although
there is no change to the obligations and responsibilities of the
Investment Adviser pursuant to the terms and conditions of the
Investment Advisory Agreement.
The PRS REIT plc Annual Report & Financial Statements 2023 The Board mitigates these risks by holding regular Board
meetings (at least four times per financial period), which are
attended by the Investment Advisor, whilst also having regular
informal meetings with the key members of the Investment
Adviser on a more regular basis. The Board’s Management
Engagement Committee also meets at least once a year to
consider the performance of the Investment Adviser and the
other outsourced professional firms and advisers engaged by
the Company. The Board actively engages with key personnel
of the Investment Adviser and assesses its key main risks
to ensure that it is adequately staffed with suitably qualified
personnel and that succession planning is in place.
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.
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 compliance
The Group has a wider variety of compliance risks ranging from
factors including status as a Real Estate Investment Trust on
the Premium Segment of the London Stock Exchange, scale
and complexity of the Group structure, 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 advisers,
Nominated Adviser, recognised house builder partners and legal
advisers.
Emerging risks
As well as the principal risks, the Directors identify any emerging
risks which are considered as part of the formal risk review.
Emerging risks encompass those that are rapidly evolving, for
which the probability or severity are not yet fully understood.
As a result, any appropriate mitigations are also still evolving,
however, these emerging risks are not considered to pose a
material threat to the Company in the short term. This could,
however, change depending on how these risks evolve over
time. Senior members of the Investment Adviser are responsible
for day-to-day matters and have a breadth of experience
across all corporate areas; they consider emerging risks and
any appropriate mitigation measures required. These emerging
risks are then raised as part of the risk assessment where it is
considered whether these emerging risks have the potential to
have a materially adverse effect on the Group.
PRINCIPAL RISKS AND UNCERTAINTIES (Cont.)
During the year the weakening macroeconomic environment
in the UK was identified by the Board as a key emerging risk.
The risk of higher interest rates affecting the Group’s financial
performance and banking covenants was of particular focus.
The increase in interest rates charged on the variable rate
investment and development debt facilities were partially offset
by the increase in rental growth experienced in the private
rental sector and there were no covenant breaches. Prior to the
refinancing announced on 10 July 2023, this was of particular
focus as the Group had 37% of its investment debt facilities
on floating rates. Subsequent to the refinancing, the Group
now has 82% of its debt facilities as long-term, fixed rate
arrangements. The process of refinancing the Group’s variable
rate investment debt was prolonged to ensure that the best
interest rates were obtained, and an interest rate cap has been
entered into for the remaining variable interest rate investment
debt.
With regards to inflationary pressures, the Company remains
in a good position to manage and mitigate construction cost
increases, using fixed price fixed design & build contracts.
The majority of the contracted development sites have now
been completed in relation to the target of c.5,500 units. To
date this has not had a negative effect on the Company other
than delaying completion of assets under construction due to
supply chain issues, while offsetting this has been the continued
strong demand for Build to Rent assets. The market for such
assets remains strong and is reflected in rising rents which
have more than offset the slight softening of yield which is
included in the valuation of our existing properties. The risk of
recession has also been considered, particularly in relation to
possible increased tenant default and the subsequent impact
on financial returns. This risk continues to be closely monitored
and is mitigated by a geographically diverse portfolio, the use of
rental insurance contracts where considered appropriate, and
a continued focus on identifying at an early stage where there
could be potential issues.
In relation to the war in Ukraine, this has not had a direct impact
on the Group but it has undoubtedly contributed to the higher
inflation and interest rate environments.
The Board continues to monitor closely the market volatility to
ensure that all risks to the Company and Group are identified
and addressed where possible to reduce the potential negative
effects.
The Company’s Section 172 statement is included on pages
58 to 63.
57
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Stakeholder Engagement
and Section 172 Statement
Stakeholder engagement
Section 172 statement
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 provides
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 and ensures that it listens, understands and responds
appropriately to 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 the Group’s business, is crucial to fulfilling the PRS
REIT’s goal to deliver family PRS homes across the UK. While
the importance of giving due consideration to stakeholders is
not new, we are taking the opportunity to explain in more detail
how the Board has engaged with the PRS REIT’s stakeholders.
The Company continues 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.
The following serves as the Company’s section 172 statement
and should be read in conjunction with the Strategic Report on
pages 12 to 63. Section 172(1) of the Companies Act 2006,
requires Directors to act in good faith, and in a manner which
would most likely promote the success of the Company for the
benefit of its members as a whole. The Directors should have
regard to:
> the likely consequences of any decision in the long term,
> the need to foster the company’s business relationships with
suppliers, customers, and others,
> the impact of the company’s operations on the community
and the environment,
> the desirability of the company maintaining a reputation for
high standards of business conduct, and
> the need to act fairly as between members of the company.
The Company does not have any employees and therefore
S172(1)(b) is not applicable.
To ensure that the Directors are aware and understand their
duties, they are provided with all the relevant Company
information when they are appointed to the Board and receive
regular updates and training on matters where appropriate.
Directors also have access to the advice and services of the
Company Secretary as well as independent advisers, should
they wish. Directors receive technical updates from the
NOMAD, the Company Secretary, and the AIFM as and when
appropriate.
58
The PRS REIT plc Annual Report & Financial Statements 2023 STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT (Cont.)
Our stakeholders
Our customers
Who are they?
> Our tenants and their families.
Why are they
important to
us?
> Customer service is at the
heart of our business. Our
tenants provide us with rental
income, so it is essential that
we serve their needs.
Our investors and funders
> The entities, institutions and
individuals who own shares
in the Company together with
the lenders who provide debt
finance.
> Continued shareholder and
lender support is critical to the
sustainability of the Company
and delivery of the Company’s
long-term business growth
strategy.
Our local communities and
environment
> Communities who live in and
around our properties as well
as local organisations and
enterprises, including the
natural surroundings of our
properties.
> Given the Company develops
real estate, and therefore its
assets have an impact on the
surrounding communities and
natural environment, the Board
places an ever-increasing
emphasis on the importance of
ESG factors.
> The Board and the Investment
Adviser are fully committed to
managing the business and
implementing the investment
strategy responsibly.
What matters
to them?
> Affordable, high quality, well
maintained, homes at market
prices that suit their needs.
> Places which foster social
connections and enhance
wellbeing.
> Attractive returns on their
respective equity and debt
investments.
> Delivery of strategy and
financial performance.
> Execution of investment
objective.
> Effective communication of
the Company’s progress and
ongoing strategy.
> Provision of accommodation
> Our Community Fund.
in areas of strong employment
with good infrastructure,
transport links and local
education.
> Community environment which
enhances wellbeing.
> Support for local organisations,
such as schools and charitable
institutions.
> Minimising carbon emissions
during construction and after
completion when tenants
occupy properties.
> Minimising waste and
conserving water during
construction and after
completion when tenants
occupy properties.
> Promoting environmental
responsibility.
> Preserving and enhancing
biodiversity.
59
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT (Cont.)
Ways we are
engaging with
them
Our customers
Our local communities and
environment
Our investors and funders
> 834 tenant surveys completed
> Ensuring that engagement
> Through a combination of
annually.
> Utilisation of an in-house
mobile app which provides
communication and
information between tenant
and landlord on a variety of
topics.
> Further information on how we
engage with our customers
can be found on pages 48 to
53.
with shareholders provides an
opportunity to discuss ESG
matters.
> Fostering networks which
connect our occupiers
with local communities and
organisations, providing an
opportunity for feedback.
Annual and Interim Reports,
presentation of financial results
and announcements to the
market.
> Provision of financial
information and covenant
compliance certificates to debt
funders.
> For further information on the
Group’s ESG policies and
performance please see pages
48 to 53, and the full report on
the Company’s website,
www.theprsreit.com
> The Company encourages
and welcomes shareholder
queries at its Annual General
Meeting.
> Communication through the
Company’s joint brokers.
> Returns-focused strategy with
clear targets set.
> Meetings offered to substantial
shareholders, debt providers
and potential investors who all
met at least once in the last
year.
> Regular formal and informal
communication with both
equity and debt providers.
> Provision of information on the
Company’s website.
> Further information as to how
the Company has engaged
with its shareholders can be
found on page 85.
60
The PRS REIT plc Annual Report & Financial Statements 2023 STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT (Cont.)
Our customers
Our local communities and
environment
Our investors and funders
> Seasonal events and
> Promoting the mitigation of
Impact of
engagement on
key decisions
marketing activities, such as
summer ice cream dashes,
outdoor cinema nights,
pizza events and Christmas
parades.
> Delivering properties that
target strong environmental
certifications and energy
efficiency.
> Facilitation of resident
nominated charity support.
carbon emissions on existing
properties including installation
of PV panels, EV charging
points, utilisation of modern
methods of construction and
reduction of waste.
> The Board’s proposal on the
final total dividend for the
2023 financial year of 4.0p
per share (2022: 4.0p) reflects
the Board’s confidence in the
Company’s long-term financial
health and growth prospects.
> Identifying opportunities to
> The Board listened to
increase biodiversity on and
around properties.
> Recycling activities, including
installation of clothes banks
on sites.
> Support for local schools and
charities though donations for
projects.
> Garden maintenance and
provision of open green
spaces.
shareholder feedback and,
following engagement with
lenders, the LBG / RBS
£150 million debt facility was
refinanced, and the Company
secured a £102 million facility
of fixed-rate debt for 15 years,
together with a further £75
million of floating-rate debt
agreed for two years, providing
the Company with the flexibility
to refinance this element over
that period.
61
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT (Cont.)
Who are they?
Why are they
important to
us?
What matters
to them
Our partners and suppliers
Our Investment Adviser
> Construction partners, local authorities, Letting
Agent, Company Secretary, other suppliers
and all other organisations we have a direct
relationship with.
> Sigma PRS.
> As an externally managed REIT, the Company
outsources all its administrative functions to
external service providers, who are critical to the
administration and running of the business.
> Performance of the Investment Adviser is critical
for the Company to successfully deliver its
investment strategy and meet its performance
targets.
> Provision of support and clear direction by the
Board in terms of overall strategy and policy.
> Reliability and dependability of the PRS REIT.
> Reputation of the Company and maintaining high
standards of business conduct.
> Customer recommendations, enabling them to
win new/additional business.
> Contributing to the success of the PRS REIT.
> Collaboration and long term partnerships.
Ways we are
engaging with
them
> Maintaining an open and active dialogue both
through formal Board meetings and regularly
outside of meetings.
> Annual evaluation of key service providers.
> Developing long term relationships with
suppliers.
> Payment of suppliers in accordance with credit
terms which are typically less than 30 days.
> The Board and Sigma PRS have a close working
relationship. The Investment Adviser attends the
regular Board meetings and reports to the Board
on progress and performance.
> The Management Engagement Committee of the
Board reviews the performance of the Investment
Adviser annually.
> Regular informal and formal discussions between
members of the Board and the Investment
Adviser, together with members of the Audit
Committee and the Investment Adviser.
> Further information as to how the Company has
engaged with our Investment Adviser can be
found on page 80.
Impact of
engagement on
key decisions
> Through the Management Engagement
Committee process, the Board continues to
provide transparent and actionable feedback
to the Company’s service providers, which has
resulted in service providers continually looking
to improve processes and ensure that they are
aligned with the high standards of business
conduct expected by the Board.
> Strategic oversight and clear direction by the
Board has been crucial in ensuring that the
Investment Adviser has been able to execute the
Company’s investment strategy effectively. For
example, the Board supported the Investment
Adviser in refinancing the Company’s the LBG /
RBS £150 million debt facility, which enabled the
successful conclusion of this process.
62
The PRS REIT plc Annual Report & Financial Statements 2023 STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT (Cont.)
Principal Decisions
Appointment of Senior Independent Director
Principal decisions have been defined as those that have a
material impact on the PRS REIT and its key stakeholders. In
taking these decisions, the Directors considered their duties
under section 172 of the Act.
Dividend and Dividend Policy
During the year, the Board made the decision to appoint Geeta
Nanda as Senior Independent Director, with effect from 21
March 2023. In taking this decision, the Board considered that
Geeta Nanda’s skills and experience were suitable for the role
and would ensure an additional and effective means of good
governance, as well as providing key stakeholders with an
additional contact to discuss any issues or concerns.
The Board made the decision to target a dividend of 4.0 pence
per ordinary share in respect of the year ended 30 June 2023,
and this target has been met.
By order of the Board
Steve Smith
Chairman
9 October 2023
The Board provides shareholders with the opportunity to vote
on the dividend policy of the Company at the Annual General
Meeting.
Debt Refinancing
After the year end, the Company completed the refinancing of
its £150 million revolving credit facility provided by RBS and
Lloyds Banking Group plc. A £102 million facility of fixed-rate
debt for 15 years, together with a further £75 million of floating-
rate debt agreed for two years, have been secured, providing
the Company with the flexibility to refinance this element over
that period. An interest rate cap has been put in place on the
floating rate debt to hedge against downside risk on further
interest rate movements. These new facilities have been
established with Legal and General Investment Management
and RBS respectively. The Investment Adviser immediately
deployed almost two-thirds (£115 million) of the total debt,
specifically the entire £102 million fixed-rate facility and £13
million of the floating-rate facility, to fund already completed and
stabilised sites.
The balance of £62 million of floating-rate debt is expected to
be drawn down to fund sites completing and stabilising before
calendar year 2024.
Approximately 82% of the Company’s overall debt is now
covered by long-term facilities, which have an average term of
16 years, further protecting shareholder returns and supporting
the Investment Adviser to deliver on executing the Company’s
strategic objectives.
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The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE CORPORATE
GOVERNANCE
Chairman’s Introduction
Dear Shareholders,
Statement of compliance
I am pleased to introduce the Corporate Governance Report,
which covers the year ended 30 June 2023. The Board
recognise that a strong corporate governance framework helps
provide the foundation for an environment of trust, transparency,
and accountability, which is vital to the achievement of the
Company’s objectives.
The Board continue to work together effectively, facilitating an
environment of collaborative decision-making that promotes
the long-term success of the Company, on behalf of our
shareholders.
During the year, a key focus of the Nomination & Remuneration
Committee was to lead a succession process, on behalf of
the Board, and to recruit an additional Director. Advancement
has been made in this regard, and I am delighted to report that
Karima Fahmy has been appointed to the Board, with effect
from 10 October 2023. An induction process will be undertaken
for Karima to ensure a successful transition into the role. Jim
Prower has advised that he will step down at the conclusion
of the 2023 AGM. I would like to take this opportunity to thank
Jim for his contribution and considerable experience and insight
to the Board, Audit Committee and Management Engagement
Committee since his appointment on 20 May 2019.
The following Corporate Governance Report sets out the
corporate governance principles that the Board has adopted,
how these have been applied and highlights the key governance
events that have taken place during the period.
The Board of The PRS REIT plc is committed to maintaining
high standards of corporate governance and considers that
reporting against the Principles and Provisions of the AIC
Code of Corporate Governance issued in February 2019 (the
“AIC Code”), provides better information to shareholders as
it addresses the Principles and Provisions set out in the 2018
UK Corporate Governance Code (the “UK Code”), as well as
setting out additional Provisions on issues that are of specific
relevance to the Company, and is endorsed by the Financial
Reporting Council (the “FRC”).
The AIC Code is available from the AIC website at https://www.
theaic.co.uk/ and 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. A copy of the
UK Code can be obtained at frc.org.uk.
The Company has complied with the Principles and Provisions
of the AIC Code throughout the period.
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, 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.
66
The PRS REIT plc Annual Report & Financial Statements 2023 I
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The PRS REIT plc Annual Report & Financial Statements 2023
67
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Directors
Steve Smith, Non-Executive Chairman
(Age 70) appointed 24 April 2017
Steve has over 40 years of experience in the real estate industry.
He acted as 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 is also Non-
Executive Chairman of Sancus Lending, an AIM listed property
finance business. He was formerly Non-Executive Chairman of
Starwood European Real Estate Finance Limited and Alternative
Income REIT plc and a Non-Executive Director of Tritax Big Box
REIT plc and Gatehouse Bank plc.
Steffan Francis, Non-Executive Director
(Age 68) appointed 24 April 2017
Steffan has more than 40 years of experience in the real estate
industry. Until 2016, Steffan was a Director 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/IPD 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 and a member of the Investment Property Forum.
Roderick MacRae, Non-Executive Director
(Age 59) appointed 24 April 2017
Roderick (“Rod”) has over 20 years of experience in the financial
services sector. Latterly, he was an Executive Director at Abrdn
plc (previously 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
Abrdn 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. Prior to that, Rod was
Chief Operating Officer at Edinburgh Fund Managers, which he
joined in 1991 and was acquired by Abrdn 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 PRS REIT Audit Committee.
68
Geeta Nanda, OBE, Non-Executive Director & Senior
Independent Director
(Age 58) appointed 24 March 2021
Geeta has over 30 years of experience working in the property
sector. She is Chief Executive Officer of Metropolitan Thames
Valley Housing Association (“MTVH”), having previously led
its creation in 2017 with the merger of Metropolitan Housing
Trust and Thames Valley Housing Association Ltd, where she
was Chief Executive Officer for over 9 years. At MTVH, Geeta
is responsible for the management of 60,000 homes, with
120,000 residents, and an ongoing new-build programme of
over 1,000 homes a year. She also has significant experience
of PRS, having established ‘Fizzy Living’, the London PRS
subsidiary of Thames Valley Housing Association Ltd in 2012.
Geeta is a member of the Homes for Londoners mayoral Board,
and a Board member of The National Housing Federation,
the industry body representing providers of housing. She is
also Chair of G15, the group of London’s largest housing
associations, and is a Non-Executive Director of Redrow plc.
She was previously a Non-Executive Director of McCarthy &
Stone plc, the retirement communities’ developer and manager,
from 2015 until its acquisition in early 2021, a Non-Executive
Director of The St Mungo Community Housing Association, a
charity that helps the homeless, and Vice Chair of SCOPE, the
national disability charity. Geeta was appointed as the Senior
Independent Director of the Board on 21 March 2023.
Jim Prower, Non-Executive Director
(Age 68) appointed 20 May 2019
Jim, a Chartered Accountant, has over 35 years of experience
in senior financial roles. Between 1998 and 2015, he was Group
Finance Director at Argent Group plc, the UK based property
developer and 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 inner city regeneration. Jim was involved in Argent’s
major developments in Manchester, Birmingham and the City
of London, and from 2008 to 2015 he worked on the King’s
Cross Central joint venture, one of Europe’s largest regeneration
projects. Prior to this, Jim was Group Finance Director at NOBO
Group plc and at Creston Land & Estates plc. Until the end
of September 2021, Jim was Senior Independent Director at
Empiric Student Property plc and a Non-Executive Director at
Alternative Income REIT plc. Until March 2019, Jim was also the
Senior Independent Director at Tritax Big Box REIT plc.
The PRS REIT plc Annual Report & Financial Statements 2023 Advisers
Registered Office
Floor 3, 1 St. Ann Street
Manchester
M2 7LR
Auditor
RSM UK Audit LLP
25 Farringdon Street
London
EC4A 4AB
Company Secretary
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
Financial Adviser and Broker
Singer Capital Markets Advisory LLP
1 Bartholomew Lane
London
EC2N 2AX
Joint Broker
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Financial PR
KTZ Communications
No. 1 Cornhill
London
EC3V 3ND
Legal and Tax Adviser
Dentons UK and Middle East LLP
One Fleet Place
London
EC4M 7WS
Investment Adviser
Sigma PRS Management Ltd
Floor 3, 1 St. Ann Street
Manchester
M2 7LR
AIFM
Depository
G10 Capital Limited
4th Floor, 3 More London Riverside
London
SE1 2AQ
Crestbridge Property Partnerships Limited
8 Sackville Street
London
W1S 3DG
Valuers
Savills (UK) Limited
33 Margaret Street
London
W1G 0JD
69
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Report of the Directors
The Directors are pleased to present the Annual Report, together with the audited financial statements, for the year ended 30
June 2023. The information that fulfils the requirements of the Corporate Governance statement in accordance with rule 7.2 of
the DTR can be found in this Report of the Directors and in the Corporate Governance section on pages 78 to 85, all of which is
incorporated into this Report of the Directors by reference.
Principal activity
The Company is a closed-ended investment company and is a Real Estate Investment Trust. The principal activity of the Company
is the investment in, and management of, new build PRS residential housing which is primarily located in various regions of England.
The Directors do not anticipate any change in the principal activity of the Company in the foreseeable future.
The Company commenced trading on 31 May 2017 after the successful initial raising of £250 million gross proceeds through its
IPO. Its shares were listed on the Specialist Fund Segment of the Main Market of the London Stock Exchange until 2 March 2021
when it migrated to the Premium 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 114. The
Company declared the following interim dividends in respect of the year to 30 June 2023, amounting to 4.0p per share:
Dividend per
share (p)
Ex-dividend
date
Record
date
Payment
date
1.0
10 November 2022
11 November 2022
30 November 2022
1.0
1.0
1.0
16 February 2023
17 February 2023
3 March 2023
4 May 2023
5 May 2023
26 May 2023
10 August 2023
11 August 2023
1 September 2023
Relevant period
1 July 2022 to
30 September 2022
1 October 2022 to
31 December 2022
1 January 2023 to
31 March 2023
1 April 2023 to
30 June 2023
70
The PRS REIT plc Annual Report & Financial Statements 2023 Review of the business and future
developments
The Directors are required to present an extended business
review reporting on the development and performance of the
Group and the Company, their positions at the end of the
period, and an indication of the likely future developments in
the Group’s business. This requirement is met by the Strategic
Report on pages 12 to 63.
Articles of Association (the “Articles”)
The Company’s Articles may only be amended with
shareholders’ approval by special resolution at a general
meeting of shareholders.
Directors
The current Directors of the Company are listed on page 68,
all of whom held office throughout the year. Karima Fahmy
has been appointed as a Director with effect from 10 October
2023 and Jim Prower has announced his intention to step
down from his role as Director of the Company with effect from
the conclusion of the 2023 AGM. 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 (2022: none).
In accordance with the Articles, every person appointed as a
Director during the period 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. The appointment
and replacement of Directors is governed by the Company’s
Articles, the AIC Code, the Companies Act 2006 and any
related legislation. 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 98 to 100.
Powers of Directors
The Directors’ powers are determined by the Companies
Act 2006 and the Company’s Articles. The Articles may be
amended by a special resolution of the shareholders. The
Directors may exercise all the powers of the Company provided
that the applicable legislation and Articles do not stipulate that
any such powers must be exercised by the shareholders.
Directors’ interests in shares
The Directors’ interests in the Company’s shares are disclosed
in the Directors’ Remuneration Report on pages 98 to 100.
REPORT OF THE DIRECTORS (Cont.)
Directors’ indemnity insurance
Subject to the provisions of any relevant legislation, the
Company has agreed to indemnify each Director against all
liabilities which any Director may suffer or incur arising out of
or in connection with any claim made, or proceedings taken
against him/her, or any application made by him/her, on the
grounds of his/her negligence, default, breach of duty or breach
of trust in relation to the Company or any associated Company.
This policy remained in force during the financial period and also
at the date of approval of the financial statements.
The Company maintains appropriate Directors’ and Officers’
liability insurance in respect of legal action against its Directors
on an ongoing basis.
Share capital
At the AGM held on 28 November 2022, the Directors were
authorised to:
> issue securities up to an aggregate nominal amount of
£1,830,838 representing approximately 33.33% of the
Company’s issued share capital at the time of the annual
general meeting;
> dis-apply pre-emption rights in respect of securities and
to issue securities for cash up to an aggregate nominal
amount equal to £549,251 which represented 10% of the
Company’s issued share capital at that time; and
> 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 2023, the Company had 549,251,458 ordinary
shares in issue (2022: 549,251,458), none of which were held in
treasury (2022: none).
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The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
Substantial shareholdings
As at 30 June 2023, 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
Number of ordinary shares
% holding of issued share capital
Invesco High Income Fund
Aquila Life UK Equity Index Fund
Homes & Communities Agency
Invesco UK Equity Income Fund
49,089,585
31,823,602
29,878,047
21,877,700
As at 30 September 2023 the following substantial shareholdings were held:
8.94
5.79
5.44
3.98
Investor
Number of ordinary shares
% holding of issued share capital
Invesco High Income Fund
Aquila Life UK Equity Index Fund
Homes & Communities Agency
Invesco UK Equity Income Fund
Smithfield Alternative Investment Fund
49,089,585
31,838,464
29,878,047
21,877,700
17,350,000
8.94
5.80
5.44
3.98
3.16
In accordance with DTR 5, the Company was advised of the following significant direct and indirect interests in the issued ordinary
share capital of the Company as at 30 June 2023:
Investor
Invesco Ltd
Homes and Communities Agency
Aviva PLC
Janus Henderson Group plc
Liontrust Investment Partners LLP
Columbia Threadneedle
AXA Investment Managers S.A.
Standard Life Aberdeen plc affiliated investment
management entities
CCLA Investment Management Ltd
Waverton Investment Management Limited
Interests in ordinary
shares
% holding
disclosed*
Date
of notification
81,943,734
24,999,999
39,238,737
15,099,100
25,292,015
14.919
6 October 2021
9.99
7.14
6.04
5.11
31 May 2017
26 April 2022
1 June 2017
19 June 2020
Not disclosed
Below 5
22 December 2020
26,917,000
23,345,700
25,830,640
22,219,389
4.90
4.71
4.70
4.04
19 July 2022
24 June 2020
28 September 2022
10 August 2022
*The percentage of voting rights detailed above was calculated at the time of the relevant disclosures made in accordance with Rule 5 of the Disclosure Guidance and Transparency Rules.
Information provided to the Company pursuant to DTR 5 is available via the Regulatory News section on the Group’s website.
72
The PRS REIT plc Annual Report & Financial Statements 2023 REPORT OF THE DIRECTORS (Cont.)
Related Party Transactions
Related party transactions during the period to 30 June 2023
can be found in note 33 of the financial statements.
Research and Development
No expenditure on research and development was made during
the year (2022: Nil).
Donations and Contributions
In December 2022, the Company established the REIT
Community Fund, and made a commitment for the financial
year 2022/23 of up to £250,000, to donate towards charitable
organisations, activities and events, in support of the
residents and wider community. During the period between
the establishment of the REIT Community Fund in December
2022 and 30 June 2023, the REIT Community Fund has made
donations totalling £84,977 to a range of charities, groups,
activities and events that either directly support the Company’s
residents and wider community, or charities and groups that
have been nominated by the residents, in conjunction with the
Investment Adviser (2022: Nil).
> 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.
Work to measure and understand the emissions from the two
phases of business, construction and lettings, is under review.
The Investment Adviser is investing time and resources in this
area in order to endeavour to capture aggregated data which
can be utilised to further understand and measure the impact
of the Company’s assets on emissions. This information is not
presently available to the Investment Adviser as it is not under
its control and it does not have the ability to compel third parties
to provide.
As such, the Board believes that the Company had no
reportable emissions for the periods ended 30 June 2023 and
30 June 2022.
Branches Outside the UK
Management arrangements
There are no branches of the business located outside the
United Kingdom.
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, 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.
Greenhouse gas emissions reporting
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 2023:
> 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;
Please refer to the Management Engagement Committee
Report on pages 94 to 95 for details on the Company’s
management arrangements and service providers.
Financial risk management
The principal risks and uncertainties faced by the Company
and the Group are set out on pages 54 to 57. Information on
the financial risk management objectives and policies relating to
market risk, credit risk and liquidity risk is provided in note 4 to
the financial statements.
Treasury activities and financial
instruments
The Group’s financial instruments comprise cash and cash
equivalents, plus other items such as trade and other
receivables, trade and other payables and borrowings that arise
directly from its operations. At 30 June 2023, the Group had
positive cash balances of £13 million (2022: £49 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 2023, the Group had borrowings of £250
million with Scottish Widows and a revolving credit facility with
Lloyds Banking Group plc and RBS plc of £150 million of which
£115 million was drawn. In addition, the Group had a £40
million revolving credit facility with Barclays Bank PLC of which
£12 million was drawn. Further information with regard to the
Group’s cash and cash equivalents is provided in note 21 of the
financial statements and borrowings in note 24.
73
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE REPORT OF THE DIRECTORS (Cont.)
74
Going concern
The Company’s current financial position is set out in the
Strategic Report and financial statements. The Board regularly
reviews the position of the Company and its ability to continue
as a going concern throughout the year.
The Board confirms that it has a reasonable expectation that
the Company and the Group have adequate resources to
manage their business risks successfully and allow them to
continue in operational existence for the foreseeable future
and the Board believes that there are no material uncertainties
in relation to the Group’s and Company’s ability to continue
for a period of at least 12 months from the date of this
report. 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. Please
see note 3 of the financial statements for more information.
Viability statement
In accordance with Provision 36 of the AIC Code, the
Directors have assessed the prospects of the Group and
Company and future viability over a three-year period, being
the period for which the Board regularly reviews forecasts,
and which encompasses the lifetime of the Group’s remaining
development projects. The Board considers the future
performance of the Group beyond three years, but less
certainty exists over the forecasting assumptions beyond this
period.
The Directors considered a number of other factors when
assessing the viability of the Group and Company:
> strong rent collection rates maintained, cash collections
from tenants during the year matched 99% of all rent
invoiced during the year;
> continued strong rental demand;
> continued increases in estimated rental value;
> Group loan to value ratio of 37% as at 30 June 2023;
> Group cash of £13.2 million at 30 June 2023, of which
£9.7 million was immediately available;
> access to approximately £68 million of undrawn debt
facilities; and
> after the refinancing in July 2023, 82% of the Group’s
investment debt facilities are fixed interest facilities with a
weighted average debt maturity of 16 years and an average
weighted cost of 3.8%.
In assessing the Company’s viability, the Board has carried out
a robust assessment of the principal risks and uncertainties
facing the Group, as set out on pages 54 to 57.
The PRS REIT plc Annual Report & Financial Statements 2023 The Board believes that the three-year period selected is an
appropriate period over which to assess the viability of the
Company. The assumptions underpinning the forecasting model
show that within three years all investment property acquisitions
are forecast to have been completed, all assets under
construction should be developed, and rent stabilisation thereon
should be achieved. Sensitivity analysis has been undertaken to
consider the potential impacts of the Group’s significant risks on
the cashflows and covenant compliance. Shortly after the year
end, the LBG / RBS £150 million debt facility was refinanced,
and the Company secured a £102 million facility of fixed-rate
debt for 15 years, together with a further £75 million of floating-
rate debt agreed for two years, providing the Company with the
flexibility to refinance this element over that period.
The Board’s expectation is further underpinned by regular
dialogue with the Investment Adviser regarding market
conditions, the availability of investment opportunities, principal
risks and uncertainties and any change in the regulatory
framework. The Group’s principal and emerging risks and
uncertainties continue to be monitored closely by the Board.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group and Company will be
able to continue in operation and meet its liabilities as they fall
due for the next three years.
Environmental, Social and Governance
The Board’s report on Environmental, Social and Governance is
on pages 48 to 53.
Corporate Governance Statement
The corporate governance statement is set out on pages 78 to
85.
Stakeholder engagement and Section 172
statement
The Group's stakeholder engagement and Section 172
statement are set out on pages 58 to 63.
Auditor
A resolution to reappoint RSM UK Audit LLP as Auditor will be
proposed at the next 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 is unaware and each Director has taken all the steps
that they ought to have taken as a Director to make himself /
herself aware of any relevant audit information and to establish
that the Company’s Auditor is aware of that information.
REPORT OF THE DIRECTORS (Cont.)
Post balance sheet events
Details of any significant post balance sheet events are detailed
on pages 146 to 147. of these financial statements.
By order of the Board
Steve Smith
Director
9 October 2023
75
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Statement of Directors’
Responsibilities
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Directors’ statement pursuant to the
Disclosure and Transparency Rules
Each of the Directors, whose names and functions are listed on
page 68 confirm that, to the best of each person’s 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 they face.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
www.theprsreit.com website.
Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s position and performance, business model and
strategy.
Approval
This Statement of Directors’ Responsibilities was approved by
the Board and signed on its behalf by:
Steve Smith
Chairman
9 October 2023
The Directors are responsible for preparing the Strategic Report,
the Directors’ Report, 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 Group and
Company financial statements for each financial year. Under
that law, the Directors have elected and are required under the
Listing Rules of the Financial Conduct Authority to prepare the
Group financial statements in accordance with UK-adopted
International Accounting Standards. The Directors have also
elected under company law to prepare the Company financial
statements in accordance with UK-adopted International
Accounting Standards.
The Group and Company financial statements are required
by law and UK-adopted International Accounting Standards
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 the
Company and of the profit or loss of the Group for that period.
In preparing each of the Group and Company financial
statements, the Directors are required to:
> select suitable accounting policies and then apply them
consistently;
> make judgements and accounting estimates that are
reasonable and prudent;
> state whether they have been prepared in accordance with
UK-adopted International Accounting Standards;
> prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
and the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
the Company and enable them to ensure that the financial
statements and the Directors’ Remuneration Report comply
with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and the Company and
76
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The PRS REIT plc Annual Report & Financial Statements 2023
77
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Corporate Governance Statement
Responsibilities
The Board is collectively responsible for the sustainable
long-term success of the Group and to deliver value for
shareholders. The Board does not routinely involve itself in
day-to-day business decisions. It provides overall leadership
and sets the strategic direction of the Group and has oversight
over the management and conduct of the Group’s business,
strategy and development. The Board determines the Group’s
Investment Policy and risk appetite and ensures compliance
with the Group’s Investment Policy.
The Board is also responsible for the control and supervision
of the Alternative Investment Fund Manager ("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. The Board is responsible for approval
of any changes to the capital, corporate and/or management
structure of the Group.
The AIFM is responsible for overall portfolio management
(including compliance with the Group’s investment policy) and
risk management of the Group, including the implementation
and review of adequate risk management systems.
The Investment Adviser is responsible for the asset
management of the Group’s portfolio, including arranging for
the acquisition of PRS development sites 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.
78
The Directors have adopted a formal schedule of matters
reserved for decision by the Board. These include the following:
> Board membership and powers including the appointment
and removal of Board members taking account of
recommendations from the Nomination & Remuneration
Committee;
> 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;
> 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;
> Approval of acquisitions from Sigma Capital Group Limited
and subsidiary undertakings;
> Approval of annual and half yearly financial reports, to 30
June and 31 December respectively, dividends, accounting
policies and significant changes in accounting practices;
> Review of the adequacy of corporate governance
procedures;
> Review of the risk management systems and the
effectiveness of internal controls;
> Alterations to and approval of 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
The PRS REIT plc Annual Report & Financial Statements 2023 CORPORATE GOVERNANCE STATEMENT (Cont.)
> Oversight of the Group’s operations, ensuring compliance
with statutory and regulatory obligations.
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 54 to 57.
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.
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 which identifies key and emerging risks and
the controls in place to mitigate those risks (this register is
maintained by the Investment Adviser subject to oversight of
the Audit Committee);
> a procedure to monitor the compliance status of the
Company to ensure that it can continue to be approved as
a REIT;
> the Investment Adviser and the Administrator prepare
forecasts and management accounts which allow the Board
to assess performance;
> the controls employed by the Investment Adviser 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; and
> the Audit Committee reviews the internal control
recommendations made by the external auditors, including
the results of periodic testing of key controls as part of their
audit work.
The risks of any failure of internal controls and impact of such
risks are identified in the risk register, which is regularly reviewed
by the Board, through the Audit Committee. Taking into account
the review of the Group’s principal and emerging risks, and its
knowledge of the business, the Audit Committee has reviewed
and approved any statements included in the annual report
concerning internal controls (including the financial reporting
process for the entities included in the consolidation as a whole)
and risk management and has determined that the effectiveness
of the internal controls was satisfactory. The principal and
emerging risks and uncertainties identified from the risk register
can be found on pages 54 to 57.
79
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE CORPORATE GOVERNANCE STATEMENT (Cont.)
Investment Adviser
The Company and the AIFM appointed Sigma PRS as the Investment Adviser in March 2017. Sigma PRS is responsible for the
management of the assets of the Company and advising the Company and the AIFM on a day-to-day basis in respect of the
Company’s Investment Policy. 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, the Investment Adviser benefits from the extensive experience and expertise of the Sigma
team 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 December 2026. 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.
Board membership and meeting attendance
During the year to 30 June 2023, the number of scheduled Board meetings attended by each Director was as follows:
Director
Attendance*
Date of Appointment
Length of Service at
30 June 2023
Steve Smith
Steffan Francis
Rod MacRae
Geeta Nanda
Jim Prower
5/5
5/5
5/5
5/5
4/5
24 April 2017
24 April 2017
24 April 2017
24 March 2021
20 May 2019
6 years
6 years
6 years
2 years
4 years
*Number of scheduled meetings attended/maximum number of meetings that the Director could have attended.
Composition
The Board consists of a Non-Executive Chairman and four
other Non-Executive Directors, including a Senior Independent
Director, all of whom were considered independent on and
since their appointment. All the Directors are independent of the
Investment Adviser and the AIFM.
Steve Smith is the Chairman of the Company and is responsible
for leadership and oversight of the Board to ensure that it
functions effectively. The Chairman, in conjunction with the
Company Secretary, 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
Chairman is deemed by his fellow independent Board members
to be independent in character and judgement and free of any
conflicts of interest. He considers himself to have sufficient time
to spend on the affairs of the Company. The Chairman has
no significant commitments other than those disclosed in his
biography on page 68.
80
The Company appointed Geeta Nanda as Senior
Independent Director, with effect from 21 March 2023. The
Senior Independent Director acts as a sounding board and
intermediary for the other Directors and for shareholders.
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.
The PRS REIT plc Annual Report & Financial Statements 2023 CORPORATE GOVERNANCE STATEMENT (Cont.)
In accordance with the Articles of Association, every person
appointed as a Director during the period 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, in accordance with the Board’s tenure policy set out
on page 83.
The Board has also considered and developed a succession
plan both for the long-term and short-term in the event of any
unforeseen change in circumstances in respect of the individual
board members.
Board Committees
The Board has established a Management Engagement
Committee, an Audit Committee, and a Nomination &
Remuneration Committee.
The Management Engagement Committee meets at least once
a year and keeps the terms of engagement with the AIFM and
Investment Adviser under review and examines the performance
of the AIFM, Investment Adviser, Administrator, Depositary,
Company Secretary, valuer and other service providers.
The Management Engagement Committee comprises the
whole Board given the size of the Board, with each member
independent of the AIFM and the Investment Adviser. The
Management Engagement Committee receives reports and
analysis 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. Steve Smith is the Chairman of the Management
Engagement Committee. Further details about the Management
Engagement Committee can be found on pages 94 to 95.
The Audit Committee meets at least three times 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 also examines the effectiveness of the
Company’s internal control systems. The Audit Committee
comprises four 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. Further details
about the Audit Committee can be found on pages 86 to 88.
A Nomination & Remuneration Committee was established
during the financial year and comprises three of the Non-
Executive Directors. It meets at least once a year or as
required. The Nomination & Remuneration Committee assists
the Board by reviewing the size, structure and skills of the
Board and considering whether any changes are required, or
new appointments necessary. It leads the recruitment process
for candidates for the Board, and ensures that plans are in
place for orderly succession to the Board, whilst overseeing
the development of a diverse pipeline. The Nomination &
Remuneration Committee also reviews any proposed changes
to the remuneration of the Directors of the Company for
recommendation to, and discussion with, the wider Board.
The Committees’ delegated responsibilities are clearly defined in
formal terms of reference, which are available on the Company’s
website.
Board Meetings
During a full financial period, the Board meets formally on, at
least, a quarterly basis with additional meetings arranged as
necessary. During the current period, there were five meetings.
The additional meeting in the year was in connection with the
approval of the 2022 Annual Report and Financial Statements.
At each Board meeting, the Directors follow a formal agenda
which is set by the Chair, and the Board papers are circulated
in advance of the meeting by the Company Secretary 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 financial returns, profitability, gearing, asset allocation,
level of the share price discount or premium, marketing and
investor relations and industry issues.
81
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE The Investment Adviser attends a portion of the Board
meetings. Representatives from the AIFM and the Company’s
other advisers are also invited to attend elements of the Board
meetings from time to time.
Performance Evaluation
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 conducts a formal annual evaluation process and,
recognising the importance of this process, intends to conduct
an externally facilitated evaluation once every three years. The
last externally facilitated evaluation was undertaken in respect of
the year ending 30 June 2022.
The Board has undertaken an internal performance evaluation
designed to assess the strengths and effectiveness of the Board
and its committees. The Directors were asked to complete
a questionnaire, that considered, amongst other things, the
composition of the Board and its Committees, leadership, the
efficiency of Board processes, and stakeholder engagement.
Having conducted the evaluation, the Board considers that
it has performed effectively and that it demonstrates a good
balance of skills 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. The
Board believes that each individual Director has been effective
and demonstrated commitment to the role. The Board
discussed the challenges and opportunities identified through
the evaluation and agreed that the recommendations will be
monitored at the quarterly Board meetings to ensure progress
has been made.
CORPORATE GOVERNANCE STATEMENT (Cont.)
Discussions of the Board
During the year, the Board considered the following key matters:
> Review of health and safety matters, including the potential
impact of the Fire Safety Act 2021 and Building Safety Act
2022 on the Company’s portfolio;
> Review of the Investment Adviser’s processes with regards
to asset allocation;
> Review of the proposed refinancing of the Company’s
£150m revolving credit facility provided by Lloyds Banking
Group and RBS, and eventual approval of a £102 million
facility of fixed-rate debt for 15 years, together with a further
£75 million of floating-rate debt agreed for two years,
provided by Legal and General Investment Management
and RBS respectively;
> The wider macro-economic conditions and the market
sentiment towards the UK REIT sector, and the challenges
this presented towards the Company’s share price;
> Review and approval of the Company’s 2022 Annual Report
and interim results;
> Discussion regarding the implementation of an ESG
framework and the putting together of a Company-specific
budget for ESG activities;
> The Group’s corporate structure;
> 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;
> Declaration of the Company’s interim dividends;
> The Company’s compliance with the REIT conditions;
> Review and update of the Company’s Risk Register;
> Analysis of the Company’s shareholder register;
> Approval of the establishment of a Nomination &
Remuneration Committee;
> Approval of the appointment of Geeta Nanda as Senior
Independent Director;
> Review of the Directors’ remuneration benchmarked against
peers, and eventual approval to increase the Directors’ fees
by £7,500 per annum per Director, with effect from
1 April 2023;
> Review of corporate governance compliance, Group
subsidiary activity and Depositary report;
> Review and approval of the Board’s emergency and long-
term succession plans.
82
The PRS REIT plc Annual Report & Financial Statements 2023 CORPORATE GOVERNANCE STATEMENT (Cont.)
Challenges and Opportunities
2023 Development Points
Key Performance Indicators
It is recommended that the Board continue to critically evaluate the KPIs, to ensure that they
support the objectives, purpose and strategy of the Company, and support the embedding of
the ESG strategy and targets.
Professional Development
It is recommended that the Board dedicate more time to enhance the professional
development of the Directors, to ensure continuous improvement of knowledge and skills.
With a new Director due to join the Board, the existing Directors should be conscious of
ensuring that they receive a comprehensive induction and are integrated well within the
Board.
Board Diversity
To keep the diversity of the Board under regular review, particularly when a recruitment
exercise is undertaken.
Consistency of Service Provider
Performance
To assist the Management Engagement Committee in the review of the performance of
service providers, it is recommended that representatives of the key service providers are
invited to the meetings for the Committee to review performance.
Diversity Policy
The Board believes that a diverse and inclusive culture is
essential to the long-term success of the Company allowing
us to respond to our diverse customer base. At the Board we
set the tone for diversity and inclusion and our culture, and
treat everyone with dignity, respect and fairness, regardless of
protected characteristics such as disability, religion or belief,
sexual orientation or any other factors.
The Board supports the recommendations of the Hampton-
Alexander and Parker Reviews and believes that diversity of
gender, social and ethnic backgrounds, cognitive and personal
attributes, contribute to a more effective and objective decision-
making process in the boardroom.
The Board agrees with the principles of the new Listing Rules
LR 9.8.6R(9) and LR 15.4.29AR. The Board has fulfilled the
targets to have at least one member from a minority ethnic
background and, following Geeta Nanda’s appointment as a
Senior Independent Director with effect from 21 March 2023,
for at least one of the senior Board positions to be held by a
woman. The Board monitors the balance of skills, knowledge,
experience and diversity on the Board and leads succession
planning.
The Directors remain committed to taking steps to increasing
both the diversity of the Board and meeting all of the targets set
out in the Listing Rules. The Board has made progress towards
compliance with the recommendations as set out above and
is pleased to confirm that the Company will be compliant with
the relevant targets by the end of 2023. The Board, led by the
Nomination & Remuneration Committee, instructed Nurole Ltd,
an external search consultancy (there is no connection between
the Company or any individual Directors and the external search
consultancy), to commence a robust succession exercise to
recruit a new Non-Executive Director, and is pleased to report
that Karima Fahmy has been appointed as Non-Executive
Director with effect from 10 October 2023. As part of this
succession exercise, the Board has taken into consideration the
diversity targets set out in the Listing Rules, and considers this
to be in the interests of the Group and its shareholders.
All Board appointments are made on merit and take into
consideration the recognised benefits of all types of diversity.
Tenure Policy
In accordance with best practice, the Board considers that the
length of time each Director, including the Chairman, serves
on the Board should be limited to a maximum of nine years. To
facilitate the development of an effective succession pipeline
and a diverse board, this period can be extended for a limited
time if necessary.
Continuity, self-examination and ability to do the job are the
relevant criteria on which the Board assesses a Director’s
independence. Length of service of current Directors,
succession planning and independence will be reviewed each
year as part of the Board evaluation process.
83
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE 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.
These policies and behaviours are designed to align the culture
with the long-term strategy of the Group. 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
to 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 and, subject to
availability of funding, 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; and
> 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 and robust induction
programme on appointment to the Board that covered the
Investment Adviser’s investment approach, the role and
responsibilities of a Director and guidance of corporate
governance and the 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.
During the period, the Directors received periodic guidance
on regulatory and compliance changes at quarterly Board
meetings.
Succession Planning
The Board has given full consideration to succession planning
to ensure progressive refreshing of the Board, taking into
account the challenges and opportunities facing the Board and
the balance of skills and expertise, factoring in the benefits of a
diverse Board that are required in the future.
The Board has considered emergency and long-term
succession planning arrangements and a formal succession
plan has been agreed.
84
The PRS REIT plc Annual Report & Financial Statements 2023 CORPORATE GOVERNANCE STATEMENT (Cont.)
Health and safety
Shareholder engagement
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.
The Company’s next Annual General Meeting will be held on
4 December 2023, at which shareholders are encouraged to
attend and vote, along with any other 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 AIFM in conjunction with the
Investment Adviser, provides details of 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.
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.
Anti-Bribery Policy
PRS REIT has a zero-tolerance policy towards bribery and
is committed to carrying out its business fairly, honestly, and
openly. The anti-bribery policies and procedures apply to all its
officers and to those representing the PRS REIT.
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.
85
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Audit Committee Report
The following pages set out the Audit Committee report of The
PRS REIT plc for the financial year ended 30 June 2023.
Role of the Audit Committee
The principal duties of the Audit Committee are:
The Audit 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.
Committee Membership
During the financial year ended 30 June 2023, the Audit
Committee comprised Rod MacRae, Jim Prower, Steffan
Francis and Geeta Nanda (appointed to the Audit Committee
with effect from 10 August 2022), who all have a broad range
of financial, commercial and property sector expertise which
enables them to provide oversight of both financial and risk
matters. The Board is satisfied that the combined knowledge
and experience of its members is such that the Audit
Committee discharges its responsibilities in an effective manner
and has competence relevant to the sector in which it operates.
In addition, the Board is satisfied that at least one member
of the Audit Committee has recent and relevant financial
experience. Rod MacRae and Jim Prower are both Chartered
Accountants. Rod has almost 20 years of experience in the
financial services sector and Jim was, until 2015, Group Finance
Director at Argent Group plc, the UK based property developer.
Meetings
There are at least three scheduled Audit Committee meetings
per any financial period and its quorum is two members. For
the period from 1 July 2022 to 9 October 2023, the Committee
has met five times. The attendance at these meetings was as
follows:
Director
Attendance*
Rod MacRae (Chairman)
Steffan Francis
Jim Prower
Geeta Nanda**
5/5
5/5
4/5
5/5
* Number of scheduled meetings attended/maximum number of meetings that the
Director could have attended.
** Appointed with effect from 10 August 2022.
Financial reporting
> consider the integrity of the interim and full year financial
statements and any formal announcements relating to the
financial results;
> 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 2023 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
> report to the Board on the Company’s procedures for
detecting fraud.
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 effectiveness of the external audit process,
taking into consideration relevant UK professional and
regulatory requirements;
> to review the policy on the engagement of the Auditor; and
> to safeguard the Auditor’s independence and objectivity.
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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
> review the Committee’s terms of reference and performance
effectiveness.
The Audit Committee reports and makes recommendations to
the Board, after each meeting.
Matters considered by the Audit
Committee
At its meetings during the year under review, the Audit
Committee has:
> reviewed the internal controls and risk management systems
of the Company;
> reviewed the Company’s half-year and full-year financial
results;
> agreed the audit plan with the Auditor, including the
agreement of the audit fee;
> reviewed the need to establish an Internal Audit function;
> reviewed the adequacy of the Company’s arrangements as
they relate to compliance, whistleblowing and fraud;
> 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;
> made recommendations to the Board to put to shareholders
for their approval at the AGM regarding the re-appointment
of the external Auditor and approval of the remuneration and
terms of engagement of the external Auditor;
> reviewed the Audit Findings Report and discussed findings
from the audit with the Auditor; and
Significant matters considered by the
Audit Committee in the year
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 of 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 the RICS Valuation - Global
Standards (incorporating the IVSC International Valuation
Standards) effective from 31 January 2022, together, where
applicable, with the UK National Supplement effective 14
January 2019, together the “Red Book”. 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 Audit Committee
has reviewed the valuation reports and has discussed these
reports with the valuer, the Investment Adviser and the Auditor.
The Audit Committee was satisfied with the valuation reports. In
addition, since the year-end, members of the Audit Committee
have met independently with the valuer.
Maintenance of REIT status
The UK REIT regime enables the Group to benefit from
favourable tax treatment. The Audit Committee and Board
monitors the PRS REIT’s compliance status throughout the
year and considers requirements for the maintenance of the
Company’s REIT status.
> reviewed the Group’s financial statements and advised the
External audit process
Board accordingly.
The Company’s principal risks can be found on pages 54 to 57.
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.
Before the commencement of the audit, the Audit Committee
met with the Auditor, to discuss the scope of the audit plan.
Before completion of the external audit, the Audit Committee
met again with the Auditor to discuss the findings of the external
audit and consider and evaluate any findings.
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True and fair view
Review of Auditor appointment
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.
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 not presently
a need for establishing an Internal Audit function, taking into
account the size and complexity of the Company and its
business. In coming to this conclusion, the Audit Committee
noted that the external auditors check the operation of certain
controls on a sample basis as part of their audit.
The Audit Committee will continue to review this position on
an annual basis and make recommendations to the Board as
appropriate.
Performance Evaluation
Refer to the above Corporate Governance Statement on pages
82 to 83, for further details on the performance evaluation.
Rod MacRae
Audit Committee Chairman
9 October 2023
Audit fees and non-audit services
An audit fee of £140,000 has been agreed in respect of the
audit of the Company for the year ended 30 June 2023 (2022:
£120,000). The audit fees of the Group for the period ended 30
June 2023 totalled £288,000 (2022: £234,000).
The cost of non-audit services provided by the Auditor to the
Company for the financial period ended 30 June 2023 was
£22,500 (2022: £20,500) of which £22,500 related to the
agreed upon procedures on the interim financial statements
(2022: £20,500). To safeguard the external Auditor’s
independence and objectivity there was prior approval of a
detailed scope of work and no additional safeguards were
considered necessary due to the nature of procedures involved.
BDO LLP have been engaged to advise on taxation compliance
matters.
Independence and objectivity of the Auditor
RSM UK Audit LLP (“RSM”) were appointed as Auditor to the
Company on 25 April 2017. In accordance with the rules around
audit partner rotation, Mr Graham Ricketts, Partner at RSM,
succeeded Mr Euan Banks, Partner at RSM, for the year ended
30 June 2023 as the responsible individual 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
Audit 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 July 2026. Having considered the Auditor’s
independence in respect of the year ended 30 June 2023, the
Audit Committee is satisfied with the Auditor’s performance,
objectivity and independence.
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Nomination & Remuneration
Committee Report
The following pages set out the Nomination & Remuneration
Committee report of The PRS REIT plc for the financial year
ended 30 June 2023.
Role of the Nomination & Remuneration
Committee
The Nomination & Remuneration Committee was established
with effect from 28 November 2022.
Committee Membership
The Committee comprises Steve Smith as Chairman, Steffan
Francis and Geeta Nanda.
Meetings
There is at least one scheduled meeting per financial year and
its quorum is two members. For the period from 28 November
2022 to 9 October 2023, the Committee met three times. The
attendance at these meetings was as follows:
Director
Attendance*
Steve Smith (Chairman)
Steffan Francis
Geeta Nanda
3/3
2/3
3/3
* Number of scheduled meetings attended/maximum number of meetings that the
Director could have attended.
The Nomination & Remuneration Committee’s main function
is to evaluate the performance of the Board, ensure the Board
composition, skills and experience are optimal, lead the
process for appointments to the Board and oversee an orderly
succession plan to the Board, ensuring the development
of a diverse pipeline for succession. The Nomination &
Remuneration Committee also reviews any proposed changes
to the remuneration of the Directors of the Company for
recommendation to, and discussion with, the wider Board.
Matters Considered by the Nomination &
Remuneration Committee
The Nomination & Remuneration Committee discussed matters
including, but not limited to: tenure policy, diversity policy,
Board composition, Board skills, Board experience, succession
planning, time commitments, remuneration, and the Listing Rule
requirements on Board diversity.
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Succession Planning and Recruitment
Performance Evaluation
A key focus of the Nomination & Remuneration Committee
since its establishment has been implementing a long-term
succession plan for the Board. Under its Terms of Reference,
once a decision is made to recruit an additional Director, the
Nomination & Remuneration Committee has the responsibility
for identifying and leading that process on behalf of the Board.
A formal role description is created, which is based upon
requirements identified from a review of the current balance
of experience and skills, as well as due regard to the benefits
of diversity of gender, social and ethnic factors, cognitive and
personal strengths. The Nomination & Remuneration Committee
is responsible for identifying suitable candidates, usually
engaging with an independent consultant to facilitate the search
through an open and transparent process, in order to identify
appropriate candidates, including those from different social and
ethnic backgrounds.
During the year, the Nomination & Remuneration Committee
engaged with Nurole Ltd to support in its recruitment process.
Nurole Ltd provided a long list of candidates which was
reviewed by the Nomination & Remuneration Committee to
create a shortlist. Interviews then took place with short-listed
candidates and the Nomination & Remuneration Committee
members, as well as members of the wider Board. Feedback
was then provided, and once a preferred candidates was
selected, the Nomination & Remuneration Committee
recommended the individual to the Board for appointment.
The Nomination & Remuneration Committee, following the
process outlined above is pleased to confirm that Karima
Fahmy has been selected to join the Board on 10 October
2023. Karima brings a wealth of legal, property investment,
development, and management knowledge, gained from
extensive experience as a corporate lawyer within the UK
property sector, and will succeed Jim Prower, who will step
down from the Board at the conclusion of the 2023 AGM.
Refer to the above Corporate Governance Statement on pages
82 to 83, for further details on the performance evaluation.
Re-election of Directors
All Directors submit themselves for election or re-election on an
annual basis. Having notified the Board of his intention to retire
following the conclusion of the AGM in December 2023, Jim
Prower will not be standing for re-election. All other Directors
in office as at the date of this report are to be proposed for re-
election at the 2023 AGM.
Tenure Policy and Diversity Policy
Refer to the above Corporate Governance Statement on page
83, for further details on the Tenure and Diversity Policies.
Remuneration
During the period, the Nomination & Remuneration Committee
requested that a remuneration peer benchmarking exercise
take place, following which the Board agreed to increase fees
by £7,500 per annum for each Non-Executive Director. Further
details can be found in the Directors’ Remuneration Report on
page 98.
Diversity
FCA Listing Rule diversity targets
The FCA’s Listing Rules require that the Company reports on
whether the following targets have been met: at least 40% of
individuals on the Board are women; at least one of the senior
Board positions is held by a woman; and at least one individual
on its Board is from a minority ethnic background.
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The following table sets out the gender and ethnic diversity of the Board as at 30 June 2023 in accordance with the Listing Rules:
Gender Diversity
Number of Board
members
Percentage of the Board
%
Number of senior
positions on the Board13
Men
Women
Not specified / prefer not to say
4
1
–
80
20
–
1
1
–
Ethnic Diversity
Number of Board
members
Percentage of the Board
%
Number of senior
positions on the Board13
White British or other White (including
minority white groups)
Mixed / Multiple Ethnic Groups
Asian / Asian British
Black / African / Caribbean / Black British
Other ethnic group, including Arab
Not specified / prefer not to say
13 Senior positions include Chair and Senior Independent Director
4
–
1
–
–
–
80
–
20
–
–
–
1
–
1
–
–
–
In the 2022 Annual Report, the Board committed to taking steps to increasing both the diversity of the Board and meeting all the
targets set out in the Listing Rules and expected to be compliant with the relevant targets by the end of 2023. On 21 March 2023,
Geeta Nanda was appointed as Senior Independent Director, fulfilling the requirement that a senior Board position should be held by
a woman.
During the year, Nurole Ltd, an external search consultant, was engaged to support to the process for the recruitment of a new
Non-Executive Director. Following a robust interviewing and selection process, Karima Fahmy has been appointed to the Board,
with effect from 10 October 2023, with Jim Prower stepping down at the conclusion of the 2023 AGM. These changes will bring
female representation on the Board to 40%, and result in full compliance with the Listing Rule targets by the end of 2023. Therefore,
the Company has acted towards meeting the recommended targets, whilst ensuring that succession has been managed in an
orderly manner.
As an investment company with solely independent, Non-Executive Directors, the Company does not have a Chief Executive or
Chief Financial Officer and has no employees. Accordingly, no disclosures regarding executive management positions have been
included.
Steve Smith
Nomination & Remuneration Committee Chairman
9 October 2023
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Management Engagement
Committee Report
The following pages set out the Management Engagement
Committee report of The PRS REIT plc for the financial year
ended 30 June 2023.
Matters Considered by the Management
Engagement Committee
The Management Engagement Committee, which reports to the
Board, has governance responsibilities to review the Company’s
continuing appointment of the AIFM and Investment Adviser.
Committee Membership
The Management Engagement Committee comprises Steve
Smith as Chairman, Steffan Francis, Rod MacRae, Geeta
Nanda and Jim Prower.
Meetings
At its meetings during the year under review, the Management
Engagement Committee has:
> reviewed the performance of the AIFM and Investment
Adviser and satisfied itself that the AIFM Agreement and
Investment Advisory Agreement remain competitive and
sensible for shareholders; and
> reviewed the performance of other third-party service
providers and made recommendations to the Board
regarding these.
There is at least one scheduled meeting per any financial
year and its quorum is two members. For the period from 1
July 2022 to 9 October 2023, the Committee met twice. The
attendance at these meetings was as follows:
Performance Evaluation
Refer to the above Corporate Governance Statement on pages
82 to 83, for further details on the performance evaluation.
Director
Attendance*
Steve Smith (Chairman)
Steffan Francis
Rod MacRae
Geeta Nanda
Jim Prower
2/2
2/2
2/2
2/2
1/2
* Number of scheduled meetings attended/maximum number of meetings that the
Director could have attended.
Role of the Management Engagement
Committee
The Management Engagement Committee is primarily
responsible for reviewing the appropriateness of the continuing
appointment of the AIFM and Investment Adviser, ensuring
that the appointments continue to be in the best interests
of shareholders and that the terms of the AIFM Agreement
and Investment Advisory Agreement remain competitive and
sensible for shareholders.
The Management Engagement Committee also monitors and
evaluates the performance of other key service providers to the
Company.
Management Arrangements
Investment Adviser
The Company and the AIFM have appointed Sigma PRS as
the Investment Adviser. Sigma PRS is responsible for the
management of the assets of the Company and advising the
Company and the AIFM on a day-to-day basis in respect of
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”) was
extended, with effect from 1 January 2021. The Agreement
signed on 3 May 2017 provided for an initial minimum
contracted term of five years to 31 May 2022, being the fifth
anniversary of the initial admission of the Company’s shares
to trading on the Specialist Fund Segment of the Main Market
of the London Stock Exchange, with a one year notice period
thereafter. Under the new agreement, the contracted term has
been extended to 31 December 2025, with a one year notice
period thereafter, with a reduction in the Investment Adviser fee
rates above £500 million of net asset value compared to the
original arrangement. 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 11 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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AIFM
Administration services
G10 Capital Limited (part of the IQ-EQ Group) has been
appointed as the Company’s AIFM. Subject to the overall
supervision of the Directors, the AIFM is responsible for overall
portfolio management and risk management of the Company,
ensuring compliance with the Company’s investment policy and
the requirements of the UK AIFM Regime and EU Alternative
Investment Fund Managers Directive (“AIFMD”) that apply to
the Company. 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 the following fees:
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 provide
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 Agreement provides that the
Company will pay the Administrator an annual fee of £70,000
plus VAT, payable monthly in arrears.
(a) an initial one-off fee of £12,000;
Company secretarial
Hanway Advisory Limited, an independent third party, was
appointed Company Secretary to the Company with effect from
31 March 2022. Sigma Capital Property Ltd were formerly the
Company Secretary. The Company pays annual fees of £50,000
plus VAT, payable quarterly in arrears.
Review of Service Providers
The Management Engagement Committee reviews the ongoing
performance and continuing appointment of the Company’s
key service providers on an annual basis. The Management
Engagement Committee also considers any variation to the
terms of key service providers’ agreements and reports its
findings to the Board.
Continuing Appointment of the AIFM and
Investment Adviser
The Management Engagement Committee has reviewed the
continuing appointment of the AIFM and Investment Adviser
and is satisfied that their appointment remains in the best
interests of shareholders.
Steve Smith
Management Engagement Committee Chairman
9 October 2023
(b) a monthly fee of £6,000, increased to £6,930 from
September 2022;
(c) a PRIIPS Monthly Maintenance Fee of £1,155;
(d) £1,000 per investment committee meeting; and
(e) Ad-hoc work as required.
The AIFM Agreement is terminable by any of the parties to it
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;
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, the parent company of Sigma PRS, is directly appointed
as alternative investment fund manager of the Company.
Depositary
Crestbridge UK 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 starts 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. A 6%
increase to the total fee was applied from October 2022. 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.
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Remuneration Policy
The Directors’ Remuneration Policy of the Company is set
by the Board and was last approved by shareholders at the
Annual General Meeting held on 15 December 2021, and
became effective from the conclusion of that 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 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.
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.
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 or her ordinary duties as
a Director, he or she may be paid such reasonable additional
remuneration as the Board may from time to time determine.
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Directors’ Remuneration Components
Component
Director
Annual fee
Chairman
Annual fee
Non-Executive Directors
Additional fee Chairman of the Audit Committee
Additional fee
All Directors
Expenses
All Directors
*From 1 April 2023 an increase of £7,500 was applied to all annual fees
Annual Fee*
£’000
Purpose of Remuneration
52.5
37.5
5.0
Commitment as Chairman of a public company
Commitment as Non-Executive Directors of a
public company
For additional responsibilities and time
commitment, in addition to Non-Executive
Director fee
Discretionary
For extra or special services performed in their
role as a Director
n/a
Reimbursement of expenses incurred in the
performance of duties as a Director
Directors and Officers liability insurance cover is maintained by
the Company on behalf of the Directors.
Approach to recruitment remuneration
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. The letters of
appointment are available for inspection at the Company’s
registered office.
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 are taken into consideration by the Board
when reviewing levels of remuneration. No views have been
expressed to date.
Voting at the AGM
The Directors’ Remuneration Report for the year ended 30
June 2022 (excluding the Directors’ Remuneration Policy) was
approved by shareholders at the AGM held on 28 November
2022. The results taken on a poll were as follows:
Directors’ Remuneration Report
For – number of votes cast
390,262,447
99.52%
Against - number of votes cast
1,896,508
0.48%
Total votes cast
392,160,261
Number of votes withheld
1,306
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The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Directors’
Remuneration Report
The Board presents its Directors’ Remuneration Report in respect of the year ended 30 June 2023. 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).
The law requires the Company’s Auditor to audit certain disclosures. Where disclosures have been audited, they are indicated as
such. The Auditor’s opinion is included in the Auditor’s Report on pages 104 to 111.
Annual Statement from the Chairman
I am pleased to present the Directors’ Remuneration Report for the financial year ended 30 June 2023.
The Board established a separate Nomination & Remuneration Committee during the year which has responsibility 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. Resolutions to approve
the Directors’ Remuneration Report will be put before shareholders at the forthcoming AGM of the Company. During the next
financial year, it is expected that there will be no significant change in the implementation of the Directors’ Remuneration Policy.
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.
For the nine months to 31 March 2023, the Directors’ fees were 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. From 1 April
2023, the Directors’ fees were set at a rate of £52,500 per annum in respect of the Chairman and £37,500 per annum in respect of
the other Directors, with an additional £5,000 to the Chairman of the Audit Committee The fee increases followed a remuneration
benchmarking exercise and independent advice, to ensure that the fees were sufficient to attract and retain Directors of suitable calibre
and with the skills, knowledge and experience necessary for the role having regards to the expected time commitment.
There were no other payments for extra services in the period ended 30 June 2023 (2022: £nil).
Directors’ fees for the period (audited)
The Directors who served during the year and prior period received the following total fixed fee remuneration:
Year ended
30 June
2023
£’000
Year ended
30 June
2022
£’000
47
32
37
32
32
180
45
30
35
30
30
170
Change
%
+4
+6
+5
+6
+6
+6
Steve Smith (Chairman)
Steffan Francis
Rod MacRae (Audit Committee Chairman)
Geeta Nanda
Jim Prower
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The PRS REIT plc Annual Report & Financial Statements 2023 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
Directors’ aggregate remuneration
Dividends paid to all shareholders*
Year ended
30 June
2023
£’000
180
21,970
Year ended
30 June
2022
£’000
170
21,430
*includes all dividends paid in relation to the year ended 30 June 2023 and year ended 30 June 2022
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.
120
110
100
90
80
70
60
Jul-22
Aug-22
Sep-22 Oct-22
Nov-22 Dec-22
Jan-23
Feb-23 Mar-23
Apr-23 May-23
Jun-23
PRS REIT
FTSE 250
FTSE ALL SHARE REITS
FTSE 350 REITS
99
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE 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 2023, the following Directors (including their connected persons) had beneficial interests in the following number of
shares in the Company:
Steve Smith (Chairman)
Steffan Francis
Rod MacRae (Audit Committee Chairman)
Jim Prower
Geeta Nanda
Ordinary
Shares
2023
305,000
125,000
125,000
100,000
–
Ordinary
Shares
2022
155,000
105,000
100,000
52,000
–
There have been no changes to Directors’ share interests between 30 June 2023 and the date of this report.
The shareholdings of the Directors are not significant and therefore do not 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.
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 Report.
Approval
The Directors’ Remuneration Report was approved by the Board on 9 October 2023.
On behalf of the Board.
Steve Smith
Chairman
9 October 2023
100
The PRS REIT plc Annual Report & Financial Statements 2023 I
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The PRS REIT plc Annual Report & Financial Statements 2023
101
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INDEPENDENT
AUDITOR’S REPORT
Independent Auditor’s 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 2023, which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Company
Statements of Financial Position, Consolidated and Company Statements of Changes in Equity, Consolidated and Company
Statements of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law and UK-adopted International
Accounting Standards. The financial reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and UK-adopted International Accounting Standards 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
2023 and of the group’s profit for the year then ended;
> the group financial statements have been properly prepared in accordance with UK-adopted International Accounting
Standards;
> the parent company financial statements have been properly prepared in accordance with UK-adopted International Accounting
Standards and as applied in accordance with the Companies Act 2006; and
> the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
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 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.
Summary of our audit approach
Key audit matters
Group
> Valuation of Investment Property
Materiality
Parent Company
> No key audit matters
Group
> Overall materiality: £10,500,000 (2022: £10,100,000)
> Performance materiality: £7,880,000 (2022: £7,620,000)
Parent Company
> Overall materiality: £5,700,000 (2022: £5,580,000)
> Performance materiality: £4,275,000 (2022: £4,180,000)
Scope
Our audit procedures covered 100% of revenue, 100% of total assets and 100% of profit
before tax.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group 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
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
104
The PRS REIT plc Annual Report & Financial Statements 2023 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
Investment Property Valuation
Key audit matter description The Group owns a portfolio of residential investment properties. The total value of the portfolio
How the matter was
addressed in the audit
at 30 June 2023 was £1,035m (2022: £962m). The portfolio includes completed sites and
sites in the development phase, the latter are described as investment properties under
construction. All assets are held at fair value. At 30 June 2023 the assets under construction
were valued at £87m (2022: £122m).
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.
The valuation is carried out by external valuers, Savills, in line with the methodology set out in
note 18 on pages 133 to 135.
Further information is disclosed in the Audit Committee report on pages 86 to 88; the
significant accounting judgements and estimates on page 125; significant accounting policies
on pages 122 to 125 and notes to the financial statements on pages 121 to 147.
Our audit work included the following:
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.
We engaged a property valuation specialist as our auditor expert to assist in the audit of the
valuations.
We selected a sample of 13 sites, and requested the auditor’s expert review the valuation
at the year end date and comment on whether the value is within a reasonable range and
whether the overall valuation is based on appropriate judgments and market data. Our sample
was selected using auditor judgement and included sites where the rent or yield movements
were higher or lower than expected from our overall review of the portfolio, where the year on
year valuation movement was not in line with the average of the portfolio, and other material
sites which were included to obtain coverage, in terms of value and location, over both
completed assets and development sites.
We discussed with the Investment Adviser and the external valuer the overall movement
in property values and any properties where the fair value was not consistent with overall
movements of the entire portfolio, to gain an understanding of why these exceptions were
reasonable.
We obtained an understanding of the methodology and key assumptions used in the valuation.
We challenged the appropriateness of these through consulting with an auditor’s expert and
reviewing market data, and used this to inform our challenge of the Investment Adviser and the
external valuer.
For assets under construction, we assessed the stage of completion 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 Investment Adviser to the external valuer to check these
reflected the key observable inputs for each property.
We audited the disclosures in the financial statements relating to the valuation of investment
property, including those relating to estimates and the key valuation assumptions disclosed in
note 18 (including in relation to the Coppenhall Place property).
Key observations
Based on our audit work, we are satisfied that the judgements and assumptions used in
arriving at the fair value of the Group’s property portfolio are appropriate and supported by the
evidence obtained during the audit.
We have determined that there are no key audit matters to communicate in our report in relation to the parent company.
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The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
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:
Overall materiality
£10,500,000 (2022: £10,100,000)
£5,700,000 (2022: £5,580,000)
Group
Parent company
Basis for determining overall
materiality
Rationale for benchmark applied
1% of Total assets
1.3% of Total assets
Total assets used as a benchmark as
we assessed that the shareholders will
be primarily interested in the value of
investment property, which forms the
majority of total assets.
Total assets used as a benchmark as
we assessed that the shareholders will
be primarily interested in the value of
investment property, represented by the
investment held by the Parent Company
in its property holding subsidiaries, which
forms the majority of total assets.
Performance materiality
£7,880,000 (2022: £7,620,000)
£4,275,000 (2022: £4,180,000)
Basis for determining performance
materiality
Reporting materiality levels for
transactions where materiality levels
are lower than overall materiality
Reporting of misstatements to the
Audit Committee
75% of overall materiality
75% of overall materiality
The income statement was tested to a
lower specific materiality figure of £2.5m
(2022: £2.1m) to reflect that the income
statement values are significantly lower
than those in the Statement of Financial
Position.
The income statement was tested to a
lower specific materiality figure of £2.5m
(2022: £2.1m) to reflect that the income
statement values are significantly lower
than those in the Statement of Financial
Position.
Misstatements in excess of £50,000 (or
£10,000 for related party transactions)
and misstatements below that threshold
that, in our view, warranted reporting on
qualitative grounds have been reported to
the Audit Committee.
Misstatements in excess of £50,000 (or
£10,000 for related party transactions)
and misstatements below that threshold
that, in our view, warranted reporting on
qualitative grounds have been reported to
the Audit Committee.
106
The PRS REIT plc Annual Report & Financial Statements 2023 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
An overview of the scope of our audit
The group consists of 101 components, all of which are based in the UK.
The coverage achieved by our audit procedures was:
0%
Revenue
66%
0%
20%
34%
Total
assets
46%
80%
0%
Profit
before
tax
54%
Full scope
Specific audit procedures
Analytical procedures
Full scope audits were performed for 37 components, specific audit procedures for 40 components and analytical procedures at
group level for the remaining 24 components.
Number of
components
Revenue
Total assets
Profit before
tax
Full scope audit
Specific audit procedures
Total
37
40
77
34%
66%
100%
80%
20%
100%
54%
46%
100%
Analytical procedures at group level were performed for the remaining 24 components.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent
company’s ability to continue to adopt the going concern basis of accounting included:
> Reviewing management’s going concern assessment paper covering the 12-month period from date of approval of the financial
statements;
> Checking the mathematical accuracy of the underlying financial model;
> Assessing the information used in the going concern assessment for consistency with management’s plans and information
obtained through our other audit work;
> Challenging the major assumptions in management’s forecasts, being the level of rents receivable, expenses, capital
expenditure, dividends and finance costs;
> Assessing management’s sensitivity analysis, including considering the impact on bank loan covenants;
> Reviewing the appropriateness of going concern disclosures within the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s or the parent company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the entity reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
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The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information contained within the annal report. 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.
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 course of 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 this gives rise to
a material misstatement in the financial statements themselves. 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.
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 Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
> the Strategic Report and the Directors’ Report 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 Directors’ Report.
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
> 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.
Corporate governance statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the parent company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
> Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 74;
> Directors’ explanation as to their assessment of the group’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 74 to 75;
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The PRS REIT plc Annual Report & Financial Statements 2023 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
> Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets
its liabilities set out on page 74;
> Directors’ statement on fair, balanced and understandable set out on page 76;
> Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 54;
> The section of the annual report that describes the review of effectiveness of risk management and internal control systems set
out on page 79; and,
> Section describing the work of the audit committee set out on pages 86 to 88.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 76, 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.
The extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient
appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination of material
amounts and disclosures in the financial statements, to perform audit procedures to help identify instances of non-compliance with
other laws and regulations that may have a material effect on the financial statements, and to respond appropriately to identified or
suspected non-compliance with laws and regulations identified during the audit.
In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements
due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud
through designing and implementing appropriate responses and to respond appropriately to fraud or suspected fraud identified
during the audit.
However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the
entity's operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of
fraud.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement
team:
> obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the
group and parent company operates in and how the group and parent company are complying with the legal and regulatory
frameworks;
> inquired of management, and those charged with governance, about their own identification and assessment of the risks of
irregularities, including any known actual, suspected or alleged instances of fraud;
> discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how
and where the financial statements may be susceptible to fraud having obtained an understanding of the effectiveness of the
control environment.
109
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE PRS REIT PLC (Cont.)
The most significant laws and regulations were determined as follows:
Legislation / Regulation
Additional audit procedures performed by the Group audit engagement team
included:
IFRS/UK-adopted IAS and
Companies Act 2006
Review of the financial statement disclosures and testing to supporting documentation;
Completion of disclosure checklists to identify areas of non-compliance.
REIT legislation
Review of the REIT status assessment prepared by management;
Inspection of advice received from external tax advisors;
Input from a REIT specialist was obtained regarding the calculation of property
income profits and the ability to calculate the Property Income Distribution (“PID”) on a
cumulative basis.
In addition to investment property valuations which is included above as a key audit matter, the area that we identified as being most
susceptible due to fraud was:
Risk
Audit procedures performed by the audit engagement team:
Management override of controls
Testing the appropriateness of journal entries and other adjustments;
Assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and
Evaluating the business rationale of any significant transactions that are unusual or
outside the normal course of business.
Related party transactions and
balances
Obtaining the list of related parties and checking for omissions through review of
related directorships, board minutes and declarations of interest.
Auditing a sample of related party transactions to ensure they are in line with the
underlying agreements.
Checking any related party transactions are appropriately disclosed in the financial
statements.
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 year ending 30 June 2018 and subsequent financial periods.
The period of total uninterrupted consecutive appointments is six years, covering the years ending 30 June 2018 to 30 June 2023.
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 in accordance with ISAs (UK).
110
The PRS REIT plc Annual Report & Financial Statements 2023 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.
In due course, as required by the Financial Conduct Authority
(FCA) Disclosure Guidance and Transparency Rule (DTR)
4.1.14R, these financial statements will form part of the
European Single Electronic Format (ESEF) prepared Annual
Financial Report filed on the National Storage Mechanism of
the UK FCA in accordance with the ESEF Regulatory Technical
Standard (‘ESEF RTS’). This auditor’s report provides no
assurance over whether the annual financial report has been
prepared using the single electronic format specified in the
ESEF RTS.
Graham Ricketts (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
9 October 2023
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The PRS REIT plc Annual Report & Financial Statements 2023
111
N
O
T
E
S
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2023
Rental income
Non-recoverable property costs
Net rental income
Other 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
Profit after tax and Total comprehensive income for the year attributable
to the equity holders of the Company
Note
6
7
8
9
11
12
18
13
14
15
30 June
2023
£’000
49,701
(9,551)
40,150
30 June
2022
£’000
41,963
(7,635)
34,328
1,646
470
(180)
(5,788)
(2,300)
(8,268)
25,353
58,881
49
(16,478)
42,452
(170)
(5,158)
(2,183)
(7,511)
99,727
127,014
4
(11,129)
115,889
–
–
42,452
115,889
Earnings per share attributable to the equity holders of the Company:
IFRS earnings per share (basic and diluted)
16
7.7p
21.4p
All of the Group activities are classed as continuing and there were no comprehensive gains or losses in the period other than those
included in the statement of comprehensive income.
114
114
The PRS REIT plc Annual Report & Financial Statements 2023
The PRS REIT plc Annual Report & Financial Statements 2023
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
Company No. 10638461
ASSETS
Non-current assets
Investment property
Current assets
Trade and 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
Provisions
Interest bearing loans and borrowings
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
Note
18
20
21
22
24
22
23
24
26
27
28
30 June
2023
£’000
1,034,732
1,034,732
7,066
13,198
20,264
30 June
2022
£’000
961,915
961,915
7,286
48,682
55,968
1,054,996
1,017,883
2,081
248,440
250,521
17,076
934
126,745
144,755
2,243
246,687
248,930
29,742
–
99,973
129,715
395,276
378,645
659,720
639,238
5,493
298,974
118,584
236,669
659,720
5,493
298,974
140,554
194,217
639,238
IFRS net asset value per share (basic and diluted)
29
120.1p
116.4p
As at 30 June 2023, there is no difference between IFRS NAV per share and the EPRA NTA per share.
These consolidated group financial statements were approved by the Board of Directors and authorised for issue on 9 October
2023 and signed on its behalf by:
Steve Smith
Chairman
115115
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEThe PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE CONSOLIDATED STATEMENT OF CHANGES IN EQUITIY
For the year ended 30 June 2023
Attributable to equity holders of the Company
Attributable to equity holders
of the Company
At 30 June 2021
Comprehensive income
Profit for the year
Transactions with owners
Issue of ordinary shares
Dividend paid
At 30 June 2022
Comprehensive income
Profit for the year
Transactions with owners
Dividend paid
At 30 June 2023
Share
capital
£’000
Share
premium
account
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
4,953
245,005
161,984
78,328
490,270
–
–
540
-
5,493
53,969
-
298,974
–
–
(21,430)
140,554
115,889
115,889
–
–
194,217
54,509
(21,430)
639,238
–
–
–
–
5,493
298,974
–
42,452
42,452
(21,970)
118,584
–
236,669
(21,970)
659,720
116116
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023The PRS REIT plc Annual Report & Financial Statements 2023 CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2023
Cash flows from operating activities
Profit before tax
Finance income
Finance costs
Fair value adjustment on investment property
Cash generated by operations
(Increase) / Decrease in trade and other receivables
(Decrease) / Increase in trade and other payables
Note
13
14
18
30 June
2023
£’000
30 June
2022
£’000
42,452
(49)
16,478
(25,353)
33,528
(578)
(1,640)
115,889
(4)
11,129
(99,727)
27,287
124
4,795
Net cash generated from operating activities
31,310
32,206
Cash flows from investing activities
Purchase of investment properties
Development expenditure on investment properties*
Decrease in capital trade and other payables
Finance income
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Cost of share issue
Bank and other loans advanced
Bank and other loans repaid
Finance costs
Dividends paid
Net cash (used in) / generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
–
(47,458)
(10,255)
49
(26,346)
(55,476)
–
4
(57,664)
(81,818)
–
–
49,801
(23,304)
(13,657)
(21,970)
(9,130)
(35,484)
48,682
55,593
(1,084)
89,624
(100,014)
(10,809)
(21,430)
11,880
(37,732)
86,414
26
27
24
24
17
Cash and cash equivalents at end of year
21
13,198
48,682
* Includes capitalised interest of £0.9 million (2022: £2.5 million).
The accompanying notes are an integral part of this cash flow statement.
117117
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEThe PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
Company No. 10638461
ASSETS
Non-current assets
Investment in subsidaries
Other receivables
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
*See details of Restatement in Note 36
Note
19
20
20
21
22
26
27
28
30 June
2023
£’000
75,425
346,540
421,965
263
8,044
8,307
30 June
2022
Restated*
£’000
30 June
2021
Restated*
£’000
75,425
315,933
391,358
241
28,646
28,887
325,742
318,830
644,572
347
25
372
430,272
420,245
644,944
1,655
1,655
2,517
2,517
252,988
252,988
428,617
417,728
391,956
5,493
298,974
118,584
5,566
428,617
5,493
298,974
140,554
(27,293)
417,728
4,953
245,005
161,984
(19,986)
391,958
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 profit attributable to the Parent Company for the year ended 30 June
2023 amounted to £32.9 million (2022: loss of £7.3 million).
These financial statements were approved by the Board of Directors on 9 October 2023 and signed on its behalf by:
Steve Smith
Chairman
118118
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023The PRS REIT plc Annual Report & Financial Statements 2023 COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2023
Share
capital
£’000
Share
premium
account
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
4,953
245,005
161,984
(19,986)
391,956
–
–
540
-
5,493
53,969
-
298,974
–
–
(21,430)
140,554
(7,307)
(7,307)
–
–
(27,293)
54,509
(21,430)
417,728
–
–
–
–
5,493
298,974
–
32,859
32,859
(21,970)
118,584
–
5,566
(21,970)
428,617
At 30 June 2021
Comprehensive income
Loss for the year
Transactions with owners
Issue of ordinary shares
Dividend paid
At 30 June 2022
Comprehensive income
Profit for the year
Transactions with owners
Dividends paid
At 30 June 2023
119119
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEThe PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 June 2023
Cash flows from operating activities
Profit / (Loss) before tax
Dividends received from subsidiary undertakings
Finance income
Cash used in operations
(Increase) / Decrease in other receivables
Decrease in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Decrease in other receivables
Finance income
Net cash generated from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Costs of share issue
Dividends paid
Net cash (used in) / generated from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Note
26
27
17
30 June
2023
£’000
32,859
(40,850)
(46)
(8,037)
(22)
(861)
(8,920)
10,242
46
10,288
–
–
(21,970)
(21,970)
(20,602)
28,646
30 June
2022
Restated*
£’000
(7,307)
–
(4)
(7,311)
106
(154)
(7,359)
2,897
4
2,901
55,593
(1,084)
(21,430)
33,079
28,621
25
Cash and cash equivalents at end of year
21
8,044
28,646
*See details of Restatement in Note 36
120120
FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023The PRS REIT plc Annual Report & Financial Statements 2023 NOTES TO THE FINANCIAL STATEMENTS
As at 30 June 2023
1. General information
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 was quoted on the Specialist
Fund Segment of the Main Market of the London Stock Exchange until 2 March 2021 when it migrated to the Premium 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. Basis of preparation
The financial statements of the Group and Company have been prepared in accordance with UK-adopted International Accounting
Standards and the applicable legal requirements of the Companies Act 2006 (“IFRS”).
The financial statements are prepared on the historical cost basis, except where IFRS requires or permits an alternative treatment.
The principal variations from historical cost relate to investment properties (IAS40) which are measured as fair value through profit or
loss.
The financial statements are 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. Going concern
The consolidated and Company financial statements have been prepared on a going concern basis. The Directors have reviewed
the current and projected financial position of the Group, making reasonable assumptions about future trading performance with
sensitivity testing undertaken to replicate plausible downside scenarios related to the principal risks and uncertainties associated
with the business. As interest rate exposure has largely been mitigated with 82% of the investment debt in the portfolio at fixed
rates, the Directors paid particular attention to the risk of a deterioration in the forecast rental growth over the review period
which would have a negative impact on both forecast valuations and cashflows. The outcome of this stress testing indicated that
covenants on existing facilities would not be breached. As part of the review, the Group has considered its cash balances, and its
debt maturity profile, including undrawn facilities. The Group had net current liabilities of £124.5 million as at 30 June 2023 (2022:
net current liabilities £73.8 million). The increase in net current liabilities reflects the LBG / RBS debt facility (refinanced on maturity
in July 2023), which was £115.0 million drawn at 30 June 2023 (2022: £85.4 million drawn) and the utilisation of cash. The Group’s
cash balances at 30 June 2023 were £13.2 million (2022: £48.7 million), of which £3.5m was restricted but released within 3
months. The Group had debt borrowing as at 30 June 2023 of £374.1 million. A portion of the development debt facilities were
utilised subsequent to the year-end to enable the Group to continue to develop assets to completion and enabling the letting of
these to tenants. Following stabilisation on a site, which comprises practical completion and substantial letting, investment debt is
drawn down to replace the development debt facilities utilised. In July 2023, the LBG / RBS variable rate investment debt facility
was amended to a 2-year facility of £75 million, of which £13 million was immediately drawn. A new 15-year fixed rate investment
debt facility was taken out with LGIM of which £102 million was immediately drawn.
Capital commitments outstanding as at 30 June 2023 were £27.3 million. The Group’s current ERV as at 30 June 2023, was £55.0
million from 5,080 homes and has increased to £57.6 million from 5,129 homes as at 30 September 2023. This has increased the
Company’s recurring income which at this level is more than sufficient to cover monthly cash costs. Based on the prevailing run-rate
of monthly cash costs and average rent levels, approximately 2,500 homes are required to generate income to cover monthly
cash outlays.
The current market volatility is being monitored by the Board however, the strong income performance and high proportion of fixed
rate debt puts the Group in a good position.
Therefore, the Directors believe the Group and Company are well placed to manage their business risks successfully. After making
enquiries, the Directors have a reasonable expectation that the Group and Company will have adequate resources to continue in
operational existence for the foreseeable future and for a period of at least 12 months from the date of the approval of the Group’s
consolidated financial statements and the Company’s financial statements for the year ended 30 June 2023.
121
The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 4. Summary of significant accounting policies
Basis of consolidation
The consolidated financial statements comprise of the financial statements of The PRS REIT plc and its subsidiary undertakings.
Subsidiaries are all entities over which the Group has control. The results of subsidiaries are 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.
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 investment properties.
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.
Subsidiaries
Investments in subsidiaries are stated at cost less any provision for permanent diminution in value. A review for impairment is carried
out if events or changes in circumstances indicate that the carrying amount may not be recoverable, in which case an impairment
provision is recognised and charged to the Income Statement. The results of subsidiaries acquired or disposed of during the year
are included from the effective date of acquisition or up to the effective date of disposal. All intra-Group transactions, balances,
income and expenses are eliminated on consolidation.
Investment property
Property that is held for long-term rental yields or for capital appreciation or both is classified as investment property under IAS 40.
Investment property is measured initially at its cost including related transaction 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
> Expected final uplift = Expected investment value on completion less gross development cost
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 18.
Financial instruments
Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
Financial liabilities
Financial liabilities, equity instruments issued by the Group are classified in accordance with the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the
Group are recorded at the proceeds received, net of direct issue costs.
122
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 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 expected credit losses
on financial assets are estimated on a lifetime basis on the Group’s historical credit loss experience adjusted for factors that are
specific to the debtors, including 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, 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 2023 the Group’s loss allowance for expected credit losses on trade receivables was
£453,000 (2022: £281,000).
The receivables due to the Company from subsidiaries are non-interest bearing loans, repayable on demand. These are stated at
cost less any allowance for expected credit losses (‘ECL’). The Company measures the loss allowance for intra-Group receivables
at 12 month ECL. The ECL is estimated using a probability-weighted analysis of all possible outcomes with reference to the debtors’
financial position and forecasts of future economic conditions. The resultant estimated ECL is not considered material to the
financial statements, therefore the Company has recognised a loss allowance of £nil (2022: £nil) against amounts receivable from
subsidiaries.
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 21.
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently measured at their
amortised cost.
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred and subsequently at amortised cost.
Leases
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. 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 in 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.
Right-of-use (“ROU”) assets
A right-of-use asset is recognised at the commencement date of a lease. The ROU is measured at cost, which comprises the initial
amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any
lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs
expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are subsequently measured at fair value and classified within investment properties.
123
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Impairment of assets
At each balance sheet date, the Directors review the carrying amounts of the Company’s non-current assets, which aren’t
measured at fair value, to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset in its current condition is estimated in order to determine the extent of the
impairment loss, if any. The recoverable amount is the higher of fair value less cost to sell and value in use.
Provisions
Onerous contracts - A provision for onerous contracts is measured at the present value of the lower of the expected cost of
terminating the contract and the expected net cost of continuing with the contract, which is determined based on the incremental
costs of fulfilling the obligation under the contract and an allocation of other costs directly related to fulfilling the contract.
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 the 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 substantively enacted at the reporting date. 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.
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 and is recognised over the contractual period which does not exceed 12 months.
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 accrued using the effective interest rate method on bank loans held by the Group.
Capitalised interest
During the development phase where funds from a development loan facility are drawn down to fund an asset, the interest payable
is capitalised as a cost of development of that asset. The amount capitalised in the year to 30 June 2023 was £0.9 million (2022:
£2.5 million). The weighted capitalisation rate for the year to 30 June 2023 was 5.8% (2022: 3.6%), and is determined by the
margin rate plus compounded SONIA rate, per the Barclays development debt facility.
Costs of borrowing
Borrowing costs, including legal and professional fees, are recognised in the income statement over the period of the borrowings
using the effective interest method.
124
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Dividends
Dividends on equity shares are recognised when they become legally payable.
Share issue costs
The costs of issuing equity instruments are accounted for as a deduction from equity.
Significant accounting estimates and assumptions
The preparation of the Group’s financial statements requires the Directors to make 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.
Estimates
In the process of applying the Group’s accounting policies, the Directors have made the following estimates, which have the most
significant effect on the amounts recognised in the consolidated financial statements:
(i) Fair value of investment property
The fair value of any property, including investment property under construction, is determined by an independent property
valuation expert to be the estimated amount for which a property should exchange on the date of the valuation in an arm’s length
transaction. The valuation experts use recognised valuation techniques applying principles of both IAS40 and IFRS13.
The Group values its investment properties using the investment approach to valuation. Principal assumptions and
management’s underlying estimations that are used in the fair value assessment of completed assets relate to estimated rental
value, net investment yield and gross to net deductions. Principal assumptions and management’s underlying estimations that
are used in the fair value assessment of assets under construction are investment value on completion and gross development
costs, taking into account construction costs spent and forecast costs to completion. There are inter-relationships between the
valuation inputs and they are primarily determined by market conditions. The effect of an increase in more than one input could
be to magnify the impact on the valuation. However, the impact on the valuation could be offset by the inter-relationship of two
inputs moving in opposite directions. Further details on the valuation of the investment properties, including sensitivities, are
disclosed in note 18.
Non-GAAP financial information
The Directors have identified certain measures that they believe will assist the understanding of the performance of the business.
The measures are not defined under IFRS and they may not be comparable with other companies’ adjusted measures. The non-
GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance but they have been
included as the Directors consider them to be important comparable and key measures used within the business for assessing
performance. The key non-GAAP measures identified by the Group are set out on pages 148 to 150.
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 year
ended 30 June 2022.
In the current year the Group has adopted a number of minor amendments to standards effective in the year issued by the IASB,
none of which have had a material impact on the Group. These include amendments to IAS 16, IAS 37, IFRS 3 and annual
improvements to IFRS Standards 2018-2020. These amendments did not have any impact on amounts recognised in prior years
and are not expected to significantly affect current and future years.
Standards and interpretations in issue but not yet effective
Several amendments to standards and interpretations have been issued but are not yet effective for the current accounting period.
These include amendments to IAS 12, IAS 1 and IFRS Practice Statement 2. These have not yet been adopted by the Group. The
amendments listed are not expected to significantly affect current and future years.
125
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 5. Financial risk management
The Group’s business activities are set out in the Strategic Report on pages 12 to 63. These activities expose the Group and
Company to a number of financial risks. The following describes the Group’s and Company’s objectives, policies and processes for
managing these risks and the methods used to measure them. 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 only
operates in the UK and transacts in sterling. It is therefore not directly exposed to any foreign currency exchange risk.
Capital risk management
The capital of the Group is managed in accordance with its investment policy. The Group’s and Company’s objectives for
managing capital are to safeguard the Group’s and Company’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 and Company consists of equity and debt. The Group and Company meets their objectives by aiming
to achieve a steady growth by mitigating risk, which will generate regular and increasing returns to the shareholders. The Group and
Company also seeks to minimise the cost of capital and optimise its capital structure. At 30 June 2023 the Group had short term
debt of £126.7 million (2022: £100.0 million) and cash at bank of £13.2 million (2022: £48.7 million). At 30 June 2023 the Company
had no short term debt (2022: £nil) and cash at bank of £8.0 million (2022: £28.6 million). There were no changes in the Group’s
and Company’s approach to capital management during the year.
The Group’s capital is represented by the Ordinary Shares, share premium, capital reserves and revenue reserve. The Group is not
subject to any externally-imposed capital requirements except for the requirement as a REIT to distribute at least 90% of its tax-
exempt rental business profits.
Financial instruments
The Group’s 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 and borrowings, the main purpose of
which is to finance the acquisition and development of the Group’s investment property portfolio.
Group
Financial assets
Trade and other receivables
Cash and other cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Interest bearing loans and borrowings
Total financial liabilities
Amortised cost
2023
£’000
1,899
13,198
15,097
20,091
375,185
395,276
2022
£’000
6,618
48,682
55,300
31,787
346,660
378,447
The Company’s principal financial assets and liabilities are those that arise directly from its activities as a holding company: trade
and other receivables, trade and other payables and cash and cash equivalents.
126
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Company
Financial assets
Trade and other receivables
Cash and other cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Total financial liabilities
Market risk
Amortised cost
2023
£’000
346,803
8,044
354,847
2022
£’000
316,095
28,646
344,741
1,649
1,649
2,517
2,517
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 for available properties; and
> government regulations, including planning, environmental and tax laws.
The Company holds no investment property directly (2022: nil).
Interest rate risk
The Group has mitigated interest rate risk on its investment and development loans due to the majority of long-term loan facilities
being fixed rate and therefore not subject to variation. Based on the debt profile at the year-end, a 1% change in variable interest
rates would result in an income statement adjustment of £1.3 million (2022: £0.6 million).
Lender
Scottish Widows
Scottish Widows
Lloyds Banking Group plc / RBS *
Barclays Bank PLC
Balance as at
30 June 2023
£100.0 million
£150.0 million
£115.0 million
£12.1 million
Loan
period
15 years
25 years
3 years
3 years
Interest rate
(all in)
3.14%
2.76%
6.53%
8.28%
Loan
Type
Fixed
Fixed
Maturity
June 2033
June 2044
Variable
July 2023
Variable
August 2025
* In July 2023, the loan was restated as a two-year £75 million floating-rate debt facility with RBS. £13.1 million was drawn immediately.
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.
The Company had no external loans as at 30 June 2023 (2022: nil).
127
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 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. Gross rental income
outstanding and due to the Group as at 30 June 2023 amounted to £1.0 million (2022: £0.6 million).
As at 30 June 2023 the Group’s loss allowance for expected credit losses on these trade receivables was £453,000 (2022:
£281,000). The Group’s loss allowance is assessed based on the ageing of individual debts, as well as current occupancy of each
individual property. Amounts are only written off when there is no expectation of recovery. As at 30 June 2023, trade receivables
were 1.0% (2022: 1.0%), and total arrears over 30 days were 1.2% (2022: 0.8%) of the estimated rental value (“ERV”) of the
portfolio.
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
2023, 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 (2022: £nil).
Liquidity risk
The Group and Company 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 2023, the Group had net current liabilities of £111.4 million (2022: net current liabilities of £73.8 million). The table
below summarises the undiscounted maturities of the Group’s non-derivative financial liabilities as at 30 June 2023 and 30 June
2022:
On
demand
£’000
< 3
months
£’000
–
–
–
4,003
123,823
127,826
3 to 12
months
£’000
14,007
11,521
25,528
1 to 5
years
£’000
2,081
30,227
32,308
> 5
years
£’000
Total
£’000
–
332,969
332,969
20,091
498,540
518,631
372
–
372
3,634
29,075
32,709
25,736
81,274
107,010
2,243
36,962
39,205
–
337,531
337,531
31,985
484,842
516,827
Group
2023
Trade and other payables
Loans and borrowings
2022
Trade and other payables
Loans and borrowings
128
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 For the majority of borrowings, the fair values are not materially different from their carrying amounts, since the interest payable
on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Material differences are
identified only for the following borrowings:
Bank loans (long-term, fixed interest)
2023
Carrying
amount
£’000
250,000
2023
Fair
value
£’000
166,511
2022
Carrying
amount
£’000
250,000
2022
Fair
value
£’000
263,602
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate.
As at 30 June 2023, the Company had net current assets of £6.7 million (2022: £26.4 million). The table below summarises the
maturities of the Company’s non-derivative financial liabilities as at 30 June 2023 and 30 June 2022:
Company
2023
Trade and other payables
2022
Trade and other payables
6. Rental income
On
demand
£’000
< 3
months
£’000
3 to 12
months
£’000
1 to 5
years
£’000
> 5
years
£’000
–
–
372
372
1,655
1,655
2,145
2,145
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
1,655
1,655
2,517
2,517
Gross rental income from investment property
2023
£’000
49,701
2022
£’000
41,963
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 individually significant customers.
7. Non-recoverable property costs
Other property expenses and irrecoverable costs
2023
£’000
9,551
2022
£’000
7,635
Non-recoverable property costs represent direct operating expenses in relation to rental income arising on investment properties.
The impairment charge to the income statement in relation to trade receivables was £161,000 (2022: £381,000).
8. Other income
Other income
2023
£’000
1,646
2022
£’000
470
Other income represents amounts payable by partners in respect of later than expected delivery of assets where the delay is
attributable to the partner.
129
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 9. Directors’ remuneration
Directors’ emoluments
2023
£’000
180
2022
£’000
170
The Directors are remunerated for their services at such rate as the Board shall from time to time determine. Further details of the
Directors’ remuneration are disclosed on pages 98 to 100.
10. Particulars of employees
The Group had no employees during the year or prior year other than the Directors.
11. Asset management fees
Asset management fee
Sigma PRS Management Ltd is appointed as the Investment Adviser of the Company.
2023
£’000
5,788
2022
£’000
5,158
The Asset Management Fee (the “Asset Management Fee”) payable to the Investment Adviser is payable monthly in arrears, and
the rates used to calculate the Asset Management Fee are as follows:
(i) 1% per annum of the Adjusted NAV* up to, and including, £250 million;
(ii) 0.90% per annum of the Adjusted NAV in excess of £250 million and up to, and including, £500 million;
(iii) 0.75% per annum of the Adjusted NAV in excess of £500 million and up to, and including, £1 billion;
(iv) 0.50% per annum of the Adjusted NAV in excess of £1 billion and up to, and including, £2 billion; and
(v) 0.40% per annum of the Adjusted NAV in excess of £2 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 December 2025.
* Adjusted Net Asset Value: the Net Asset Value, less an amount equal to the Development Cost incurred in relation to the PRS Development Sites under construction at
the relevant time by the Company and its subsidiaries, calculated in accordance with the Investment Advisory Agreement.
12. Administrative expenses
Legal and professional fees
Administration and secretarial fees
Audit, accounting, and tax fees
Valuation fees
Depositary fees
Financial adviser and broker fees
Insurance
Public relations
Regulatory fees
Subscriptions and donations
Disallowed VAT
130
2023
£’000
352
175
361
333
43
201
59
102
165
114
395
2022
£’000
365
106
390
332
55
189
82
148
164
30
322
2,300
2,183
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 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 Parent Company and Group financial statements
Audit of the subsidiary financial statements
Agreed upon procedures on the half year report
13. Finance income
Interest on short term deposits
14. Finance cost
Amortisation of debt legal costs and arrangement fees
Interest on bank loans
15. Taxation
2023
£’000
140
148
23
311
2023
£’000
49
2023
£’000
4,315
12,163
16,478
2022
£’000
120
114
21
255
2022
£’000
4
2022
£’000
3,142
7,987
11,129
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
2023
£’000
–
–
2022
£’000
–
–
131
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE The tax charge for the period is less than the standard rate of corporation tax in the UK of 20.5% (2022: 19%). The differences are
explained below.
Profit before tax
Tax at UK corporation tax standard rate of 20.5% / 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
Capital allowances claimed against exempt REIT income
Capitalised interest claimed against exempt REIT income
2023
£’000
42,452
8,703
(5,189)
(3,723)
16
418
(40)
(185)
–
2022
£’000
115,889
22,018
(18,948)
(2,953)
16
306
(44)
(395)
–
From 1 April 2017 to 31 March 2023, the standard rate of corporation tax in the UK was 19%, from 1 April 2023 the standard rate
of corporation tax in the UK was 25%.
REIT exempt income includes property rental income that is exempt from UK Corporation Tax in accordance with Part 12 of CTA
2010.
16. Earnings per share
Earnings per share (“EPS”) amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the
Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments, basic
and diluted earnings per share are the same for both the current and prior periods.
The calculation of basic and diluted earnings per share is based on the following:
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings:
Changes in value of investment properties (Note 18)
EPRA Earnings
2023
£’000
42,452
2022
£’000
115,889
(25,353)
17,099
(99,727)
16,162
Weighted average number of ordinary shares (Note 26)
549,251,458
535,203,388
IFRS EPS (pence)
EPRA EPS (pence)
7.7
3.1
21.4
3.0
Further details of the EPRA performance measure are given on page 148.
132
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 17. Dividends
The following dividends were paid during the current year and prior year:
Dividends on ordinary shares declared and paid:
Dividend of 1.0p for the 3 months to 30 June 2021
Dividend of 1.0p for the 3 months to 30 September 2021
Dividend of 1.0p for the 3 months to 31 December 2021
Dividend of 1.0p for the 3 months to 31 March 2022
Dividend of 1.0p for the 3 months to 30 June 2022
Dividend of 1.0p for the 3 months to 30 September 2022
Dividend of 1.0p for the 3 months to 31 December 2022
Dividend of 1.0p for the 3 months to 31 March 2023
Proposed dividends on ordinary shares:
3 months to 30 June 2022: 1.0p per share
3 months to 30 June 2023: 1.0p per share
18. Investment property
2023
£’000
–
–
–
–
5,493
5,493
5,492
5,492
21,970
–
5,493
5,493
2022
£’000
4,953
5,492
5,492
5,493
–
–
–
–
21,430
5,493
–
5,493
The freehold/heritable, leasehold and part freehold part leasehold interests in the properties held within the PRS REIT were
independently valued as at 30 June 2023 by Savills (UK) Limited, acting in the capacity of External Valuers as defined in the RICS
Red Book (but not for the avoidance of doubt as an External Valuer of the PRS REIT as defined by the Alternative Investment
Fund Managers Regulations 2013). The valuations accord with the requirements of IFRS 13 and the Royal Institution of Chartered
Surveyors’ (“RICS”) Valuation – Global Standards, effective from 31 January 2022, incorporating the IVSC International Valuation
Standards (the “RICS Red Book”). The valuations were arrived at predominantly by reference to market evidence for comparable
property.
Savills (UK) Limited are an accredited External Valuer with recognised and relevant professional qualifications and recent experience
of the location and category of the investment property being valued.
The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
At 30 June 2021
Properties acquired on acquisition of subsidiaries
Property additions - subsequent expenditure
Change in fair value
Transfers to completed assets
At 30 June 2022
Property additions - subsequent expenditure
Change in fair value
Transfers to completed assets
At 30 June 2023
Completed
Assets
£’000
533,774
Assets under
Construction
£’000
246,592
14,820
–
69,461
222,300
840,355
–
26,953
80,419
947,727
11,526
55,476
30,266
(222,300)
121,560
47,464
(1,600)
(80,419)
87,005
Total
£’000
780,366
26,346
55,476
99,727
–
961,915
47,464
25,353
–
1,034,732
133
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE The historic cost of completed assets and assets under construction as at 30 June 2023 was £831.8 million (2022: £785.0 million).
The carrying amount of investment property pledged as security as at 30 June 2023 was £952.5 million (2022: £823.6 million).
The Group has recognised a right-of-use (“ROU”) asset within investment property in relation to ground rents payable on certain
investment property sites. The net book value of the ROU asset was £1 million as at 30 June 2023 (2022: £1 million).
The PRS REIT acquired a site at Coppenhall Place, Crewe, with planning consent during the year ended 30 June 2019. At the
same time, the Company also entered into a fixed price design and build contract with one of its principal house building partners
to complete 131 units. This represented approximately 50% of the entire Coppenhall Place site with the balance being developed
by the house builder as market for sale units. The design and build contract contained standard clauses making the house builder
responsible for delivering the site and doing so in compliance with the requirements of the original planning consent.
Shortly after physical completion and letting of more than 95% of the units on the site acquired by the PRS REIT, a dispute arose
between the respective Council and the house builder regarding compliance with the original planning consent. After consultation
between these two parties, the house builder submitted a further planning application with a view to resolving the areas of dispute.
The submission was recommended to the Elected Council Members (“Members”) by the Council Executive but a decision was
deferred at the hearing in order that the Members could obtain additional information on viability, a peer review to clarify on-site
ventilation and clarification on queries regarding potential soil contamination in certain areas of the whole site. As at the date
of approval of these financial statements the house building partner continues to work with the Council Executive to address
outstanding matters before reverting to the Members for approval. The Investment Adviser is closely monitoring progress. The
Board of the PRS REIT is of the view that remaining areas of work will be completed and the planning issues ultimately finalised to
the satisfaction of all parties, including the private owners of the market for sale units.
The financial statements include an investment value for the Coppenhall Place asset of £23.5 million as at 30 June 2023 on the
assumption that the planning matters are resolved. The value of the site represents approximately 2.3% of the balance sheet
investment value of assets as at the year-end date. Given the contractual protections, the risk of any potential impact to the Group
is considered highly unlikely, and given the value of the site relative to the overall balance sheet, the risk of any potential impact to
the Group is considered to be immaterial.
Fair Values
IFRS 13 sets out a three-tier hierarchy for assets and liabilities valued at fair value. These are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2
inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly;
and
Level 3 unobservable inputs for the asset or liability.
Investment property falls within Level 3.
The investment valuations provided by the external valuation expert are based on RICS Professional Valuation Standards but include
a number of unobservable inputs and other valuation assumptions. The significant unobservable inputs and the range of values
used are:
Type
ERV per unit
Investment yield
Gross to net assumption
134
Range
2023
£10k - £22k
2022
£7k - £22k
4.10% to 5.00%
3.75% to 4.50%
22.5% to 25.0%
22.5% to 25.0%
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023
The following descriptions and definitions relate to key unobservable inputs made in determining fair values:
> ERV (Estimated Rental Value) per unit: the estimated annual market rental value that could be earned on a unit basis annually;
> Investment yield: the net income earned as a percentage of the investment value; and
> Gross to net assumption: the non-recoverable property costs expected to be incurred on a rental property as a percentage of
rental income.
Development assets are valued based on total development cost plus expected final uplift in valuation multiplied by % of site
development completed. The range of % completions as at 30 June 2023, was from 29% to 99% (2022: 7% to 99%). The final
investment value uses the assumptions stated above. An increase of 2% in the gross development cost would reduce the fair
valuation of these assets by c.£1.7 million.
The impact of changes to the significant unobservable inputs for completed and development assets are:
2023
Impact on
statement of
comprehensive
income
£’000
52,650
2023
Impact on
statement
of financial
position
£’000
52,650
2022
Impact on
statement of
comprehensive
income
£’000
48,213
(51,303)
30,078
(28,407)
14,192
(12,738)
(51,303)
30,078
(28,407)
14,192
(12,738)
(48,223)
30,124
(28,359)
12,492
(12,402)
2022
Impact on
statement
of financial
position
£’000
48,213
(48,223)
30,124
(28,359)
12,492
(12,402)
Improvement in ERV by 5%
Worsening in ERV by 5%
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%
The rates of sensitivity reflected in the above table have been selected as being reflective of movements experienced in ERV, yields
and gross to net expenses.
135
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 19. Investment in subsidiaries
Company
Cost at the start of the year
Reclassification as Group receivables during the year
Cost at the end of the year
2023
£’000
75,425
–
75,425
2022
£’000
325,742
(250,317)
75,425
During the prior year the Company transferred costs related to certain group undertakings to another wholly owned group
undertaking. The Group comprises a number of companies, all subsidiaries included within these financial statements are noted
below:
Directly held:
Name of Entity
The PRS REIT Holding Company Limited
Indirectly held:
Name of Entity
Company
number
10695914
Principal Activity
Investment Holding
Company
Country of
Incorporation
%
ownership
England
100%
Company
number
Principal
Activity
Country of
Incorporation
%
ownership
*The PRS REIT Development Company Limited
10721759
Property Investment
The PRS REIT Development Company II Limited
12298358
Property Investment
The PRS REIT Property Investments Limited
12309160
Property Investment
*The PRS REIT Investments LLP
OC418251
Property Investment
The PRS REIT Investments II LLP
OC429585
Property Investment
*The PRS REIT Memberco Limited
10854481
Property Investment
The PRS REIT Memberco II Limited
12298381
Investment Holding
Company
England
England
England
England
England
England
England
100%
100%
100%
100%
100%
100%
100%
The PRS REIT (LBG) Borrower Limited
11392913
Property Investment
England
100%
The PRS REIT (LBG) Holding Company Limited
11385652
Investment Holding
Company
England
The PRS REIT (LBG) Investments LLP
OC422964
Property Investment
England
The PRS REIT (LBG) Memberco Limited
11409586
Investment Holding
Company
England
*The PRS REIT (SW) Borrower Limited
11393311
Property Investment
England
The PRS REIT (SW) Holding Company Limited
11385650
Investment Holding
Company
England
*The PRS REIT (SW) Investments LLP
OC422966
Property Investment
England
*The PRS REIT (SW) Memberco Limited
11409522
The PRS REIT (SW II) Holding Company Limited
12046818
Investment Holding
Company
Investment Holding
Company
England
England
*The PRS REIT (SW II) Borrower Limited
12049318
Property Investment
England
100%
100%
100%
100%
100%
100%
100%
100%
100%
136
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Name of Entity
Company
number
Principal
Activity
Country of
Incorporation
%
ownership
*The PRS REIT (SW II) Investments LLP
OC427782
Property Investment
England
England
100%
*The PRS REIT (SW II) Memberco Limited
12052213
The PRS REIT (Bluebird) Memberco Limited
12616572
The PRS REIT (Bluebird) Holding Company Limited
12598004
Investment Holding
Company
Investment Holding
Company
Investment Holding
Company
The PRS REIT (Bluebird) Borrower Limited
12599502
Property Investment
The PRS REIT (Bluebird) Investments LLP
OC432893
Property Investment
The PRS REIT (LGIM) Memberco Limited
14903396
The PRS REIT (LGIM) Holding Company Limited
14903127
Investment Holding
Company
Investment Holding
Company
The PRS REIT (LGIM) Borrower Limited
14903337
Property Investment
The PRS REIT (LGIM) Investments LLP
OC447554
Property Investment
England
England
England
England
England
England
England
England
*Sigma PRS Investments I Limited
SC522680
Property Investment
Scotland
*Sigma PRS Investments II Limited
10128422
Property Investment
*Sigma PRS Investments VI Limited
10467369
Property Investment
*Sigma PRS Investments IV Limited
10383849
Property Investment
*Sigma PRS Investments VIII Limited
10571586
Property Investment
Sigma PRS Investments (Brackenhoe) Limited
12026470
Property Investment
*Sigma PRS Investments (Bury St Edmunds) Limited
11721278
Property Investment
Sigma PRS Investments (Dawley Road II) Limited
12064750
Property Investment
*Sigma PRS Investments (Our Lady’s) Limited
10684675
Property Investment
*Sigma PRS Investments (Owens Farm) Limited
11207716
Property Investment
Sigma PRS Investments (Houghton Regis) Limited
11673725
Property Investment
Sigma PRS Investments (Houghton Regis II) Limited
11676096
Property Investment
England
England
England
England
England
England
England
England
England
England
England
Sigma PRS Investments (Houghton Regis Parcel 8II)
Limited
Sigma PRS Investments (Houghton Regis Parcel 8A II)
Limited
11892855
Property Investment
England
12169553
Property Investment
England
*Sigma PRS Investments (Lea Hall) Limited
11726223
Property Investment
*Sigma PRS Investments (Newhall) Limited
11521411
Property Investment
England
England
*Sigma PRS Investments (Bury St Edmunds Parcel D)
Limited
11934752
Property Investment
England
The PRS REIT (Drakelow Park) Limited
13572147
Property Investment
The PRS REIT (Drakelow Park Phase 2) Limited
13985378
Property Investment
*Sigma PRS Northern (Bertha Park) Limited
12323666
Property Investment
*Sigma PRS Investments (Plough Hill Road) Limited
11362082
Property Investment
Sigma PRS Investments (Fishmoor Parcel 1) Limited
13522429
Property Investment
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%
137
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE Name of Entity
Company
number
Principal
Activity
Country of
Incorporation
%
ownership
Sigma PRS Investments (Fishmoor Parcel 2) Limited
13522386
Property Investment
The PRS REIT (Accrington) Limited
12936087
Property Investment
The PRS REIT (Airfields II) Limited
12227845
Property Investment
The PRS REIT (Airfields) Limited
12225418
Property Investment
*The PRS REIT (Beehive) Limited
12299354
Property Investment
*The PRS REIT (Bilston Urban Village) Limited
12299875
Property Investment
The PRS REIT (Bombardier) Limited
12269588
Property Investment
*The PRS REIT (Brickkiln Place) Limited
12342184
Property Investment
*The PRS REIT (Cable Street) Limited
12300415
Property Investment
*The PRS REIT (Durham Street) Limited
12299887
Property Investment
*The PRS REIT (East Hill) Limited
12299857
Property Investment
The PRS REIT (Eaton Works) Limited
12299949
Property Investment
*The PRS REIT (Entwistle Road) Limited
12300010
Property Investment
The PRS REIT (Harlow Phase II) Limited
12303917
Property Investment
*The PRS REIT (Heathfield Lane) Limited
12300254
Property Investment
The PRS REIT (Hexthorpe Phase A) Limited
12340014
Property Investment
The PRS REIT (Hexthorpe Phase B) Limited
12340826
Property Investment
*The PRS REIT (Hilton Park) Limited
12300173
Property Investment
*The PRS REIT (Holyoake Memberco) Limited
12888895
Investment Holding
Company
*The PRS REIT (Holyoake) Limited
12882087
Property Investment
The PRS REIT (LB 5) Limited
12300657
Property Investment
*The PRS REIT (Manor Boot) Limited
12300405
Property Investment
*The PRS REIT (Newhaven) Limited
12301039
Property Investment
*The PRS REIT (Norwich Street) Limited
12301118
Property Investment
The PRS REIT (Potteries) Limited
12279694
Property Investment
*The PRS REIT (QVS) Limited
12303609
Property Investment
The PRS REIT (Redcar) Limited
12338568
Property Investment
*The PRS REIT (Reginald Road) Limited
12301641
Property Investment
*The PRS REIT (Riverside College) Limited
12301225
Property Investment
*The PRS REIT (Roch Street) Limited
12301230
Property Investment
*The PRS REIT (Romanby Shaw) Limited
12301554
Property Investment
The PRS REIT (Station Road) Limited
12279470
Property Investment
*The PRS REIT (Sutherland School) Limited
12301839
Property Investment
The PRS REIT (Tower Hill 3) Limited
12303826
Property Investment
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%
138
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Name of Entity
Company
number
Principal
Activity
Country of
Incorporation
%
ownership
*The PRS REIT (Whitworth Way) Limited
12301879
Property Investment
*The PRS REIT Holyoake General Partner Ltd
10809976
Property Investment
*The PRS REIT (Wolvey Campus) Limited
14188354
Property Investment
*The PRS REIT (Charlton Gardens) Limited
14229875
Property Investment
*The PRS REIT (Werrington) Limited
14231085
Property Investment
*The PRS REIT (Hexthorpe Phase 4) Limited
14230128
Property Investment
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
11086887
11054232
12026449
11028091
Sigma PRS Investments (Darlaston Phase 2 II) Limited
11159344
Dormant
Dormant
Dormant
Dormant
Dormant
England
England
England
England
England
England
England
England
England
England
England
Sigma PRS Investments (Houghton Regis Parcel 8)
Limited
Sigma PRS Investments (Houghton Regis Parcel 8A)
Limited
11875798
Dormant
England
12168751
Dormant
England
Sigma PRS Investments (Newton Le Willows II) Limited
11009678
Sigma PRS Investments (Owens Farm II) Limited
11241786
Sigma PRS Investments (Sutherland School II) Limited
11382818
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
11086856
10140376
10385618
10462287
10573603
*Sigma PRS Investments (Bury St Edmunds II) Limited
11723358
*Sigma PRS Investments (Lea Hall II) Limited
*Sigma PRS Investments (Newhall II) Limited
*Sigma PRS Investments (Bury St Edmunds Parcel D II)
Limited
11723562
11523248
11939076
Sigma PRS Investments (Plough Hill Road II) Limited
11365306
The PRS REIT Investments Holding Company Limited
12302557
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
England
England
England
England
England
England
England
England
England
England
England
Dormant
England
Dormant
Dormant
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%
* Exempt from the requirement of the Companies Act 2006 relating to the audit of individual financial statements by virtue of section 479A of the Act.
The following wholly owned subsidiaries were struck off during the year:
The PRS REIT (Bullcote Lane) Limited
The PRS REIT (Christopher Street) Limited
The PRS REIT (Minky Works) Limited
The PRS REIT (Rugby) Limited
12269343
12340995
12339490
12338561
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.
139
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE
20. Trade and other receivables
Current – Restated Company
Trade receivables
Accrued income
Social security and other taxes
Prepayments and other receivables
Non-Current – Restated Company
Receivables from group undertakings
Group
2023
£’000
565
946
1,216
4,339
7,066
Company
2023
£’000
–
5
–
258
263
Movements in the loss allowance of trade receivables
are as follows:
Gross receivables being financial assets
Provisions for receivables impairment
Net receivables being financial assets
Group
2023
£’000
2,352
(453)
1,899
Company
2023
£’000
346,803
–
346,803
Group
2022
£’000
291
941
589
5,465
7,286
2023
£’000
346,540
346,540
Group
2022
£’000
6,899
(281)
6,618
Company
2022
£’000
–
5
–
236
241
2022
£’000
315,933
315,933
Company
2022
£’000
316,174
–
316,174
Receivables written-off during the year as uncollectable
161
–
381
–
The provision is calculated as an expected credit loss on trade and other receivables in accordance with IFRS 9. Trade receivables
are written off when there is no reasonable expectation of recovery. Expected credit loss provisions are calculated based on
historical loss experience and a forward-looking assessment.
Receivables from group undertakings have been issued without terms and are interest free. These have been considered for
impairment using the 12 months expected credit loss model because there have been no changes in credit risk since initial
recognition. The expected credit losses on amounts owed by Group companies is insignificant (2022: insignificant). The individual
companies comprising this balance, hold sufficient net assets which could be used to repay the amount owed.
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 2023, £248,000 of
trade receivables are more than thirty days old and not provided for (2022: £111,000).
21. Cash and cash equivalents
Restricted cash
Cash at bank
Group
2023
£’000
3,540
9,658
13,198
Company
2023
£’000
–
8,044
8,044
Group
2022
£’000
10,979
37,703
48,682
Company
2022
£’000
–
28,646
28,646
Restricted cash comprises £3.5 million (2022: £11.0 million) in funds held in a bank account controlled by one of the Group’s
lenders which can be released to free cash once certain loan conditions are met.
140
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 22. Trade and other payables
Current liabilities
Trade payables
Accruals and deferred income
Social security and other taxes
Non-current liabilities
Accruals and deferred income
Group
2023
£’000
Company
2023
£’000
Group
2022
£’000
Company
2022
£’000
4,003
13,067
6
17,076
2,081
19,157
750
899
6
1,655
–
1,655
14,227
15,352
163
29,742
2,243
31,985
1,146
1,208
163
2,517
–
2,517
Accruals and deferred income are principally comprised of financial retentions with housebuilders, generally held for one year after
completion of a full site. These totalled £8.8 million as at 30 June 2023 (2022: £10.5 million).
The fair values approximate the carrying values.
23. Provisions
Current liabilities
Provision brought forward
Provision in the year
As at 30 June
Group
2023
£’000
Company
2023
£’000
–
934
934
–
–
–
A provision for onerous contracts on three development sites was made during the current year (2022: £nil). This reflects the
increase in yields over the year, with investment values moving inversely in relation to yields. These provisions will be released over
the next financial year.
141
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 24. Interest bearing loans and borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or
loss over the period of the borrowings using the effective interest method.
Current liabilities
Bank loans at 1 July
Loans advanced in the year
Loans repaid in the year
Capitalised loan costs
Bank loans at 30 June
Lease liability (Note 25)
Total loans and borrowings
Non-current liabilities
Bank loans at 1 July
Loans advanced in the year
Capitalised loan costs
Bank loans at 30 June
Lease liability (Note 25)
Total loans and borrowings
Group
2023
£’000
Company
2023
£’000
Group
2022
£’000
Company
2022
£’000
99,941
49,801
(23,304)
275
126,713
32
126,745
245,684
–
1,748
247,432
1,008
248,440
–
–
–
–
–
–
–
–
–
–
–
–
–
109,998
89,624
(100,014)
333
99,941
32
99,973
244,875
-
809
245,684
1,003
246,687
–
–
–
–
–
–
–
–
–
–
–
–
–
The fair value of loans and borrowings at year end totalled £300.2 million (2022: £365.3 million).
Bank loans
Through its subsidiaries the Company has granted fixed and floating charges over certain investment property assets to secure the
loans.
The Group’s borrowing facilities are with Scottish Widows, Lloyds Banking Group plc / RBS plc and Barclays Bank PLC. At 30 June
2023, these comprised the following:
Lender
Scottish Widows
Scottish Widows
Lloyds Banking Group plc/
RBS*
Loan
facility
£100 million
Balance
drawn
30 June 2023
£100 million
£150 million
£150 million
Loan
period
15 years
25 years
Interest rate
(all in)
3.14%
2.76%
Loan
Type
Fixed
Fixed
Maturity
June 2033
June 2044
£150 million
£115 million
3 years
6.53%
Variable
July 2023
Barclays Bank PLC
£40 million
£12 million
3 years
8.28%
Variable
August 2025
* In July 2023, the loan was restated as a two-year £75 million floating-rate debt facility with RBS. £13.1 million was drawn immediately.
As determined by the Company’s Investment Policy, the Group’s maximum loan to value ratio can be no more than 45%. As at
30 June 2023 the Group’s EPRA loan to value was 37% (2022: 34%).
142
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Reconciliation of movements of borrowings to cash flows arising from financing activities:
Balance as at 1 July
Cash movements
Proceeds from borrowings
Borrowings repaid
Interest paid
Non-utilisation fees paid
Arrangement and commitment fees paid
Non-Cash movements
Finance costs
Balance as at 30 June
2023
£’000
345,625
49,801
(23,304)
(11,957)
(703)
(932)
15,615
374,145
2022
£’000
354,873
89,624
(100,014)
(9,825)
–
(846)
11,813
345,625
Debt refinancing
At the beginning of July 2023, the Company completed the refinancing of its £150 million revolving credit facility (“RCF”) provided by
RBS and Lloyds Banking Group plc. The Group secured a £102 million facility of fixed-rate debt for 15 years with Legal and General
Investment Management, together with a further £75 million of floating-rate debt agreed for two years with RBS. An interest rate cap
has been put in place on the floating rate debt to hedge against downside risk on further interest rate movements.
25. Leases
Lease liabilities as lessee
The lease liabilities recognised are shown in the table below, the Group has no other leases.
Lease liabilities
Group
2023
£’000
1,040
Group
2022
£’000
1,035
Amounts recognised in the income statement in non-recoverable property costs
5
13
Lease receivables 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
The Group’s receivable leases are assured shorthold tenancies usually for periods for up to one year.
The Company had no leases in either the current or prior period.
Group
2023
£’000
27,784
Group
2022
£’000
23,051
143
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 26. Share capital
Share capital represents the nominal value of consideration received by the Company for the issue of 1p Ordinary Shares.
Group and Company
Balance at the beginning of year
Issue of shares
Balance at end of year
2023
No. of
shares
549,251,458
2023
Share
capital
£’000
5,493
2022
No. of
shares
495,277,294
–
–
53,974,164
549,251,458
5,493
549,251,458
2022
Share
capital
£’000
4,953
540
5,493
The Company was admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange on 31 May 2017
and migrated to the Premium Segment of the Main Market of the London Stock Exchange on 2 March 2021.
In September 2021, the Company undertook an equity raise. On 4 October 2021, a total of 53,974,164 shares were issued at an
issue price of 103.0p.
27. Share premium reserve
The share premium relates to amounts subscribed for share capital in excess of nominal value.
Group and Company
Balance at beginning of year
Share premium on the issue of Ordinary Shares
Share issue costs
Balance at end of year
28. Capital reduction reserve
2023
£’000
298,974
–
–
298,974
2022
£’000
245,005
55,053
(1,084)
298,974
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
Final dividend paid of 1.0p per share for the year ended 30 June 2021
Dividend paid of 1.0p per share for the period ended 30 September 2021
Dividend paid of 1.0p per share for the period ended 31 December 2021
Dividend paid of 1.0p per share for the period ended 31 March 2022
Final dividend paid of 1.0p per share for the year ended 30 June 2022
Dividend paid of 1.0p per share for the period ended 30 September 2022
Dividend paid of 1.0p per share for the period ended 31 December 2022
Dividend paid of 1.0p per share for the period ended 31 March 2023
2023
£’000
140,554
–
–
–
–
(5,493)
(5,493)
(5,492)
(5,492)
2022
£’000
161,984
(4,952)
(5,492)
(5,493)
(5,493)
–
–
–
–
Balance at end of year
118,584
140,554
144
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 29. Net Asset Value
EPRA NTA, is considered to be the most relevant measure for the Group. The underlying assumption behind the EPRA NTA
calculation assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. Due to the PRS REIT’s tax
status, deferred tax is not applicable and therefore there is no difference between IFRS NAV and EPRA NTA.
Basic IFRS NAV per share is calculated by dividing net assets in the Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares outstanding at the end of the year. As there are no dilutive instruments, only
basic NAV per share is quoted below.
Net asset values have been calculated as follows:
IFRS Net assets at 30 June (£’000)
EPRA adjustments to NTA
EPRA NTA at 30 June
2023
659,720
–
2022
639,238
–
659,720
639,238
Shares in issue at end of year
549,251,458
549,251,458
Basic IFRS NAV per share (pence)
EPRA NTA per share (pence)
120.1
120.1
116.4
116.4
The NTA per share calculated on an EPRA basis is the same as the IFRS NAV per share for the year ended 30 June 2023 and the
year ended 30 June 2022.
30. Controlling parties
As at 30 June 2023 and 30 June 2022, there was no ultimate controlling party.
31. 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 19 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.
32. Capital commitments
The Group has entered into contracts with unrelated parties for the construction of residential housing with a total value of £712.5
million (2022: £689.8 million). As at 30 June 2023, £27.3 million (2022: £50.2 million) of such commitments remained outstanding.
145
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE 33. Related party disclosure
The number of shares owned by the Directors of the Company as at 30 June 2023 along with dividends they received during the
period is as follows:
Company Director
No. of shares held
Dividends received
Rod MacRae
Steffan Francis
Steve Smith
Jim Prower
Geeta Nanda
2023
125,000
125,000
305,000
100,000
–
2022
100,000
105,000
155,000
52,000
–
2023
£4,750
£4,800
£9,300
£2,560
–
2022
£4,000
£3,700
£5,450
£1,780
–
The Group and the Company have no key management personnel, and only employ Non-Executive Directors.
For the current financial year, Directors’ fees of £180,000 (2022: £170,000) were incurred.
34. Transactions with Investment Adviser
On 31 March 2017, Sigma PRS was appointed the Investment Adviser of the Company. A new Investment Adviser Agreement with
Sigma PRS was signed in January 2021.
For the year ended 30 June 2023, fees of £5.8 million (2022: £5.2 million) were incurred and payable to Sigma PRS in respect of
asset management fees. At 30 June 2023, £0.5 million (2022: £0.9 million) remained unpaid.
For the year ended 30 June 2023, development management fees of £1.8 million (2022: £2.5 million) were incurred and payable to
Sigma PRS. At 30 June 2023, £0.2 million (2022: £0.3 million) remained unpaid. Development management fees were capitalised
as development costs during the year and prior year.
For the year ended 30 June 2023, administration and secretarial services of £70,000 (2022: £85,000) were incurred and payable to
Sigma Capital Property Ltd, a fellow subsidiary of the ultimate holding company of the Investment Adviser. At 30 June 2023, £9,000
(2022: £49,000) remained unpaid.
Sigma PRS’s shareholding as at 30 June 2023 was 5,889,852 (2022: 5,889,852), which represents 1.07% (2022: 1.07%) of the
issued share capital in the Company. All the shares acquired were in accordance with the Development Management Agreement
between the Company and Sigma PRS.
For the year ended 30 June 2023, Sigma PRS received dividends from the Company of £236,000 (2022: £236,000).
35. Post balance sheet events
Debt refinancing
At the beginning of July, the Group completed the refinancing of its £150 million revolving credit facility provided by RBS and Lloyds
Banking Group. The facility had been originally due to mature in February 2023 and was extended on substantially the same terms
to mid-July 2023 (with an option to extend until October 2023). The Board views the refinancing as having been completed on
attractive commercial terms in light of the current interest rate environment.
The Investment Adviser secured a £102 million facility of fixed-rate debt for 15 years, together with a further £75 million of floating-
rate debt agreed for two years, providing the Group with the flexibility to refinance this element over that period. An interest rate
cap has been put in place on the floating rate debt to hedge against downside risk on further interest rate movements. These new
facilities have been established with Legal and General Investment Management and RBS respectively.
The Investment Adviser immediately arranged for deployment of almost two-thirds (£115 million) of the total debt, specifically the
entire £102 million fixed-rate facility and £13 million of the floating-rate facility, to fund already completed and stabilised sites. The
balance of £62 million of floating-rate debt is expected to be drawn down to fund sites completing and stabilising before calendar
year 2024.
146
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023 Dividends
On 2 August 2023, the Company declared a dividend of 1.0p per ordinary share in respect of the fourth quarter of the current
financial year. The dividend was paid on 1 September 2023, to shareholders on the register as at 11 August 2023.
36. Restatement
The Company has reviewed the intercompany balances receivable from subsidiary undertakings and has reclassified these as non-
current assets as they are not expected to be received within twelve months or within the Company’s normal operating cycle. The
prior year Company balance sheet has been restated as this was also the case in the prior year. The restatement has not impacted
the Net Assets of the Company or its profit for the year. The change in presentation has no impact on the results of the Group nor
its financial position. Amounts in the Company Statement of Cash Flows in relation to these balances have been reclassified from
operating activities to investing activities.
Company
Non-current assets
Other receivables
Current assets
Trade and other receivables
Company
Non-current assets
Other receivables
Current assets
Trade and other receivables
As previously
reported
30 June 2022
£’000
Restated
balance
30 June 2022
£’000
Adjustment
£’000
–
315,933
315,933
316,174
(315,933)
241
As previously
reported
30 June 2021
£’000
Restated
balance
30 June 2021
£’000
Adjustment
£’000
–
318,830
318,830
319,177
(318,830)
347
147
NOTES TO THE FINANCIAL STATEMENTS (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE SUPPLEMENTARY INFORMATION
I. EPRA Performance Measures Summary
EPRA earnings per share
EPRA net tangible asset value (EPRA NTA)
EPRA cost ratio (including vacant property costs)
EPRA cost ratio (excluding vacant property costs)
EPRA Net Initial Yield
EPRA loan to value
Notes
II
III
IV
IV
V
VI
2023
3.1p
120.1p
35.9%
35.6%
4.1%
36.6%
2022
3.0p
116.4p
36.1%
36.0%
3.9%
34.0%
The Group considers EPRA NTA to be the most relevant measure for its operating activities and has therefore adopted this as the
Group’s primary measure of net asset value.
II. Income Statement
Rental income
Non-recoverable property costs
Net rental income
Other income
Administrative expenses
Operating profit before interest and tax
Net finance costs
Profit before taxation
Taxation on EPRA earnings
EPRA earnings
2023
£’000
49,701
(9,551)
40,150
1,646
(8,268)
33,528
(16,429)
17,099
–
17,099
2022
£’000
41,963
(7,635)
34,328
470
(7,511)
27,287
(11,125)
16,162
–
16,162
Weighted average number of Ordinary Shares
549,251,458
535,203,388
EPRA earnings per share
3.1p
3.0p
III. Statement of Financial Position
Investment properties
Other net assets
Net borrowings
Total shareholders’ equity
Adjustments to calculate EPRA NTA:
EPRA net tangible assets
2023
£’000
1,034,732
173
(375,185)
659,720
2022
£’000
961,915
23,983
(346,660)
639,238
–
–
659,720
639,238
Ordinary Shares in issue at year end
549,251,458
549,251,458
EPRA NTA per share
120.1p
116.4p
148 The PRS REIT plc Annual Report & Financial Statements 2023
148 The PRS REIT plc Annual Report & Financial Statements 2023
The PRS REIT plc Annual Report & Financial Statements 2023
The PRS REIT plc Annual Report & Financial Statements 2023
148
148
IV. EPRA Cost Ratio
Property operating expenses
Administrative expenses
EPRA costs (including vacant property expenses) (A)
2023
£’000
9,551
8,268
17,819
2022
£’000
7,635
7,511
15,146
Vacant property costs
(114)
(60)
EPRA costs (excluding vacant property expenses) (B)
17,705
15,086
Gross Rental income (C)
49,701
41,963
EPRA Cost Ratio (including vacant property expenses) (A/C)
35.9%
36.1%
EPRA Cost Ratio (excluding vacant property expenses) (B/C)
35.6%
36.0%
V. EPRA Net Initial Yield (‘NIY’)
Total investment property
Less: development properties
Less: right of use asset
Completed property portfolio
Allowance for estimated purchasers’ costs
Gross up completed property portfolio valuation (B)
Annualised cash passing rental income
Property outgoings
2023
£’000
1,034,732
(87,043)
(1,040)
946,649
21,773
968,422
51,264
(11,534)
2022
£’000
961,915
(120,528)
(1,035)
840,353
19,328
859,681
43,587
(9,807)
Annualised net rents (A)
39,730
33,780
Add: notional rent expiration of rent free periods or other lease incentives
Topped-up net annualised rent (C)
EPRA NIY (A/B)
EPRA ‘topped up’ NIY* (C/B)
–
39,730
4.1%
4.1%
–
33,780
3.9%
3.9%
* This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent
periods and step rents) of which there were none (2022: nil).
149149
SUPPLEMENTARY INFORMATION (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEThe PRS REIT plc Annual Report & Financial Statements 2023NOTESHIGHLIGHTSINDEPENDENT AUDITORS REPORTFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCE VI. EPRA Loan to Value (‘LTV’)
Borrowings (net)
Net payables
Less: Cash and cash equivalents
Net Debt (a)
Investment properties at fair value
Net receivables
Total Property Value (b)
EPRA LTV
2023
£’000
374,145
20,091
2022
£’000
345,625
31,986
(13,198)
(48,682)
381,038
328,929
1,034,732
6,026
961,915
6,250
1,040,758
968,165
36.6%
34.0%
150150
SUPPLEMENTARY INFORMATION (Cont.)The PRS REIT plc Annual Report & Financial Statements 2023The PRS REIT plc Annual Report & Financial Statements 2023