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Sigma Capital Group PLC Re: The PRS REIT plc - Interim Results

12/03/2019 7:01am

UK Regulatory (RNS & others)


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TIDMSGM

RNS Number : 5202S

Sigma Capital Group PLC

12 March 2019

12 March 2019

AIM: SGM

SIGMA CAPITAL GROUP PLC

("Sigma" or the "Company")

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

The PRS REIT plc - Interim Results

Sigma, the PRS, residential development and urban regeneration specialist, notes that The PRS REIT plc ("PRS REIT") has today issued its interim results, which cover the six months ended 31 December 2018.

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 
 

12 March 2019

PRSR.L

The PRS REIT plc

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

Interim Results

for the six months ended 31 December 2018 ("H1")

KEY POINTS

Summary

 
      --  Continuing good progress. Initial target of committing gross funds 
           of GBP900m (including debt) to create a portfolio of newly-built rental 
           homes across the UK was achieved in H1. 
      --  Completed assets are performing well and demand for the Company's well-located, 
           professionally-managed houses remains high. 
      --  Total dividends paid since launch on 31 May 2017 is 7.0p per share. 
           Target total dividend for FY 2019 is 5p(1) per share. 
      --  Some short term headwinds are anticipated from expected planning approval 
           delays. Stabilised covered dividend target for FY 30 June 2022 is c.5.5p(1) 
           per share (from original target of 6p), with the Company targeting 
           a total dividend of 5.0p(1) per share each year until that point. 
      --  Family rental housing remains critically undersupplied and the drivers 
           underpinning rising demand are unchanged. 
 

Financial

 
 Six months ended                       2018                    2017     Change 
  31 Dec 
 Rental income (gross)               GBP2.3m                 GBP0.6m    Up 3.8x 
 Profit from operations              GBP7.3m                 GBP0.3m   Up 24.3x 
 Profit before tax                   GBP7.5m                 GBP0.5m   Up 14.6x 
 Basic earnings 
  per share                             1.5p                   0.22p    Up 6.8x 
 Net assets at 31                  GBP477.2m               GBP245.5m     Up 94% 
  Dec 
 IFRS and EPRA NAV                     96.3p                   98.2p 
  per share at 31           (after dividends    (after nil dividends 
  Dec                          of 6.0p paid)                   paid) 
 

Operational

 
                                                                  Post H1, 
                                          During           At    at 28 Feb 
                                              H1    end of H1         2019 
 Number of completed PRS units               370          775          904 
 Number of completed and contracted 
  sites                                       21           43           49 
 Number of completed and contracted 
  units                                    2,166        3,575        3,951 
 GDC of completed and contracted 
  sites                                GBP328.5m    GBP530.0m    GBP603.0m 
 ERV of completed and contracted 
  sites                                 GBP20.2m     GBP33.2m     GBP37.3m 
 
 
 --    Completed assets are performing well, and rental demand 
        is high 
        At 31 December 2018: 
    -   average gross yields on completed assets                              6.2% 
        average capital uplift on completed assets 
    -    to Investment Value                                                  5.3% 
        average capital uplift on completed assets 
    -    to Vacant Possession Value                                          12.8% 
        cost management of Gross to Net during development 
    -    phase                                                               15.6% 
    -   re-letting period (average)                                       6.7 days 
    -   rents                                                      2% above budget 
 
 

Dividends

 
 --   Q1 and Q2 dividends together totalled 2p per share - 1p 
       per share respectively; 
       -   bringing total dividends paid since launch to 7p per 
            share 
 
 --   Total dividend target for FY 2019 is 5.0p(1) per share 
       and the same each year thereafter until stabilisation in 
       FY 2022. 
 

Outlook

 
 --   The Board views long term prospects with confidence. 
 

Steve Smith, Chairman of the PRS REIT, said:

"The PRS REIT made pleasing progress in the first half, and the growth in the number of completed rental homes is showing through in these financial results. We closed the half year with about 3,575 homes either built or under construction, with that number now at around 3,951.

"Looking over the remainder of the financial year, we anticipate short term headwinds that are likely to cause some delays to current construction schedules. We have therefore re-estimated our stabilised covered dividend target taking this into account, and now estimate it to be around 5.5p(1) per share from 6.0p previously. Our dividend targets for the current financial year and each year thereafter until stabilisation is 5.0p(1) per share. Outside these delays, the model is working well, with delivery and operational costs in line with expectations, continuing high demand for our homes, and good visibility on the deployment of the remaining tranches of our gross capital.

"Housing for the family rental market remains critically undersupplied and the opportunity for the Company to establish itself as a major provider of high quality, professionally managed houses in the UK remains substantial. Consequently, the Board continues to view long term prospects with confidence."

(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.

This announcement is released by The PRS REIT plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For further information, please contact:

 
The PRS REIT plc                      Tel: 020 3178 6378 (c/o 
 Steve Smith, Non-executive Chairman   KTZ Communications) 
Sigma PRS Management Limited          Tel: 0333 999 9926 
 Graham Barnet, Graeme Hogg 
N+1 Singer                            Tel: 020 7496 3000 
 James Maxwell, James Moat, Ben 
 Farrow 
Stifel                                Tel: 020 7710 7600 
 Mark Young, Neil Winward, Gaudi 
 Le Roux 
G10 Capital Limited (AIFM)            Tel: 020 3696 1302 
 Gerhard Grueter, Anthony Wood, Gaia 
 Udage 
KTZ Communications                    Tel: 020 3178 6378 
 Katie Tzouliadis, Dan Mahoney 
 

NOTES TO EDITORS

About The PRS REIT plc

(www.theprsreit.com)

LEI: 21380037Q91HU97WZX58

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.

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 Limited, is Investment Adviser to The PRS REIT plc.

About Sigma PRS Management Limited

Sigma PRS Management Limited 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

Overview

This is the Company's second interim report since its launch and it covers the six months ended 31 December 2018. The report summarises the progress that has been made in the first half of the financial year and provides the Board's view of the Company's near and longer term prospects, including the expected challenges in the short term, particularly in the light of current political uncertainty.

Overall, we are pleased with the PRS REIT's progress over the first six months of the new financial year. At 31 December 2018, 2,800 new rental homes across 32 sites in England were under construction for the Company's portfolio, and the number of completed homes in the portfolio stood at 775. The gross development cost ("GDC") of these 3,575 homes amounts to around GBP530m, and their combined estimated rental value ("ERV") when completed is GBP33.2m per annum.

Our development activity has continued to increase since the half year end, and at 28 February 2019 amounted to GDC of GBP603m, resulting in nearly 70% of the Company's expected gross funds of GBP900m now being in deployment. This equates to 3,951 new rental homes, of which 904 were completed as at 28 February 2019. Once fully completed and let, these 3,951 homes are expected to yield GBP37.3m per annum in rental income.

As we reported in early January 2019, we now have full visibility over the deployment of the balance of funds, with additional development sites identified and approved or under formal appraisal by the Investment Adviser and with planning being sought and/or sites in the process of being acquired. These additional sites together with existing sites being delivered should take the PRS REIT's initial portfolio to a total of around 5,600 new rental properties, yielding approximately GBP56.0m in rental income per annum once all the homes are completed and let. In line with the Company's risk diversification policy, the homes are located across a range of sites in different regions of England, including some sites in the South.

We are encouraged that at 31 December 2018 the average gross yield on developed assets was 6.2%, marginally ahead of our initial expectations. Our model of fixed price design and build contracts, standardised specifications, targeted locations and tight cost management has helped to support this outcome. The Company's IFRS and EPRA Net Asset Value ("NAV") on an investment valuation basis were both 96.3p as at 31 December 2018. This is stated after the payment of dividends totalling 6.0p per share in the period since the launch of the PRS REIT on 31 May 2017 to 31 December 2018. Valuing the Company's portfolio on a Vacant Possession basis would improve the Company's IFRS and EPRA NAV at 31 December 2018 to an estimated 101.1p.

Looking to the immediate future and beyond, the Board expects continuing progress although we are now also factoring in current political and economic uncertainties. As previously reported, we experienced some delays with development activity in the third quarter of the last financial year. Given the current backdrop and the local elections that will take place in early May, we believe it prudent to anticipate lengthening decision-making processes at local government level. This has a direct bearing on site commencement schedules, and slower delivery, particularly of larger sites, would reduce the Company's earnings during the development phase. A consequence of this would be that more of our development profits would be utilised to support dividend payments during the development phase. Taking into account time delays, and while maintaining a 5p(1) per share annual dividend target until stabilisation, our stabilised covered dividend target for the financial year to June 2022 is now c.5.5p(1) as opposed to our original target of 6.0p per share. The Company continues to target net total shareholder returns of 10%(1) or more per annum on stabilisation. Outside delays, the model is working well; delivery and operational costs are in line with expectations, demand for our homes is high, and the Company has good visibility on the deployment of the remaining tranches of its gross capital.

The PRS REIT's growing portfolio of homes is establishing it as a leading player in the build-to-rent sector, and the Company remains the only quoted REIT to focus exclusively on the Private Rented Sector ("PRS") in the UK. Notably, it is the first to focus on family houses. This market continues to be underserved, with build-to-rent activity overwhelmingly concentrated on the development of flats, and demand for the Company's well-located, professionally managed houses continues to be strong.

Financial Results

The growth in the number of completed PRS assets in the portfolio is now showing through in the Company's financial results, with revenue, all of which was derived from rental income, having increased to GBP2.3m in the six months ended 31 December 2018 (2017: GBP0.6m). The net rental income for the period was GBP1.9m (2017: GBP0.5m) after non-recoverable property costs.

Profit from operations increased to GBP7.3m (2017: GBP0.3m) after gains of GBP8.2m from fair value adjustments on investment property (2017: GBP1.6m) and total expenses of GBP2.8m (2017: GBP1.8m). Profit before tax for the period increased to GBP7.5m (2017: GBP0.5m) and basic earnings per share rose to 1.5p (2017: 0.22p).

As at 31 December 2018, the PRS REIT's net assets totalled GBP477.2m (2017: GBP245.5m), which represents a NAV per share of 96.3p, on both the International Financial Reporting Standards ("IFRS") basis as adopted by the European Union and on an EPRA (European Public Real Estate Association) basis (30 June 2018: IFRS and EPRA NAV both 96.3p, and 31 December 2017: both 98.2p per ordinary share).

In comparing the NAV position at 30 June 2018 to the NAV position at 31 December 2018, it should be noted that the 31 December NAV of 96.3p is after dividend payments in August and November, which together totalled 3.5p per share. Specifically these were dividends of 2.5p per ordinary share paid on 31 August 2018, which related to the three months to 30 June 2018, and 1.0p per ordinary share paid on 30 November 2018, which related to the three months to 30 September 2018.

 
                                                 Period from 
                          Six months ended        31 May to       Period ended 
                             31 December       31 December 2017    30 June 2018 
          KPI              2018 (unaudited)      (unaudited)        (audited) 
 EPRA Cost Ratio                  -                   -                 - 
 EPS (pence per share)           1.5                0.22               1.0 
 EPRA EPS (pence per 
  share)                        (0.1)               (0.4)             (0.7) 
 
 
                                                                    As at 
                        As at 31 December   As at 31 December    30 June 2018 
         KPI             2018 (unaudited)    2017 (unaudited)     (audited) 
 IFRS NAV (pence per 
  share)                      96.3                98.2              98.3 
 EPRA NAV (pence per 
  share)                      96.3                98.2              98.3 
 

Debt Facilities

The Company has GBP200m of debt facilities in place and the first GBP50m will be drawn this month with the balance to be drawn over the next six months or so as we commit to further developments.

In-line with our stated funding strategy, we are close to finalising credit terms for a further debt facility totalling GBP200m, maintaining the Company's gearing at or below the limit of 45% Loan-to-Value. This completes the planned capital structure for our initial phase of development, and the new debt facilities are being provided by our existing partners, Scottish Widows and Lloyds Banking Group.

Dividends

On 31 January 2019, the Board was pleased to declare a dividend of 1.0p per ordinary share for the second quarter of the current financial year, bringing total dividends paid to date since the Company's inception to 7p per share. This latest dividend was paid on 28 February 2019 to shareholders on the register as at 8 February 2019.

As previously reported, the Company is targeting a total dividend of 5.0p(1) per ordinary share for the current financial year ending 30 June 2019. This is now a target for each year thereafter until stabilisation, which is expected in the financial year ended 30 June 2022. The stabilised covered dividend that year is now targeted at c. 5.5p(1) per share and the targeted net total shareholder returns post stabilisation is 10%(1) or more per annum.

Summary

Our completed PRS assets are performing well and, as the Investment Adviser's report confirms, rental demand for our new homes remains high. Other key performance indicators are also encouraging and the Company's cost management, reflected in the Gross to Net yield, during the development phase is one of the industry's lowest.

While we anticipate short term headwinds that may cause some delays to construction programmes, we have committed the balance of the Company's GBP900m of expected gross funds, which will deliver some 5,600 new rental homes. Beyond this, we continue to see significant opportunity and there is a GBP1bn pipeline of new development opportunities.

Housing for the family rental market remains critically undersupplied and the Company is well-placed to continue its roll-out of new homes across the regions and to establish itself as a major provider of high quality, professionally managed houses in the UK. We therefore continue to view the Company's long term prospects very positively.

Steve Smith

Chairman

11 March 2019

INVESTMENT ADVISER'S REPORT

Sigma PRS Management Ltd ("Sigma PRS"), the Investment Adviser to the Company and part of Sigma Capital Group plc ("Sigma"), is pleased to report on the PRS REIT's progress in the six months ended 31 December 2018.

We are very encouraged with the progress that has been made in the period. Significantly, with sufficient qualifying sites identified, we are in a position to utilise the Company's expected funding capacity of some GBP900m (gross). This places the PRS REIT in a strong position although the rate at which new sites start construction remains a variable. In the short term, as our comments in the Summary section of this report highlight, we view this as the Company's primary challenge.

Investment Objective and Strategy

The Company is addressing a significant opportunity to create a large portfolio of newly-constructed rental stock that meets existing demand in the UK for well-located, high quality, professionally managed rental homes.

In doing so, the Company is also seeking to provide investors with an attractive level of income, together with the prospect of income and capital growth.

The PRS REIT's main focus is on establishing PRS sites composed of multiple individual family homes, with these homes let under the 'Simple Life' brand to qualifying tenants. Its aim is to create a geographically diversified portfolio of properties that are close to large employment centres and local amenities and that have easy access to the main road and rail infrastructure. Proximity to good quality primary education is also important. The Company is focused on family houses, although it will also invest in some low rise flats in appropriate locations.

The PRS REIT is building its portfolios in two ways:

 
 --   by acquiring undeveloped sites sourced by Sigma PRS. Their 
       subsequent development is managed by Sigma PRS (or another 
       member of Sigma as development manager), and the completed 
       PRS units are let under the 'Simple Life' brand. 
       The PRS REIT aims to fund a minimum of two-thirds of the 
       new properties this way. All pre-development risks are identified 
       and underwritten by Sigma and its partners, and sites will 
       have an appropriate certificate of title, detailed planning 
       consent and a fixed price design and build contract with 
       one of Sigma's housebuilding partners prior to acquisition 
       by the Company. During the construction phase, many of the 
       properties are pre-let and subsequently occupied as they 
       complete. 
 
 --   by acquiring completed PRS sites from Sigma (and/or one 
       of its subsidiaries), or from third parties. A prerequisite 
       is that these stabilised developments must accord with the 
       PRS REIT's investment objectives and satisfy both return 
       and occupancy hurdles. The Company can fund up to a maximum 
       of one third of new properties in this manner. To date this 
       route represents 20% of the Company's asset allocation. 
 

The Investment Adviser's parent company, Sigma, has a well-established PRS delivery platform, which plays a central role in sourcing and developing investment opportunities. The PRS REIT has first right of refusal over sites within Sigma's platform assuming they meet its criteria and it has capital to fund the opportunities.

The platform comprises well-established relationships with construction partners, particularly Countryside Properties but also Keepmoat Regeneration, Engie and Galliford Try, as well as local authorities. We are engaged with a further select group of potential partners who will complement and expand the Company's geographical coverage of the UK. All these relationships enable us to identify, source and deliver land and properties on behalf of the Company in the target geographies. Homes England, an executive non-departmental public body sponsored by the Ministry of Housing, Communities & Local Government, also works closely with Sigma in the common goal of accelerating new housing delivery in England.

Delivery Progress

Significant progress was made over the first half of the financial year and we have now identified the remainder of the sites required to utilise the Company's expected funding of around GBP900m (gross) when full gearing is included.

The table below provides a summary of development activity, including the number of PRS units that have been completed since the launch of the Company, the gross development cost of sites and the estimated rental value of all the homes that are under construction or completed.

 
                                                        Total     Post H1, 
                                          During    at 31 Dec    at 28 Feb 
                                              H1         2018         2019 
 Number of completed PRS units               370          775          904 
 Number of completed and contracted 
  sites                                       21           43           49 
 Number of completed and contracted 
  units                                    2,166        3,575        3,951 
 GDC of completed and contracted 
  sites                                GBP328.5m    GBP530.0m    GBP603.0m 
 ERV of completed and contracted 
  sites                                 GBP20.2m     GBP33.2m     GBP37.3m 
 

By 31 December 2018, the Company's portfolio of completed homes stood at 775 and these homes are generating an annualised income of approximately GBP7.0m. When added to the number of homes that were under construction at the end of December, the total of homes that are coming through for the portfolio at that date amounted to 3,575. Since the period end, a further 376 homes, with an expected revenue of GBP4.1m in annualised rental income, have been contracted. This takes the ERV to GBP37.3m per annum once the 3,951 homes have been completed and let.

The vast majority of the Company's sites are located across the North of England and the Midlands. However, in September 2018 the PRS REIT contracted its first site in the South of England, in Essex, and has since signed contracts over three further sites in the South. These three Southern sites are expected to deliver a combined total of 248 homes and yield GBP4.2m in rental income per year once completed and let. While yields in the South East are typically lower than in other regions of England, the risk diversification is helpful in the context of the overall portfolio.

In total, 21 new sites were secured under contract in the first half of the financial year. Of these, 19 were development sites and two were fully completed and let sites. The 21 sites have a combined gross development cost of GBP328.5m and will comprise 2,166 new homes when finished, generating an expected combined rental income of over GBP20.2m per annum.

The 19 development sites consist of eleven sites in the North West, five sites in the Midlands, two southern sites, and one site in Yorkshire. The sites were selected as they fulfil the selection criteria of being accessible and close to centres of employment and good quality primary education.

The two completed sites, situated in Salford, Greater Manchester and Smethwick, near Birmingham, were purchased for a combined total of GBP22.0m and added 73 and 63 homes respectively, with the combined annualised rental income being GBP1.2m per annum (GBP0.6m per annum each). Savills provided an independent valuation on both sites before their purchase by the PRS REIT.

Rental Performance and Key Metrics

The Company's completed properties continued to perform well, justifying the selection criteria. Rental income has been 2% higher than management budget and, when a vacancy arises, re-letting takes, on average, about seven days.

Control of costs also remains well within the budget of 17% of income set for the first four years (which represents the development phase) and is running at an efficient 15.6%.

The table below summaries key performance measures on completed assets, all of which are very encouraging and remain on target:

 
       Average gross yields on completed 
 --     assets                                                   6.2% 
       Average capital uplift on completed 
 --     to Investment Value                                      5.3% 
       Average capital uplift on completed 
 --     assets to Vacant Possession Value                       12.8% 
       Cost management of Gross to Net during 
 --     development phase                                       15.6% 
 --    Re-letting period                             6.7 days average 
 --    Rents                                          2% above budget 
 

The Investment Valuation completed in December showed an average uplift in the value of completed assets over the costs of delivery of 5.3%, underlining the benefits of the PRS REIT's model. Benchmarked against vacant possession value, the average uplift in the value was 12.8%.

The Market and Our Simple Life Brand

The residential rental housing market in the UK remains significantly undersupplied and the drivers underpinning rising demand are unchanged. In his report to Government in 2018, Sir Oliver Letwin highlighted the contribution that the build-to-rent sector can make in accelerating the delivery of much needed supply.

The private rented sector as a whole now amounts to GBP1.5 trillion and accounts for over 20% of all UK households, having doubled in the last decade and a half. The build-to-rent sector as a subset is still remarkably small and whilst it is now distributed fairly evenly between London and the regions, it still only accounts for about 140,000 units. As a comparison, some 72,000 buy-to-let mortgages were redeemed in the last 18 months. In addition, most of this new build-to-rent supply comprises apartment blocks, which are generally not targeted towards the family market.

The PRS REIT's homes are marketed under the 'Simple Life' brand, which was established with the aim of representing a gold standard in lettings.

According to our analysis undertaken in December 2018, the families, couples and single people who live in a 'Simple Life' home earn an average of GBP39,000 per household, have an average age of 34.5 years, and half have children. Two thirds of our new customers in December travelled up to 50 miles to live in one of our homes, with 22% travelling more than 50 miles.

Corporate Social Responsibility and Charitable Activity

A core tenet underpinning the 'Simple Life' brand is 'community' and the belief that we can play an active part in fostering a sense of community among our tenants and their neighbours. We do this through the organisation of community events, which range from organised activities around festive events at Christmas and Easter to initiatives such as 'Pizza Night' and the 'Summer Ice Cream Dash'.

We also wish 'Simple Life' to play its part in supporting the wider local community, predominantly through charitable and sponsorship activities. During 2018, for example, we supported five primary schools close to Simple Life developments with donations that have been used for improving library facilities, enabling school trips and providing outdoor play equipment. We have also made donations to charities, such as Park Palace Ponies in Liverpool, which provides inner city children with the opportunity of learning to ride. We intend to expand our community-based activities in 2019, focusing in particular on the issue of homelessness. We will continue to support the Salford-based 'Loaves and Fishes', which carries out valuable work with homeless and vulnerable people and in particular runs a drop-in centre. At the same time, we hope to launch other initiatives that help to address this problem.

Summary

The PRS REIT's progress over the first half of the year has been encouraging, and the Company is well-positioned to continue the delivery of further sites. In the current political and economic climate though, and with local elections that will be taking place in early May, we believe there may be an increased risk of delays in decision-making at local government level. If this occurs, particularly in relation to larger sites, it would affect construction schedules and consequently earnings during the development phase. With the delays experienced in the last financial year, we therefore think it is prudent at this stage to maintain the 5.0p(1) annual dividend target until stabilisation and to revise our stabilised covered dividend target for the financial year to 30 June 2022 to c. 5.5p(1) per share from 6.0p per share.

The Company's completed assets are performing well and rental demand remains strong. We see continuing opportunities for further growth and have identified an additional GBP1bn pipeline of development opportunity over and above current committed activity.

Sigma PRS Management Ltd

11 March 2019

DEFINITIONS

 
Contracted  refers to sites under construction (under a design 
             and build contract), which have been purchased 
             by the PRS REIT or the PRS REIT's Investment Adviser 
             (forward sold to the PRS REIT). 
Committed   refers to development sites that have been approved 
             or are under formal appraisal by the Investment 
             Adviser, and where planning consent is being sought, 
             and/or are in the process of being acquired. 
Pipeline    refers to sites that have been identified as being 
             suitable for appraisal. These sites are typically 
             sourced from Sigma's PRS Platform, and are typically 
             under a Framework Agreement or Collaboration Agreement 
             with a construction partner. 
 
 
 
 IFRS NAV          Unadjusted net asset value 
 EPRA NAV          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 terms property business 
                    model 
 EPRA Cost Ratio   Administrative and operating costs (including 
                    and excluding costs of direct vacancy) divided 
                    by gross rental income 
 EPS               Unadjusted earnings per share 
 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2018

 
                                                                     Period from 
                                                       Six months 
                                                            ended      31 May to 
                                                                                   Period ended 
                                                      31 December    31 December        30 June 
                                                             2018           2017           2018 
                                                      (unaudited)    (unaudited)      (audited) 
                                             Notes        GBP'000        GBP'000        GBP'000 
 
 Rental Income                                4             2,320            583          1,765 
 Non-recoverable property costs                             (376)           (99)          (274) 
                                                    -------------  -------------  ------------- 
 Net rental income                                          1,944            484          1,491 
 
 Administrative Expenses 
 Directors' remuneration                                     (61)            (9)           (67) 
 Investment advisory fee                      5           (2,195)        (1,382)        (3,295) 
 Administrative expenses                      6             (552)          (364)          (977) 
                                                    -------------  -------------  ------------- 
 Total expenses                                           (2,808)        (1,755)        (4,339) 
 
 Gain from fair value adjustment on 
  investment property                         11            8,157          1,618          5,515 
                                                    -------------  -------------  ------------- 
 Operating profit                                           7,293            347          2,667 
 
 Finance income                               7               488            192            570 
 Finance costs                                8             (246)              -              - 
                                                    -------------  -------------  ------------- 
 Profit before taxation                                     7,535            539          3,237 
 
 Taxation                                     9                 -              -              - 
                                                    -------------  -------------  ------------- 
 Total comprehensive income for the 
  period/year attributable to the equity 
  holders of the Company                                    7,535            539          3,237 
                                                    =============  =============  ============= 
 
 Earnings per share attributable to 
  the equity holders of the Company: 
 Basic IFRS earnings per share                15             1.5p          0.22p           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.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2018

 
                                                                    As at           As at 
                                                  As at 31 
                                                  December    31 December 
                                                      2018           2017    30 June 2018 
                                               (unaudited)    (unaudited)       (audited) 
                                      Notes        GBP'000        GBP'000         GBP'000 
 ASSETS 
 Non-current assets 
 Investment property                   11          269,232         56,957         121,109 
                                             -------------  -------------  -------------- 
                                                   269,232         56,957         121,109 
                                             -------------  -------------  -------------- 
 Current assets 
 Trade receivables                                      56              -              28 
 Other receivables                                   5,024            451           3,786 
 Cash and cash equivalents                         230,295        194,255         374,339 
                                             -------------  -------------  -------------- 
                                                   235,375        194,706         378,153 
                                             -------------  -------------  -------------- 
 Total assets                                      504,607        251,663         499,262 
                                             -------------  -------------  -------------- 
 
 LIABILITIES 
 Non-current liabilities                             2,475              -             961 
 
 Current liabilities 
 Trade and other payables                           24,937          6,124          12,296 
                                             -------------  -------------  -------------- 
 Total liabilities                                  27,412          6,124          13,257 
                                             -------------  -------------  -------------- 
 Net assets                                        477,195        245,539         486,005 
                                             =============  =============  ============== 
 
 EQUITY 
 Called up share capital               12            4,953          2,500           4,943 
 Share premium account                 13          245,005              -         244,025 
 Capital reduction reserve             14          216,465        242,500         233,800 
 Redeemable preference shares                            -              -               - 
 Retained earnings                                  10,772            539           3,237 
                                             -------------  -------------  -------------- 
 Total equity attributable to the 
  equity holders of the Company                    477,195        245,539         486,005 
                                             =============  =============  ============== 
 
 IFRS net asset value per share        16            96.3p          98.2p           98.3p 
 

As at 31 December 2018, there is no difference between IFRS NAV per share and the EPRA NAV per share.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2018

 
                                          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 
 
 At 31 May 2017 
 Share capital issued 
  in the period               2,500     247,500            -            50           -    250,050 
 Share capital issue 
  costs paid                      -     (5,000)            -             -                (5,000) 
 Cancellation of share 
  premium                             (242,500)      242,500             -           -          - 
 Share capital redeemed 
  in the period                   -           -            -          (50)           -       (50) 
 Profit for the period            -           -            -             -         539        539 
 At 31 December 2017          2,500           -      242,500             -         539    245,539 
                          ---------  ----------  -----------  ------------  ----------  --------- 
 
 Share capital issued 
  in the period               2,443     248,024            -             -           -    250,467 
 Share capital issue 
  costs paid                      -     (3,999)            -             -           -    (3,999) 
 Cancellation of share            -           -            -             -           -          - 
  premium 
 Share capital redeemed           -           -            -             -           -          - 
  in the period 
 Dividend paid                    -           -      (8,700)             -           -    (8,700) 
 Profit for the period            -           -            -             -       2,698      2,698 
 At 30 June 2018              4,943     244,025      233,800             -       3,237    486,005 
                          ---------  ----------  -----------  ------------  ----------  --------- 
 
 Share capital issued 
  in the period                   9         962            -             -           -        971 
 Share capital issue 
  costs not paid                  -          19            -             -           -         19 
 Dividend paid                    -           -     (17,335)             -           -   (17,335) 
 Profit for the period            -           -            -             -       7,535      7,535 
 At 31 December 2018          4,953     245,005      216,465             -      10,772    477,195 
                          ---------  ----------  -----------  ------------  ----------  --------- 
 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 December 2018

 
                                                  Six months     Period from 31 
                                                       ended             May to 
                                                 31 December                      Period ended 
                                                        2018   31 December 2017   30 June 2018 
                                                 (unaudited)        (unaudited)      (audited) 
                                        Notes        GBP'000            GBP'000        GBP'000 
 
Cash flows from operating activities 
Profits before tax                                     7,535                539          3,237 
Adjustments for: 
less finance income net of finance 
 costs                                                 (242)              (192)          (570) 
less fair value adjustment on 
 investment property                                 (8,157)            (1,618)        (5,515) 
add interest received                                      -                 54              - 
                                                ------------  -----------------  ------------- 
Cash used in operations                                (864)            (1,217)        (2,848) 
 
Increase in trade and other 
 receivables                                         (1,367)              (313)        (3,748) 
Increase in trade and other 
 payables                                              1,218                390          1,708 
 
Net cash used in operating activities                (1,013)            (1,140)        (4,888) 
                                                ------------  -----------------  ------------- 
 
Cash flows from investing activities 
Acquisition of subsidiaries                         (21,980)           (34,754)       (40,770) 
Purchase of investment property 
 at fair value through profit 
 and loss                                          (103,173)           (14,851)       (63,451) 
Finance income net of finance 
 costs                                               (1,357)                  -            504 
                                                ------------  -----------------  ------------- 
Net cash used in investing activities              (126,510)           (49,605)      (103,717) 
                                                ------------  -----------------  ------------- 
 
Cash flows from financing activities 
Issue of shares                                          971            250,000        500,467 
Cost of share issue                                    (157)            (5,000)        (8,823) 
Redeemable preference share                                -                  -              - 
Dividends paid                                      (17,335)                  -        (8,700) 
                                                ------------  -----------------  ------------- 
Net cash (used in)/generated 
 from financing activities                          (16,521)            245,000        482,944 
                                                ------------  -----------------  ------------- 
 
Net (decrease)/increase in cash 
 and cash equivalents                              (144,044)            194,255        374,339 
Cash and cash equivalents at 
 beginning of period                                 374,339                  -              - 
                                                ------------  -----------------  ------------- 
Cash and cash equivalents at 
 end of period                                       230,295            194,255        374,339 
                                                ============  =================  ============= 
 

Notes to the Financial Statements

   1.    General Information 

The PRS REIT plc (the "Company") 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 is quoted on the Specialist Fund Segment of the Main Market of the London Stock Exchange.

This condensed consolidated interim financial information was approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 12 March 2019.

This condensed consolidated interim financial information has not been audited or reviewed by the Company's auditor.

   2.    Financial Risk Management 

The Group is exposed to market risk, interest rate risk, credit risk and liquidity risk in the current and future periods. 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.

Market Risk

Risk relating to Investment Property

Investment in property is subject to varying degrees of risk. Some factors that affect the value of the investment in property include:

 
      --  changes in the general economic climate; 
      --  competition from available properties; and 
      --  government regulations, including planning, environmental and tax laws. 
 

Interest Rate Risk

The Group has limited interest rate risk. Its risk is on income and cash flows from changes in market interest rates. From time to time, certain of the Group's cash resources are placed on short term fixed deposits to take advantage of preferential rates otherwise cash resources are held in current, floating rate accounts.

Credit Risk

Credit risk is that a counterparty will not meet its obligations under a financial instrument or customer contract leading to a financial loss. The Group is exposed to credit risk both from its property activities and financing activities.

Credit risk relating to property activities

The Group receives property rental income from its investments in PRS assets. Risk is mitigated as PRS assets consist of residential family housing with multiple tenants in multiple locations. Rental income is paid monthly in advance. Rental income outstanding and due to the Company as at 31 December 2018 amounted to GBP56,000

Credit risk arising related to financial instruments including cash deposits

Risk arises as a result of the cash deposits with banks and financial institutions. The Board of Directors believe the credit risk on short term deposits and current account balances are limited as they are held with banks with high credit ratings. As at 31 December 2018, short term deposits and current account balances were held with the following banks:

Royal Bank of Scotland plc

Investec Bank plc

Barclays Bank plc

Lloyds Banking Group

Liquidity Risk

The Group seeks to manage liquidity risk to ensure sufficient liquidity is available to meet the requirements of the business and to invest cash assets safely and profitably. The Board reviews regularly available cash to ensure that there are sufficient resources for capital expenditure and working capital requirements. As at 31 December 2018, the Group's amount of current financial assets was in excess of its financial liabilities by GBP365,000,000. The table below summarises the maturities of the Group's non-derivative financial liabilities as at 31 December 2018:

 
                    Less than one   1 - 3 years 
                     year GBP'000       GBP'000 
 Trade and other 
  payables                 24,937         2,475 
 
   3.    Accounting Policies 

The principal accounting policies applied in the preparation of the condensed consolidated interim financial statements are summarised below and in the annual audited financial statements for the period ended 30 June 2018 as described in the Group's Annual Report for that period and as available on the website (www.theprsreit.com).

Basis of Accounting

This condensed consolidated interim financial information has been prepared on a going concern basis. The Group's cash balances at 31 December 2018 were GBP230.3m of which GBP129.7m was readily available. Capital investment outstanding for contracts entered into as at 31 December 2018 were GBP177m. As at 31 December 2018, the Group has no debt borrowing but has GBP200m of debt facilities in place. As a consequence, the Directors believe the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational assistance for the foreseeable future and for a period of at least 12 months from the date of the Group's condensed consolidated interim financial statements. The Board is therefore of the opinion that the going concern basis adopted in the preparation of the condensed consolidated interim financial statements is appropriate.

This condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the EU. The condensed consolidated interim financial information should be read in conjunction with the Group's audited financial statements for the year ended 30 June 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.

This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of s434 of the Companies Act 2006 and are unaudited. The group's financial statements for the year ended 30 June 2018 have been reported on by its auditors and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified and did not draw attention to any matters by way of emphasis. It also did not contain a statement under section 498 of the Companies Act 2006

The financial statements have been prepared on the historical cost basis, except where IFRS requires an alternative treatment. The principal variations from historical cost relate to financial instruments (IAS 39).

Adoption of new and revised standards

The following are new standards, interpretations and amendments, which are not effective and have not been early adopted in these condensed consolidated interim financial statements that may have an effect on the Company's future financial statements.

IFRS 16 - Leases

The standard is effective for accounting periods commencing on or after 1 January 2019.

Under IFRS 16, most leased assets are capitalised by recognising the net present value of the lease payments as an asset and a financial liability representing the obligation to make future lease payments. The Directors are assessing the impact of this standard on the financial statements but anticipate that there will be no impact on the Group's financial statements as it does not hold any operating leases as lessee.

Basis of Consolidation

The condensed consolidated financial statements comprise of the financial information of The PRS REIT plc and its subsidiary undertakings. Subsidiaries are all entities over which the Group has control. The financial information of the subsidiaries 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 period from 31 May 2017 to 31 December 2018, the Directors regard the Group as having just one reportable segment, Property, and the business only operates in the United Kingdom.

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 transactions costs. After initial recognition, investment property is carried at fair value. Investment properties under construction are initially recognised at cost including related transaction costs. Subsequently, the assets are re-measured at fair value at each reporting date by where:

 
      --  Fair value (at the date of valuation) = development spend to date 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 
 

This method of valuation is different to that as reported at 30 June 2018 but the Board believes is a much simpler and transparent method of valuation than the residual approach previously adopted and importantly provides a true worth and fair value of the assets during the construction phase. The investment properties are externally valued by Savills. Savills are qualified external valuers who hold a recognised and relevant professional qualification. Gains or losses arising from changes in the fair value of the Group's investment properties are included in profit from operations in the income statement of the period in which they arise. Investment property falls within level 3 of the fair value hierarchy as defined by IFRS 13. Further details are provided in note 11.

Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The movement in the provision is recognised in the statement of comprehensive income.

Operating leases

Rental income charge to tenants from operating leases is recognised on a straight line basis over the term of the relevant lease. Tenant lease incentives are recognised as a reduction of rental income when they arise. Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the profit and loss account when the right to receive them arises.

Cash

Cash and cash equivalents comprise cash in hand, cash at bank, cash held in treasury deposits and cash held by solicitors.

Trade Payables

Trade payables are not interest bearing and are stated at their amortised cost.

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 registered in the Condensed Consolidated Statement of Comprehensive Income except to the extent that it relates to items recognised as a direct movement in equity, in which case it is recognised as a direct movement in equity. Current tax is expected tax payable on any non REIT taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be recognised.

Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited in the income statement, 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.

Expenses

All expenses are recognised in the Condensed 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.

Costs of Borrowing

Borrowing costs are capitalised and are amortised over the debt term.

Share Issue Costs

The costs of issuing equity instruments are accounted for as a deduction from equity.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, the Directors have made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements.

Acquisition of subsidiaries

During the period, the Group acquired two property owning special purpose vehicles that were included in the IPO prospectus. As set out in the group's annual financial statements for the period to 30 June 2018, these acquisitions were dependent on the IPO and have therefore been treated as business combinations in line with the requirement of IFRS 3. All assets acquired and liabilities assumed in a business combination are measured at acquisition date fair value. The fair value of the assets and liabilities as at the date of the acquisitions were as follows:

 
                           Sigma PRS       Sigma PRS 
                           Investments    Investments 
                             IV & V       (Our Lady's) 
                             Limited        Limited 
                               GBP'000         GBP'000 
 
 Investment properties 
  acquired                      10,320          11,660 
 Other receivables                  13              13 
 Other payables                   (19)            (29) 
                         -------------  -------------- 
 Total consideration 
  paid                          10,314          11,644 
                         =============  ============== 
 
 
      --  Investment property is measured at fair value as at the date of the 
           acquisition of the subsidiary by an independent valuation expert. 
      --  Other receivables are taken as being the value recorded in the accounts 
           of the Company acquired, being the best estimate of their fair value. 
      --  Other creditor balances are measured at the amounts actually payable. 
      --  The total consideration paid was cash settled and no goodwill arose 
           on acquisition 
 

Acquisition of subsidiaries - as a group of assets and liabilities

During the period, the Group acquired a further five property owning special purpose vehicles. The Directors considered whether these acquisitions meet the definition of the acquisition of a business or the acquisition of a group of assets and liabilities. It was concluded that acquisitions did not meet the criteria for the acquisition of a business as outlined in IFRS 3 as they did not have an integrated set of activities and assets that were capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors. Furthermore, a business consists of inputs and process applied to those inputs that have the ability to create outputs. All assets acquired and liabilities assumed in acquisition of a group of assets and liabilities are measured at acquisition date fair value. The Directors have reviewed the fair value of the assets and liabilities as at the date of the acquisitions which were as follows:

 
                           Sigma PRS      Sigma PRS                     Sigma PRS      Sigma PRS 
                           Investments    Investments    Sigma PRS      Investments    Investments 
                             (Cable       (Whitworth     Investments    (Darlaston     (Sutherland 
                             Street         Way II)      (Darlaston       Phase 2        School 
                           II) Limited      Limited      II) Limited    II) Limited    II) Limited 
                            GBP'000        GBP'000        GBP'000        GBP'000        GBP'000 
 
 Investment properties 
  acquired                       2,862          2,519          1,755          1,746          2,905 
 Other receivables                   -            473              -              -            548 
 Other payables                      -              -              -              -           (20) 
 Total consideration 
  paid                           2,862          2,992          1,755          1,746          3,433 
                         =============  =============  =============  =============  ============= 
 
 
      --  Investment property is measured at fair value as at the date of the 
           acquisition of the subsidiary by an independent valuation expert. 
      --  Other receivables are taken as being the value recorded in the accounts 
           of the Company acquired, being the best estimate of the amounts actually 
           recoverable. 
      --  Other creditor balances are measured at the amounts actually payable. 
 
   4.    Rental Income 
 
                                                        Period from 
                                          Six months 
                                               ended      31 May to 
                                                                      Period ended 
                                         31 December    31 December        30 June 
                                                2018           2017           2018 
                                         (unaudited)    (unaudited)      (audited) 
                                             GBP'000        GBP'000        GBP'000 
 
 Gross rental income from investment 
  property                                     2,320            583          1,765 
                                       -------------  -------------  ------------- 
                                               2,320            583          1,765 
                                       =============  =============  ============= 
 
   5.    Investment Advisory Fees 
 
                                 Period from 
                   Six months 
                        ended      31 May to 
                                               Period ended 
                  31 December    31 December        30 June 
                         2018           2017           2018 
                  (unaudited)    (unaudited)      (audited) 
                      GBP'000        GBP'000        GBP'000 
 
 Advisory fee           2,195          1,382          3,295 
                -------------  -------------  ------------- 
                        2,195          1,382          3,295 
                =============  =============  ============= 
 

Sigma PRS Management Ltd is appointed as the Investment Adviser of the Company. Under the current Investment Management Agreement, the Advisory Fee shall be an amount calculated in respect of each month, in each case based upon the Adjusted Net Asset Value on the following basis:

 
      (a)  1 per cent per annum of the Adjusted Net Asset Value up to, and including, 
            GBP250 million; 
      (b)  0.90 per cent per annum of the Adjusted Net Asset Value in excess of 
            GBP250 million; 
      (c)  0.80 per cent per annum of the Adjusted Net Asset Value in excess of 
            GBP500 million and up to, and including, GBP1 billion; and 
      (d)  0.70 per cent per annum of the Adjusted Net Asset Value in excess of 
            GBP1 billion. 
 

The appointment of the Investment Adviser shall continue in force unless and until terminated by either party giving to the other not less than 12 months' written notice, such notice not to expire earlier than 31 May 2023.

   6.    General and Administrative Expenses 
 
                                                         Period from 
                                           Six months 
                                                ended      31 May to 
                                                                       Period ended 
                                          31 December    31 December        30 June 
                                                 2018           2017           2018 
                                          (unaudited)    (unaudited)      (audited) 
                                              GBP'000        GBP'000        GBP'000 
 
 Legal and professional fees                       73             36             91 
 Administration and secretarial 
  fees                                             69             53            123 
 Audit and tax fees                                59             23            134 
 Valuation fees                                    58             24            156 
 Depositary fees                                   20             17             56 
 Financial adviser and broker                      30             35             66 
 Insurance                                         13              9             20 
 Public relations                                  32             20             41 
 Regulatory fees                                   87             75            134 
 Sundry expenses                                    -              4              5 
 Costs of acquisition of subsidiaries              42             19             24 
 Disallowed VAT                                    69             49            127 
                                        -------------  -------------  ------------- 
                                                  552            364            977 
                                        =============  =============  ============= 
 
   7.    Finance Income 
 
                                                    Period from 
                                      Six months 
                                           ended      31 May to 
                                                                  Period ended 
                                     31 December    31 December        30 June 
                                            2018           2017           2018 
                                     (unaudited)    (unaudited)      (audited) 
                                         GBP'000        GBP'000        GBP'000 
 
 Interest on short term deposits             488            192            570 
                                   -------------  -------------  ------------- 
                                             488            192            570 
                                   =============  =============  ============= 
 
   8.    Finance Costs 
 
                                                    Period from 
                                      Six months 
                                           ended      31 May to 
                                                                  Period ended 
                                     31 December    31 December        30 June 
                                            2018           2017           2018 
                                     (unaudited)    (unaudited)      (audited) 
                                         GBP'000        GBP'000        GBP'000 
 
 Amortisation of loan arrangement            132              -              - 
  fees 
 Amortisation of loan commitment             114              -              - 
  fees 
                                             246              -              - 
                                   =============  =============  ============= 
 
   9.    Taxation 

As a UK REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it meets certain conditions as set out in the UK REIT regulations. For the current period ended 31 December 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.

 
                                                            Period from 
                                              Six months 
                                                   ended      31 May to 
                                                                          Period ended 
                                             31 December    31 December        30 June 
                                                    2018           2017           2018 
                                             (unaudited)    (unaudited)      (audited) 
                                                 GBP'000        GBP'000        GBP'000 
 
 Current tax 
 Corporation tax charge/(credit) 
  for the period                                       -              -              - 
                                           -------------  -------------  ------------- 
 Total current income tax charge/(credit) 
  in the income statement                              -              -              - 
                                           =============  =============  ============= 
 

The tax charge for the period is less than the standard rate of corporation tax in the UK of 19 per cent. The differences are explained below.

 
                                                         Period from 
                                           Six months 
                                                ended      31 May to 
                                                                       Period ended 
                                          31 December    31 December        30 June 
                                                 2018           2017           2018 
                                          (unaudited)    (unaudited)      (audited) 
                                              GBP'000        GBP'000        GBP'000 
 
 Profit before tax                              7,535            539          3,237 
 Tax at UK corporation tax standard 
  rate of 19%                                   1,432            102            615 
 Change in value of exempt investment 
  properties                                  (1,550)          (307)        (1,048) 
 Exempt REIT income                             (340)           (82)          (232) 
 Amounts not deductible for tax 
  purposes                                          -              -             14 
 Unutilised residual current year 
  tax losses                                      410            287            582 
 Difference in deferred tax rates                  48              -             69 
                                        -------------  -------------  ------------- 
                                                    -              -              - 
                                        =============  =============  ============= 
 

The standard rate of corporation tax in the UK for the period from incorporation to 31 March 2017 was 20%. From 1 April 2017 to 31 December 2018, the standard rate of corporation tax in the UK was 19%.

REIT exempt income includes property rental income that is exempt from UK Corporation Tax in accordance with Part 12 of CTA 2010.

10. Dividends

The following dividends were paid during the period:

 
                                        Six months    Period from    Period from 
                                             ended      31 May to    31 May 2017 
                                       31 December    31 December     to 30 June 
                                              2018           2017           2018 
                                       (unaudited)    (unaudited)      (audited) 
                                           GBP'000        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              -              - 
                                     -------------  -------------  ------------- 
                                            17,335              -          8,700 
                                     =============  =============  ============= 
 

On 31 July 2018, the Company announced the declaration of an interim dividend in respect of the period 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 an interim 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.

A further dividend was paid during February 2019 which is detailed under note 20, Post Balance Sheet Events.

11. Investment Property

In accordance with International Accounting Standard, IAS 40 'Investment Property', investment property has been independently valued at fair value by Savills (UK) Limited, an accredited external valuer with a recognised relevant professional qualification and with recent experience in the locations and categories of the investment properties being valued. The valuation basis conforms to International Valuation Standards and is based on market evidence of investment yields, expected gross to net income rates and actual and expected rental values.

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

 
                                       Completed    Assets under 
                                          Assets    Construction     Total 
                                         GBP'000         GBP'000   GBP'000 
 
 Properties acquired on acquisition 
  of subsidiaries                         31,695           3,059    34,754 
 Property additions - subsequent 
  expenditure                                  -          20,585    20,585 
 Change in fair value                        175           1,443     1,618 
 Transfers to completed assets                 -               -         - 
                                      ----------  --------------  -------- 
 As at 31 December 2017                   31,870          25,087    56,957 
 
 Properties acquired on acquisition 
  of subsidiaries                          9,075           7,581    16,656 
 Property additions - subsequent 
  expenditure                                  -          43,599    43,599 
 Change in fair value                        675           3,222     3,897 
 Transfers to completed assets             2,015         (2,015)         - 
                                      ----------  --------------  -------- 
 As at 30 June 2018                       43,635          77,474   121,109 
 
 Properties acquired on acquisition 
  of subsidiaries                         21,980          11,787    33,767 
 Property additions - subsequent 
  expenditure                                  -         106,199   106,199 
 Change in fair value                      1,534           6,623     8,157 
 Transfers to completed assets            35,657        (35,657)         - 
                                      ----------  --------------  -------- 
 As at 31 December 2019                  102,806         166,426   269,232 
 
 Change in fair value                      2,384          11,288    13,672 
                                      ==========  ==============  ======== 
 

Fair Values

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

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

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

   Level 3    unobservable inputs for the asset or liability. 

Investment property falls within Level 3. The investment valuations provided by the external valuation expert are based on RICS Professional Valuation Standards, but include a number of unobservable inputs and other valuation assumptions. The significant unobservable inputs and the range of values used are:

Completed assets:

 
           Type                 Range 
 Investment yield           4.25% - 4.75% 
 Gross to net assumption     22.5% - 25% 
 

12. Share Capital

 
                                   No. of Shares   Share Capital 
                                                         GBP'000 
 
 
 Balance at 31 May 2017                        -               - 
 Shares issued in relation to 
  IPO                                250,000,000           2,500 
 Balance as at 31 December 2017      250,000,000           2,500 
 
 
 Shares issued in relation to 
  management contract                    445,578               4 
 Shares issued in relation to 
  Placing Programme                  243,902,440           2,439 
                                  --------------  -------------- 
 Balance as at 30 June 2018          494,348,018           4,943 
 
 
 Shares issued in relation to 
  management contract                    929,276              10 
                                  --------------  -------------- 
 Balance as at 31 December 2018      495,277,294           4,953 
                                  ==============  ============== 
 

13. Share Premium Reserve

The share premium relates to amounts subscribed for share capital in excess of nominal value.

 
                                                             Share Premium 
                                                                   GBP'000 
 
 
 Balance at 31 May 2017                                                  - 
 Share premium arising on shares issued in relation 
  to IPO                                                           247,500 
 Share issue expense in relation to the IPO                        (5,000) 
 Transfer to capital reduction reserve                           (242,500) 
                                                            -------------- 
 Balance as at 31 December 2017                                          - 
 
 
 Share premium arising on shares issued in relation 
  to the management contract                                           463 
 Share premium arising on shares issued in relation 
  to the Placing Programme                                         247,561 
 Share issue expense in relation to the Placing Programme          (3,999) 
                                                            -------------- 
 Balance as at 30 June 2018                                        244,025 
 
 
 Share issue credit in relation to Placing Programme 
  expenses                                                              18 
 Share premium arising on shares issued in relation 
  to the management contract                                           962 
                                                            -------------- 
 Balance as at 31 December 2018                                    245,005 
                                                            ============== 
 

14. Capital Reduction Reserve

 
                                               As at          As at      As at 
                                         31 December    31 December    30 June 
                                                2018           2017       2018 
                                             GBP'000        GBP'000    GBP'000 
 
 Opening balance                             233,800              -          - 
 Transfer from share premium reserve               -        242,500    242,500 
 Dividends paid                             (17,335)              -    (8,700) 
                                       -------------  -------------  --------- 
 Balance at end of period                    216,465        242,500    233,800 
                                       =============  =============  ========= 
 

15. IFRS Earnings per Share

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

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

 
                                        Net profit 
                                      attributable   Weighted average 
                                       to ordinary          number of     Earnings 
                                      shareholders    Ordinary Shares    per share 
                                           GBP'000             Number        Pence 
 
 For the period ended 31 December 
  2018                                       7,535        495,085,378         1.52 
 For the period from 31 May to 
  31 December 2017                             539        250,000,000         0.22 
 For the period ended 30 June 
  2018                                       3,237        330,854,803         1.00 
                                    --------------  -----------------  ----------- 
 

16. IFRS Net Asset Value per Share

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

Net asset values have been calculated as follows:

 
                                                 As at          As at         As at 
                                           31 December    31 December       30 June 
                                                  2018           2017          2018 
 
 Net assets at end of period (GBP'000)         477,195        245,539      486,0056 
 Shares in issue at end of period 
  (number)                                 495,277,294    250,000,000   494,348,018 
 Basic IFRS NAV per share (pence)                 96.3           98.2          98.3 
                                         =============  =============  ============ 
 

The NAV per share calculated on an EPRA basis is the same as the Basic IFRS NAV per share.

17. Capital commitments

The Group have entered into contracts with unrelated parties for the construction of residential housing with a total value of GBP318,074,000. As at 31 December 2018, GBP176,930,000 of such commitments remained outstanding.

18. Contingent Liability

The Investment Adviser is currently seeking clearance from HM Revenue and Customs in terms of the VAT rate applicable that it applies to the Investment Advisory fee that is charged to the Company. After seeking specialist advice the Investment Adviser believes that the fees charged will be treated as a VAT exempt supply.

The Company might have to pay the VAT on investment advisory fees. For the period 31 May 2017 to 31 December 2018 the amount of VAT that would have applied to the Investment Advisory fees is GBP1,098,000.

19. Transactions with Investment Adviser

On 31 March 2017, Sigma PRS Management Ltd was appointed as the Investment Adviser of the Company.

For the period from 1 July 2018 to 31 December 2018, fees of GBP2,195,000 were incurred and payable to Sigma PRS Management Ltd in respect of investment advisory services. At 31 December 2018, GBP372,000 remained unpaid.

For the period from 1 July 2018 to 31 December 2018, development fees of GBP4,533,000 were incurred and payable to Sigma PRS Management Ltd. At 31 December 2018, GBP1,155,000 remained unpaid.

On 8 August 2018, Sigma PRS Management Ltd acquired 929,276 shares in the Company equivalent to 50% of the development management fee earned for the period from 1 July 2018 to 31 December 2018. Subsequent to 31 December 2018, Sigma PRS Management Ltd acquired a further 976,804 shares.

During the period from 1 July 2018 to 31 December 2018, the Company acquired the following subsidiaries from Sigma Capital Group plc, the ultimate holding company of the Investment Adviser:

 
             Name of Entity               Consideration 
 Sigma PRS Investments IV and V Limited   GBP10,314,000 
                                         -------------- 
 Sigma PRS Investments (Our Lady's)       GBP11,664,000 
  Limited 
                                         -------------- 
 Sigma PRS Investments (Cable Street      GBP2,862,000 
  II) Limited 
                                         -------------- 
 Sigma PRS Investments (Whitworth         GBP2,992,000 
  Way II) Limited 
                                         -------------- 
 Sigma PRS Investments (Darlaston         GBP1,755,000 
  II) Limited 
                                         -------------- 
 Sigma PRS Investments (Darlaston         GBP1,746,000 
  Phase 2 II) Limited 
                                         -------------- 
 Sigma PRS Investments (Sutherland        GBP3,433,000 
  School II) Limited 
                                         -------------- 
 

20. Post Balance Sheet Events

Dividend

On 31 January 2019, the Company declared an interim dividend in respect of the period from 1 October 2018 to 31 December 2018 of 1.0p per Ordinary Share totalling GBP4,952,773. The dividend was paid on 28 February 2019 to shareholders on the register at 8 February 2019.

Acquisition of investment properties

Since 31 December 2018 and to the date of this report, the Company has acquired the following land for development of investment property:

 
      --  Acquired a site in January 2019 located in Rochdale, Greater Manchester 
           for GBP217,000; and 
      --  Acquired a site in January 2019 located in Newhaven, Salford for GBP2,782,000. 
 

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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