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Sigma Capital Group PLC RE: The PRS REIT plc - Final Results

25/09/2019 7:01am

UK Regulatory (RNS & others)


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Sigma Capital Group PLC

25 September 2019

25 September 2019

AIM: SGM

SIGMA CAPITAL GROUP PLC

("Sigma" or the "Company")

The private rented sector ("PRS") and urban regeneration specialist

The PRS REIT plc - Final Results

Sigma, the PRS, residential development and urban regeneration specialist, notes that The PRS REIT plc ("PRS REIT") has today issued its final results, which cover the financial year ended 30 June 2019.

Sigma's wholly owned subsidiary, Sigma PRS Management Limited, is Investment Advisor to the PRS REIT, sourcing investments, managing its assets and advising the PRS REIT on a day-to-day basis.

A copy of the PRS REIT's announcement is provided below.

Enquiries:

 
Sigma Capital Group  Graham Barnet, Chief Executive  T: 020 3178 6378 (today) 
 plc 
                     Malcolm Briselden, Finance      T: 0333 999 9926 
                      Director 
 
KTZ Communications   Katie Tzouliadis, Dan           T: 020 3178 6378 
                      Mahoney 
 
 
N+1 Singer           James Maxwell, James Moat,      T: 020 7496 3000 
 (NOMAD and Broker)   Ben Farrow 
 

25 September 2019

PRSR.L

The PRS REIT plc

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

AUDITED FULL YEAR RESULTS

for the year ended 30 June 2019

GOOD PROGRESS TOWARDS FULL DEPLOYMENT

KEY POINTS

Summary

 
 --   768 new rental homes were added to the Company's portfolio 
       over the year, taking the cumulative total to 1,173 at 30 
       June 2019 (30 June 2018: 405 homes), and annualised estimated 
       rental income to GBP10.7m (30 June 2018: GBP3.6m) 
 --   A further 3,196 homes were under construction across 37 sites 
       at 30 June 2019 (30 June 2018: 1,305 homes across 17 sites), 
       with wider geographic exposure. When completed the annualised 
       estimated rental income will rise to GBP41.2m 
 --   The pace of homes completing is accelerating 
 --   Remainder of GBP900m (gross) of funds will be deployed over 
       the coming months 
      -   expected total is for 5,400 new family rental homes across 
           an estimated 75 sites, generating an estimated rental value 
           ("ERV") of GBP55m per annum once completed 
 

Dividends

 
 --   Dividends paid in respect of FY 2019 totalled 5p per share 
       (FY 2018: 5p), in line with targets 
 --   Total dividend targeted at stabilisation is 5.5p(1) per share 
       in FY 2022 
 

Financial

 
                                 Year to 30    13 months to 
                                  June 2019    30 June 2018   Change 
 Revenue                            GBP6.0m         GBP1.8m    +233% 
 Net rental income                  GBP4.9m         GBP1.5m    +227% 
 Operating profit                  GBP14.6m         GBP2.7m    +441% 
 Profit after tax                  GBP14.6m         GBP3.2m    +356% 
 Basic earnings per share              2.9p            1.0p    +190% 
 Net assets at 30 June*             GBP474m         GBP486m     (3%) 
 IFRS and EPRA NAV* per share 
  at 30 June                          95.8p           98.3p     (3%) 
 

*after dividend payments

Operational

 
                                            At 30 June      At 30 June    Change 
                                                  2019            2018 
 Number of completed homes                       1,173             405     +190% 
 Estimated rental value of 
  completed homes                        GBP10.7m p.a.    GBP3.6m p.a.     +197% 
 Completed sites                                    17               5     +240% 
 Gross development cost ("GDC") 
  of completed sites                           GBP145m          GBP43m     +237% 
 Part-completed sites                                4               5         - 
 Number of contracted homes                      3,196           1,305     +145% 
 Estimated rental value of 
  contracted homes                       GBP30.5m p.a.   GBP12.0m p.a.     +154% 
 Sites in progress                                  37              17     +118% 
 GDC of sites in progress                      GBP517m         GBP174m     +197% 
 Average capital uplift on 
  current assets to vacant possession            13.4%           12.8%     +4.7% 
 

Outlook

 
 --   To date, 1,351 units have now been completed, with an ERV 
       of GBP12.3m 
 --   Underlying structural drivers for growth remain unchanged, 
       with critical supply shortage and rising demand for high-quality 
       family rental houses 
 --   The number of completions is set to rise significantly over 
       the new financial year and Company remains well-positioned 
       to achieve its targets 
 

(1) 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.

Steve Smith, Chairman of the PRS REIT, said:

"The PRS REIT made good progress over its second year of activity, and our portfolio of newly-built family rental homes increased by 768 to 1,173 by the year end, with a further 3,200 or so homes under construction across 37 sites. The pace of completions continues to accelerate, and we have since the year end completed a further 178 homes, taking our total to 1,351.

"Within the next few months the remainder of the Company's GBP900m of gross funds will be deployed. When the last house is completed, this will take the PRS REIT's portfolio to some 5,400 homes in 75 sites across the major regions of England, and should provide an ongoing dividend of 5.5p per annum.

"Family rental homes remain critically undersupplied throughout the U.K., and the PRS REIT is playing a part in addressing this need, bringing high quality, professionally-managed homes to middle-income families. Whilst there is political uncertainty, the Board believes that the Company is in good shape and remains on track to achieve both its short and long-term goals."

For further information, please contact:

 
 The PRS REIT plc                         Tel: +44 (0)20 3178 6378 
  Steve Smith, Non-executive Chairman      (c/o KTZ Communications) 
 Sigma PRS Management Ltd                 Tel: +44 (0)333 999 9926 
  Graham Barnet, Malcolm Briselden 
 N+1 Singer                               Tel: +44 (0)20 7496 3000 
  James Maxwell, James Moat, Ben Farrow 
 G10 Capital Limited (AIFM)               Tel: +44 (0)20 3696 1302 
  Gerhard Grueter 
 KTZ Communications                       Tel: +44 (0)20 3178 6378 
  Katie Tzouliadis, Dan Mahoney 
 

NOTES TO EDITORS

About The PRS REIT plc

(www.theprsreit.com)

The PRS REIT is a closed-ended real estate investment trust established to invest in the Private Rented Sector and to provide shareholders with an attractive level of income together with the potential for capital and income growth. It has raised a total of GBP500m (gross) through its Initial Public Offering, on 31 May 2017, and a subsequent placing in February 2018. Both fundraisings were supported by the UK Government's Homes England with direct investments.

LEI: 21380037Q91HU97WZX58

About Sigma Capital Group plc

(www.sigmacapital.co.uk)

Sigma Capital Group plc is a private rented sector, residential development, and urban regeneration specialist, with offices in Edinburgh, Manchester and London. Sigma's principal focus is on the delivery of large scale housing schemes for the private rented sector. It has a well-established track record in assisting with property-related regeneration projects in the public sector, acting as a bridge between the public and private sectors. Its subsidiary, Sigma PRS Management Ltd, is Investment Adviser to The PRS REIT plc.

About Sigma PRS Management Ltd

Sigma PRS Management Ltd is a wholly-owned subsidiary of AIM-quoted Sigma Capital Group plc and is Investment Adviser to The PRS REIT plc. It sources investments and manages the assets of The PRS REIT plc and advises the Alternative Investment Fund Manager ("AIFM") and The PRS REIT plc on a day-to-day basis in accordance with The PRS REIT plc's Investment Policy. The Investment Adviser is an appointed representative (reference number: 776293) of the AIFM.

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present the PRS REIT's audited financial results for the year to 30 June 2019. Comparatives are provided, although it should be noted that the period last year covered 13 months, from 31 May 2017 to 30 June 2018.

Over the year, construction activity increased significantly, with a further 768 new rental homes added to the Company's portfolio. This took the cumulative number of completed homes at the year-end to 1,173 (30 June 2018: 405), and the annualised rental income to GBP10.7m per annum (30 June 2018: GBP3.6m). Given the level of construction now underway, the number of completions is set to rise significantly over the new financial year. Demand remains high and our homes are renting well.

The running total of gross development cost ("GDC") stood at GBP661m by the year-end (2018: GBP214.7m). This figure is the cost of the 17 completed sites in the portfolio and the expected completed cost of the 37 development sites underway at 30 June 2019. It also includes the newly-built, fully let third party sites that we acquired. Once construction has been completed across the 37 sites, the number of homes in the portfolio is expected to rise to 4,369, yielding an estimated rental value ("ERV") of about GBP41.0m per annum (30 June 2018: 1,710 homes with an ERV of GBP15.5m per annum). By the end of August, including third party sites, there were 42 development sites in progress.

The portfolio is geographically well dispersed, with sites in the North West, North East, Yorkshire, and the Midlands, as well as in the South East (excluding London) and the East of England - although there are fewer in these areas currently. Proximity to good schools, well as to transport networks and employment hubs, remain key criteria in the site selection process.

The Company agreed additional debt facilities towards the end of the financial year, which have taken gross funds to GBP900m (comprising GBP500m of equity and GBP400m of debt). Currently, about 91% of the net proceeds has been deployed, and we expect the remainder to be deployed over the coming months.

The full deployment of funds should result in some 5,400 family rental homes. As previously reported, this estimate reflects the increased allocation to sites in the South East and allows for the previously stated schedule delays.

The overall yield target at stabilisation in 2022 remains unchanged at 5.5p per share.

The Investment Adviser's report, which covers the Company's business model and progress, provides further commentary on the Company's progress over the year.

Financial Results

Revenue increased to GBP6.0m for the year to 30 June 2019 (2018: GBP1.8m) and entirely comprises rental income. After the deduction of non-recoverable property costs, net rental income for the year was GBP4.9m (2018: GBP1.5m).

Expenses in the period were GBP5.9m (2018: GBP4.3m) reflecting the increased construction activity during the year. The gain from the fair value adjustment on investment property was GBP15.6m (2018: GBP5.5m). As a result, the Company's operating profit increased to GBP14.6m (2018: GBP2.7m).

Finance income from short term deposits rose to GBP0.8m (2018: GBP0.6m). Finance costs in relation to bank loans were GBP0.9m (2018: GBPnil).

The profit after taxation increased to GBP14.6m (2018: GBP3.2m) and basic and diluted earnings per share rose to 2.9p (2018: 1.0p) on an IFRS basis.

Net assets as at 30 June 2019 were slightly lower at GBP474m (2018: GBP486m), mainly reflecting the outflow from dividends payments. The net asset value ("NAV") per share is 95.8p on an IFRS basis (2018: 98.3p), as is the EPRA NAV per share (2018: 98.3p).

Dividends

As set out in the IPO Prospectus, the Company's policy is to pay a quarterly dividend during the development phase, even though it is not currently fully covered by rental income. For the year to 30 June 2019, dividends worth a total of 5p per share were paid to shareholders (2018: 5p per share).

The Board

I am delighted to welcome Jim Prower to the Board. He was appointed as a Non-executive Director in May 2019 and brings a wealth of relevant experience. Jim spent the major part of his career at UK-based property developer Argent Group plc, where he was Group Finance Director. He was involved in several significant national development regeneration schemes, including the re-development of Kings Cross Station in London, one of Europe's largest transport infrastructure projects. Jim is currently a Non-executive Director at Empiric Student Property plc and AEW UK Long Lease REIT plc, and was previously a Non-executive Director of Tritax Big Box REIT plc.

Corporate Social Responsibility

We are proud to be creating a stock of high quality, professionally-managed rental homes in the UK, and the size of our estate is growing strongly. The 'Simple Life' brand, through which our properties are marketed and managed, links us to the families and individuals who rent our properties, as well as to the communities in which our developments are located.

Through our Investment Advisor, we endeavour to 'make a difference' to our tenants and wider society. We aim to achieve this through the quality of our homes, the care we take in maintaining our properties and their surroundings, and through a high standard of customer care. Through our Investment Adviser, we also support initiatives that will foster a sense of community and neighbourly spirit within our developments and are forging links with local communities. Over the year, our Investment Advisor provided support to schools and charities, including Salford Loaves and Fishes, which helps homeless and vulnerable people in Manchester, and Park Palace Ponies, an inner-city starter riding school based in Liverpool as well as others. We intend to build on these links and extend our social interaction over time.

Outlook

The Company has entered its third year of activity and, as previously reported, by the end of August, our portfolio of completed homes had grown to 1,289. The pace of completion is increasing, reflecting the growing number of sites under construction, and over the next few months the remainder of our GBP900m of gross funds will be fully deployed. When all the homes are completed the portfolio is expected to grow to 5,400 homes across 75 sites, covering most of the major regions of England outside London.

Demand for good quality family rental homes remains high and our completed homes are renting well. It is especially pleasing to note that 98.5% of our tenants who responded to a survey conducted 10 months into their tenancies reported that they were happy with their home.

The underlying structural drivers of demand for homes remains unchanged, with rental supply short and more households entering the private rented sector. Whilst there is political uncertainty, we believe that the Company is well-positioned to deliver its stabilised dividend target of 5.5p per share in 2022.

We look forward to reporting the next dividend declaration in mid-October 2019, and to providing further updates as appropriate.

Steve Smith

Chairman

24 September 2019

INVESTMENT ADVISER'S REPORT

Sigma PRS Management Ltd ("Sigma PRS"), a wholly-owned subsidiary of Sigma Capital Group plc, is the Company's Investment Adviser, and is pleased to provide a report on the PRS REIT's activities and progress for the year ending 30 June 2019.

Business Activities

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

On 31 May 2017, the Company completed its IPO raising initial gross proceeds of GBP250m through the issue of 250 million ordinary shares of one pence each. The shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. On completion of the IPO, Sigma PRS was appointed as Investment Adviser to the Company. The Company has since raised additional funds, through a further placing and through gearing, which has taken its total resource to GBP900m (gross).

Investment Objective and Business Model

The PRS REIT is seeking to provide investors with an attractive level of income, together with the prospect of income and capital growth, through investment in newly-constructed residential private rented sector sites of multiple units, comprising mainly family homes. The homes are let on Assured Shorthold Tenancies (as defined in the Housing Act 1988) to qualifying tenants.

The Company is investing in multiple sites in cities and towns across the UK, mainly targeting the largest employment centres in England, outside of London. The locations closely follow the main rail and road infrastructure, and rental homes, being newly-built, come with the benefit of 10 year National House Building Council or equivalent warranties.

The Company is concentrating on traditional housing, which has a broad spectrum of demand, with differing house types for different life stages, including smaller houses for young couples and families, and larger houses for growing families. It also invests in some low rise flats in appropriate locations to broaden its rental offering.

The PRS REIT is building its portfolio of PRS assets in two ways:

-- by acquiring residential development opportunities, with these development sites sourced and managed by Sigma PRS (or another member of Sigma Capital Group plc acting as development manager). When completed, homes on these sites are subsequently let to individual qualifying tenants. The PRS REIT aims to fund a minimum of two-thirds of the new properties this way.

-- by acquiring already completed and let PRS sites that fulfil the Company's investment objectives, including return and occupancy hurdles. Completed sites are acquired from Sigma Capital Group plc, pursuant to a forward purchase agreement between the PRS REIT and Sigma Capital Group plc. Should the opportunity arise, the PRS REIT may acquire newly-built PRS assets from third party vendors. The Company has the ability to fund up to a maximum of one third of new properties in this manner.

The PRS REIT retains the right of first refusal to acquire and develop any sites sourced by Sigma PRS that meets its investment objective and policy.

There are certain restrictions in the PRS REIT's investment policy, for instance the PRS REIT will not invest in other alternative investment funds or closed-end investment companies.

Achieving Scale and Reducing Risk

The Sigma PRS Platform

The Investment Adviser is utilising Sigma Capital Group plc's well-established PRS delivery platform ("Sigma PRS Platform") to help the PRS REIT achieve scale and to minimise development and operational risk. It plays the central role in sourcing and developing investment opportunities.

The Sigma PRS Platform comprises relationships with construction partners, central government, and local authorities. Key construction partners include Countryside Properties, which is the primary partner, Engie, and Galliford Try. Homes England, an executive non-departmental public body sponsored by the Ministry of Housing, Communities & Local Government, works closely with Sigma in the common goal of accelerating new housing delivery in England.

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

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

Multiple Geographies

By creating assets across multiple locations and regions, we aim to minimise the PRS REIT's concentration risk.

We are targeting a mix of locations that demonstrate both higher yielding profiles (predominantly those in the North of England) and developments where there is greater potential for capital appreciation (often in our Southern opportunities). Proximity to good primary schools is also a key factor for us since we are focused on the family rental market.

In addition, no investment will be made in any single completed PRS site or PRS development site that exceeds 20 per cent of the aggregate value of the total assets of the Company at the time of commitment.

'Simple Life' Brand

Our rental homes are marketed under the dedicated 'Simple Life' brand. As well as providing well-designed, quality homes, it is important to us that tenants benefit from high customer service levels. The creation of the 'Simple Life' brand helps to identify our product to potential customers and, over time, we would like it to be recognised as a 'gold standard' for the tenant experience.

We believe that the long term nature of the REIT's approach to the ownership of its assets helps to promote a sense of tenant security, and that the neighbourhood initiatives we sponsor will also help to foster a sense of community within our developments.

Financing Resource

Equity Placing Programme

Two tranches of equity have been raised to date, GBP250m (gross) at the Company's IPO on 31 May 2017, and a further GBP250m (gross) in February 2018. Homes England participated in both fundraisings, taking its direct investment in the Company to a total of c.GBP30m.

Debt Facilities

The Company is using gearing to enhance equity returns, and in June 2019 it agreed terms to increase its total debt facilities to GBP400m. These facilities are with Scottish Widows and Lloyds Banking Group, and further details can be found in the 'Financial Results' segment of this report. The PRS REIT's aggregate borrowings will always be subject to an absolute maximum, calculated at the time of drawdown of the relevant borrowings, of not more than 45 per cent of the value of the assets.

Operational Review

Development Activity and Acquisitions

As previously reported, some planning approval delays affected construction schedules over the year. Even so, by the end of June 2019, the total number of sites either completed or under construction increased to 54 compared to 22 sites at the same point in 2018. The new sites that started over the year have expanded the portfolio's geographic spread, which now covers the North West, North East, Yorkshire, the Midlands, South East and the East of England.

Over the year, we delivered 768 completed homes taking the total number of completed homes to 1,173 at the end of June 2019. This compares to 405 homes at the end of June 2018. The annualised estimated rental income at the end of 2019 stood at GBP10.7m, a significant uplift on the GBP3.6m of annualised rental income at the same point in 2018.

Alongside self-developed assets, the Company acquired three fully developed and let sites, comprising 185 homes from Sigma Capital Group plc. As with previous sites acquired from Sigma Capital Group plc, each site was independently assessed by Savills before acquisition. The sites were located in the West Midlands, Salford and Telford and provide an ERV of GBP1.75m per annum.

The table below provides further detail in summarised form of our development activity in 2019.

 
                                        At 30 June   At 30 June 
                                              2019         2018 
 Number of completed homes                   1,173          405 
                                       -----------  ----------- 
 Estimated rental value of completed      GBP10.7m      GBP3.6m 
  homes                                       p.a.         p.a. 
                                       -----------  ----------- 
 Completed sites                                17            5 
                                       -----------  ----------- 
 GDC of completed sites                    GBP145m       GBP43m 
                                       -----------  ----------- 
 Part-completed sites                            4            5 
                                       -----------  ----------- 
 Number of contracted homes                  3,196        1,305 
                                       -----------  ----------- 
 ERV of contracted homes                  GBP30.5m     GBP12.0m 
                                              p.a.         p.a. 
                                       -----------  ----------- 
 Sites in progress                              37           17 
                                       -----------  ----------- 
 GDC of sites in progress                  GBP517m      GBP174m 
                                       -----------  ----------- 
 

Construction Resource

The construction resource provided by the Sigma PRS Platform now has national reach. It underpins the continued expansion of the Company to key population centres in England, supporting the creation of a geographically diverse portfolio.

There are clear benefits for our construction partners in partnering with us, including strengthening their ability to bid for land with local councils and improving operational efficiencies with their own housing delivery. This partnership approach is working well and the model we operate of using standard family house types, fixed price design & build contracts, and standardised specification, helps to ensure that developments are built to budget and that our PRS assets can be maintained and managed efficiently.

Countryside's modular timber panel factory in Warrington in now fully operational and will be servicing some of our northern region construction, which will enhance build speed and quality control.

Financial Results

Income statement

The Company's revenue for the year increased to GBP6.0m (2018: GBP1.8m), which was all derived from rental income. After the deduction of non-recoverable property costs, the net rental income was GBP4.9m (2018: GBP1.5m). Administration expenses were higher at GBP5.9m (2018: GBP4.3m). The gain from the fair value adjustment on investment property increased to GBP15.6m (2018: GBP5.5m), reflecting the greater number of homes completed and increase in construction activity during the year. This resulted in increased operating profit of GBP14.6m (2018: GBP2.7m). Finance income for the period from short term deposits was GBP0.8m (2018: GBP0.6m), whilst finance costs were GBP0.9m (2018: GBPnil). The profit after finance income and taxation was GBP14.6m (2018: GBP3.2m).

The basic and fully diluted earnings per share on an IFRS basis for the year increased to 2.9p (2018: 1p).

Dividends

The Company has declared and paid a total of 5p per ordinary share for the year under review, which comprised the following:

-- On 31 October 2018, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 July 2018 to 30 September 2018, which was payable on 30 November 2018 to shareholders on the register as at 9 November 2018.

-- On 31 January 2019, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 October 2018 to 31 December 2018, which was payable on 28 February 2019 to shareholders on the register as at 8 February 2019.

-- On 29 April 2019, the Company announced the declaration of a dividend of 1.0 pence per Ordinary Share in respect of the period from 1 January 2019 to 31 March 2019, which was payable on 31 May 2019 to shareholders on the register as at 10 May 2019.

-- On 31 July 2019, the Company announced the declaration of a dividend of 2.0 pence per Ordinary Share in respect of the period from 1 April 2019 to 30 June 2019, which was payable on 30 August 2019 to shareholders on the register as at 9 August 2019.

Balance Sheet

The principal items on the balance sheet are investment property of GBP362.3m (2018: GBP121.1m), cash and cash equivalents of GBP229.9m (2018: GBP374.3m), long term loans of GBP100m (2018: GBPnil) and trade and other payables of GBP23.4m (2018: GBP13.3m).

The investment property includes completed assets and assets under construction at fair value. Trade and other payables includes GBP14.4m of development expenditure that was paid in July 2019.

Debt Financing

The PRS REIT has the following debt facilities:

-- GBP100m revolving credit facility with Lloyds Banking Group for an initial term of two years, which can be extended further for up to two years. Interest is based on three month LIBOR plus applicable margin and the loan is secured over assets allocated to Lloyds Banking Group. The Group has credit approval to extend this to GBP150m. This was undrawn at 30 June 2019;

-- GBP100m term loan of 15 years with Scottish Widows, which was drawn in two equal instalments in March and April 2019. Interest is fixed at the 15 year swap rate of 1.588% plus applicable margin and the loan is secured over assets allocated to Scottish Widows; and

-- GBP150m term loan for 15 years with Scottish Widows which will be drawn in two equal instalments in April and October 2020. Interest was fixed at the relevant swap rate of 1.164% plus applicable margin and is secured over assets allocated to Scottish Widows.

Key performance indicators

The Group's key performance indicators ("KPI") include:

 
 KPI                                             June 2019      June 2018 
 Rental income (gross)                        GBP5,970,000   GBP1,765,000 
                                            --------------  ------------- 
 Average rent per month per tenant                  GBP760         GBP741 
                                            --------------  ------------- 
 Non-recoverable property costs as a 
  percentage of gross rent (gross to net)            17.5%          15.5% 
                                            --------------  ------------- 
 Fair value uplift on investment property    GBP15,609,000   GBP5,515,000 
                                            --------------  ------------- 
 Operating profit                            GBP14,646,000   GBP2,667,000 
                                            --------------  ------------- 
 Dividends paid per share in relation 
  to the period                                         5p             5p 
                                            --------------  ------------- 
 Number of properties available to rent              1,173            405 
                                            --------------  ------------- 
 

All the KPIs are in line with management expectations.

Market Overview

An interim report of a study investigating housing supply requirement by Herriot-Watt University published in May 2018 suggested that the estimate of an additional 300,000 new homes per annum to rebalance supply in England understated the problem. The report suggests that the total level of new housebuilding required is around 340,000 per annum for England (and 380,000 for Great Britain) until 2031, which represents a total requirement of over 4m new homes.

Against that wider picture of undersupply, demand for rental homes is growing, fuelled by restricted access to other tenures, with affordability and mortgage availability limiting owner occupation and social rented funding constraining development and supply. After tax changes introduced in 2016 and 2017, there has been an exodus of typically small individual landlords from the buy-to-let sector, and the estimated resultant outflow of properties from the rental market over the last two years is put at 120,000.

The build-to-rent market is growing steadily and investment in PRS in 2018 increased by 11% on the previous year to GBP2.6 billion. By the end of the first quarter of 2019, there were approximately 30,000 completed PRS homes in the UK. About half of this output was concentrated in London and almost all of the development comprised apartments. A similar number of PRS homes is currently under construction and a further 70,000 or so homes are in planning. The vast majority of this delivery remains apartment schemes in urban centres. To place the scale of this PRS activity in context, it accounts for under 1% of the total value of the rental stock in the UK. By comparison, in more mature PRS markets, such as the United States, institutionally-owned properties represent nearly 50% of the total rental market.

According to Savills, at full maturity, the UK PRS market could be worth around GBP550 billion and encompass more than 1.7 million households. This indicates the scale of opportunity available to market participants, including the PRS REIT.

Post Period Review

Progress since the start of the new financial year has continued positively, in line with management expectations. The number of completed homes as of 31 August 2019 stood at 1,289, with their annualised rental value expected to be GBP11.8m. A further 3,429 homes with an ERV of GBP34m per annum were in delivery at that point. The total estimated ERV of the homes under construction and those already delivered, together 4,718 homes across 59 sites, amounted to GBP45.8m, and their gross development cost is GBP734m. The table below provides further information of delivery activity.

Approximately 91% of the Company's total net funding has now been deployed and the balance is expected to be contracted over the coming months. The total portfolio is anticipated to comprise approximately 5,400 new family homes.

 
                                        At 31 August   At 30 June 
                                                2019         2019 
 Number of completed PRS homes                 1,289        1,173 
                                       -------------  ----------- 
 Estimated rental value of completed        GBP11.8m     GBP10.7m 
  homes                                         p.a.         p.a. 
                                       -------------  ----------- 
 Completed sites                                  17           17 
                                       -------------  ----------- 
 GDC of completed sites                      GBP145m      GBP145m 
                                       -------------  ----------- 
 Part-completed sites                              8            4 
                                       -------------  ----------- 
 Number of contracted homes                    3,429        3,196 
                                       -------------  ----------- 
 ERV of contracted homes                    GBP34.0m     GBP30.5m 
                                                p.a.         p.a. 
                                       -------------  ----------- 
 Sites in progress                                42           37 
                                       -------------  ----------- 
 GDC of sites in progress                    GBP589m      GBP517m 
                                       -------------  ----------- 
 

Summary and Outlook

The growth opportunity available to the PRS REIT remains substantial, driven by the strong underlying supply and demand fundamentals in the housing market. We also believe that PRS housing (at scale) can play a part in accelerating the overall delivery of new homes, a key agenda with local authorities. In addition, the track record that we have established in delivering high quality new homes over multiple sites through our efficient supply chain platform places the Company in a strong position in the PRS market. Notwithstanding current political uncertainties, we believe that the Company remains firmly on track to invest its full available capital and associated gearing to time and budget, and to achieve its targeted dividend return of 5.5p per share at stabilisation in 2022.

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2019

 
                                                                31 May 2017 
                                                   Year ended            to 
                                                      30 June       30 June 
                                                         2019          2018 
                                                      GBP'000       GBP'000 
 
 Rental Income                                          5,970         1,765 
 Non-recoverable property costs                       (1,054)         (274) 
                                                  -----------  ------------ 
 Net rental income                                      4,916         1,491 
 
 Administrative Expenses 
 Directors' remuneration                                (123)          (67) 
 Investment advisory fee                              (4,402)       (3,295) 
 Other administrative expenses                        (1,354)         (977) 
                                                  ----------- 
 Total administrative expenses                        (5,879)       (4,339) 
 
 Gain from fair value adjustment on investment 
  property                                             15,609         5,515 
                                                  -----------  ------------ 
 Operating profit                                      14,646         2,667 
 
 Finance income                                           789           570 
 Finance cost                                           (864)             - 
                                                  ----------- 
 Profit before taxation                                14,571         3,237 
 
 Taxation                                                   -             - 
                                                  -----------  ------------ 
 Total comprehensive income for the year/period 
  attributable to the equity holders of 
  the Company                                          14,571         3,237 
                                                  ===========  ============ 
 
 Earnings per share attributable to the 
  equity holders of the Company: 
 IFRS earnings per share (basic and diluted)             2.9p          1.0p 
 

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

Consolidated Statement of Financial Position

Company No. 10638461

As at 30 June 2019

 
                                                  At         At 
                                             30 June    30 June 
                                                2019       2018 
                                             GBP'000    GBP'000 
 ASSETS 
 Non-current assets 
 Investment property                         362,275    121,109 
                                           --------- 
                                             362,275    121,109 
                                           ---------  --------- 
 Current assets 
 Trade receivables                                89         28 
 Other receivables                             5,379      3,786 
 Cash and cash equivalents                   229,946    374,339 
                                           --------- 
                                             235,414    378,153 
                                           --------- 
 Total assets                                597,689    499,262 
                                           ---------  --------- 
 
 LIABILITIES 
 Non-current liabilities 
 Trade and other payables                      2,954        961 
 Interest bearing loans and borrowings       100,000          - 
                                           ---------  --------- 
                                             102,954 
 Current liabilities 
 Trade and other payables                     20,410     12,296 
                                           --------- 
 Total liabilities                           123,364     13,257 
                                           --------- 
 Net assets                                  474,325    486,005 
                                           =========  ========= 
 
 EQUITY 
 Called up share capital                       4,953      4,943 
 Share premium account                       245,005    244,025 
 Capital reduction reserve                   206,559    233,800 
 Redeemable preference shares                      -          - 
 Retained earnings                            17,808      3,237 
                                           ---------  --------- 
 Total equity attributable to the equity 
  holders of the Company                     474,325    486,005 
                                           =========  ========= 
 
 IFRS net asset value per share (basic 
  and diluted)                                  95.8      98.3p 
 

As at 30 June 2019, there is no difference between IFRS NAV per share and the EPRA NAV per share.

Consolidated Statement of Changes in Equity

For the year ended 30 June 2019

Attributable to equity holders of the Company

 
                                    Share      Capital    Redeemable 
                        Share     premium    reduction    preference    Retained      Total 
                      capital     account      reserve        shares    earnings     equity 
                      GBP'000     GBP'000      GBP'000       GBP'000     GBP'000    GBP'000 
 
 Share capital 
  issued in the 
  period                4,943     495,524            -            50           -    500,517 
 Share capital 
  issue costs               -     (8,999)            -             -                (8,999) 
 Cancellation of 
  share premium                 (242,500)      242,500             -           -          - 
 Share capital 
  redeemed in the 
  period                    -           -            -          (50)           -       (50) 
 Dividend paid              -           -      (8,700)             -           -    (8,700) 
 Profit for the 
  period                    -           -            -             -       3,237      3,237 
                    ---------  ----------  -----------  ------------  ----------  --------- 
 At 30 June 2018        4,943     244,025      233,800             -       3,237    486,005 
                    =========  ==========  ===========  ============  ==========  ========= 
 
 Share capital 
  issued in the 
  period                   10         961            -             -           -        971 
 Share capital 
  issue credit              -          19            -             -           -         19 
 Dividend paid              -           -     (27,241)             -           -   (27,241) 
 Profit for the 
  year                      -           -            -             -      14,571     14,571 
                    ---------  ----------  -----------  ------------  ----------  --------- 
 At 30 June 2019        4,953     245,005      206,559             -      17,808    474,325 
                    =========  ==========  ===========  ============  ==========  ========= 
 
 

Consolidated Statement of Cash Flows

For the year ended 30 June 2019

 
                                                                     31 May 
                                                    Year ended      2017 to 
                                                       30 June      30 June 
                                                          2019         2018 
                                                       GBP'000      GBP'000 
 
 Cash flows from operating activities 
 Profit before tax                                      14,571        3,237 
 Finance Income                                          (789)        (570) 
 Finance costs                                             864            - 
 Fair value adjustment on investment property         (15,609)      (5,515) 
                                                   -----------  ----------- 
 Cash used in operations                                 (963)      (2,848) 
 
 Increase in trade and other receivables               (1,684)      (3,748) 
 Increase in trade and other payables                    3,026        1,708 
 
 Net cash generated from/(used) in operating 
  activities                                               379      (4,888) 
                                                   -----------  ----------- 
 
 Cash flows from investing activities 
 Acquisition of subsidiaries                          (34,665)     (40,770) 
 Purchase of investment property at fair 
  value through profit and loss                      (181,627)     (63,451) 
 Finance income                                            823          504 
 Net cash used in investing activities               (215,469)    (103,717) 
                                                   -----------  ----------- 
 
 Cash flows from financing activities 
 Bank and other loans                                  100,000            - 
 Finance costs                                         (2,877)            - 
 Issue of shares                                           971      500,467 
 Cost of share issue                                     (156)      (8,823) 
 Redeemable preference shares                                -            - 
 Dividends paid                                       (27,241)      (8,700) 
                                                   -----------  ----------- 
 Net cash generated from financing activities           70,697      482,944 
                                                   -----------  ----------- 
 
 Net (decrease)/increase in cash and cash 
  equivalents                                        (144,393)      374,339 
 Cash and cash equivalents at beginning                                   - 
  of period                                            374,339 
                                                   -----------  ----------- 
 
 Cash and cash equivalents at end of year/period       229,946      374,339 
                                                   ===========  =========== 
 

NOTES TO THE FINANCIAL STATEMENTS

   1.   General information 

This final results announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 24 September 2019.

   2.   Basis of Preparation 

The financial information set out in this announcement does not constitute statutory financial statements for the year ended 30 June 2019 and period ended 30 June 2018. The financial information in this announcement has been derived from the statutory accounts for the year ending 30 June 2019 and period ending 30 June 2018.The report of the auditor on the statutory financial statements for the year ended 30 June 2019 and period ended 30 June 2018 was (i) unqualified; (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006. The statutory financial statements for the year ended 30 June 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The statutory accounts for the period ending 30 June 2018 have been delivered to the Registrar of Companies.

   3.   Segmental information 

For the year ended 30 June 2019, the Directors regard the Group as having just one reportable segment, property, and the business only operates in the United Kingdom therefore segmental information is not presented.

   4.   Unrealised gains on investment property 

The total unrealised gains on investment property during the period were are set out below.

 
                                      Group     Group 
                                       2019      2018 
                                    GBP'000   GBP'000 
 
 Unrealised gains through profit 
  and loss                           15,609     5,515 
                                   -------- 
                                     15,609     5,515 
                                   ========  ======== 
 
   5.   Taxation 

As a UK REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it meets certain conditions as set out in the UK REIT regulations. For the year ended 30 June 2019 and the period ended 30 June 2018, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. If there were any non-qualifying profits and gains, these would be subject to corporation tax.

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

   6.   Earnings per Share 

Earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments, only basic earnings per share is quoted below.

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

 
                                               Year ended   31 May 2017 
                                                  30 June    to 30 June 
                                                     2019          2018 
                                                 GBP000's       GBP'000 
 
 Net profit attributable to ordinary 
  shareholders                                     14,571         3,237 
 
 EPRA adjustments: 
 Changes in value of investment properties       (15,609)       (5,515) 
 EPRA Net loss attributable to ordinary 
  shareholders                                    (1,038)       (2,278) 
 
 Weighted average number of ordinary 
  shares                                      495,180,547   330,854,803 
 Earnings per share (pence)                           2.9           1.0 
 EPRA loss per share (pence)                        (0.2)         (0.7) 
 
   7.   Dividends 

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

 
                                                      31 May 2017 
                                         Year ended            to 
                                            30 June       30 June 
                                               2019          2018 
                                            GBP'000       GBP'000 
 
 Dividend of 1.5p for the 7 months to 
  31 December 2017                                -         3,757 
 Dividend of 1.0p for the 3 months to 
  31 March 2018                                   -         4,943 
 Dividend of 2.5p for the 3 months to 
  30 June 2018                               12,382             - 
 Dividend of 1.0p for the 3 months to 
  30 September 2018                           4,953             - 
 Dividend of 1.0p for the 3 months to 
  31 December 2018                            4,953             - 
 Dividend of 1.0p for the 3 months to         4,953             - 
  31 March 2019 
                                        -----------  ------------ 
                                             27,241         8,700 
                                        ===========  ============ 
 

On 31 January 2018, the Company announced the declaration of a dividend in respect of the period from 31 May 2017 to 31 December 2017 of 1.5 pence per Ordinary Share, which was payable on 16 March 2018 to shareholders on the register as at 16 February 2018.

On 30 April 2018, the Company announced the declaration of a dividend in respect of the period from 1 January 2018 to 31 March 2018 of 1.0 pence per Ordinary Share which was payable on 31 May 2018 to shareholders on the register as at 11 May 2018.

On 31 July 2018, the Company announced the declaration of a dividend in respect of the period from 1 April 2018 to 30 June 2018 of 2.5 pence per Ordinary Share which was payable on 31 August 2018 to shareholders on the register as at 10 August 2018.

On 31 October 2018, the Company announced the declaration of a dividend in respect of the period from 1 July 2018 to 30 September 2018 of 1.0 pence per Ordinary Share which was payable on 30 November 2018 to shareholders on the register as at 9 November 2018.

On 31 January 2019, the Company announced the declaration of a dividend in respect of the period from 1 October 2018 to 31 December 2018 of 1.0 pence per Ordinary Share which was payable on 28 February 2019 to shareholders on the register as at 8 February 2019.

On 29 April 2019, the Company announced the declaration of a dividend in respect of the period from 1 January 2019 to 31 March 2019 of 1.0 pence per Ordinary Share which was payable on 31 May 2019 to shareholders on the register as at 10 May 2019.

Subsequent to the year end, on 31 July 2019, the Company declared a dividend in respect of the period from 1 April 2019 to 30 June 2019 of 2.0p per Ordinary Share, which was paid on 30 August 2019 to shareholders on the register as at 9 August 2019. The ex-dividend date was 8 August 2019.

   8.   Availability of statutory financial statements 

Copies on the full statutory financial statements will be available from the Company's offices at 18 Alva Street, Edinburgh, EH2 4QG no later than 23 October 2019 and are available on its website at www.theprsreit.com.

   9.   Annual General Meeting 

The Annual General Meeting of the Company will be held the offices of Dentons UK and Middle East LLP, One Fleet Place, London, EC4M 7WS on Monday 25 November 2019 commencing at 11.00 am.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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