PRS REIT : Annual Report and Financial Statements for the period to 30 June 2022

Annual Report & Financial Statements

For the year ended 30 June 2022

Contents

02 Highlights

1. Strategic Report

1. Chairman's Statement

1. IFRS and EPRA Performance Measures

1. Market Dynamics

1. Portfolio Analysis

1. Investment Strategy and Business Model

1. Investment Adviser's Report

1. Environmental, Social and Governance

1. Principal Risks and Uncertainties

1. Stakeholder Engagement and Section 172 Statement

1. Corporate Governance
2. Directors
3. Advisers
4. Report of the Directors

1. Statement of Directors' Responsibilities

1. Corporate Governance Statement

1. Audit Committee Report

1. Management Engagement Committee Report

1. Directors' Remuneration Policy

1. Directors' Remuneration Report

86 Independent Auditor's Report to the Members of The Prs Reit plc

1. Financial Statements
2. Consolidated Statement of Comprehensive Income
3. Consolidated Statement of Financial Position
4. Consolidated Statement of Changes in Equity
5. Consolidated Statement of Cash Flows
6. Company Statement of Financial Position
7. Company Statement of Changes in Equity
8. Company Statement of Cash Flows
9. Notes to the Financial Statements

HIGHLIGHTS

REPORT STRATEGIC

STATEMENTS FINANCIAL REPORT AUDITORS INDEPENDENT GOVERNANCE CORPORATE

Company Number 10638461

THE PRSTHEREITPRSPLCREITANNUALPLC ANNUALREPORTREPORTAND FINANCIALAND FINANCIALSTATEMENTEMENTS2022 2022

THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

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NOTES

HIGHLIGHTS

Portfolio now at 4,856 completed homes. Assets are performing strongly, and rental demand continues to grow.

Key points

Financial	Year to	Year to
	30 June 2022	30 June 2021	Change
Revenue	£42.0m	£26.6m	+58%
Net rental income	£34.3m	£21.5m	+60%
Operating profit	£127.0m	£53.7m	+136%
Profit after tax	£115.9m	£44.1m	+163%
Basic earnings per share	21.4p	8.9p	+140%
Adjusted earnings per share1	3.0p	1.2p	+150%
Net assets at 30 June	£639m	£490m	+30%
IFRS NAV and EPRA NTA per share2	116.4p	99.0p	+18%

Operational	At 30 Sept	At 30 June	At 30 June	Year-on-
	2022	2022	2021	year change
Number of completed homes	4,856	4,786	3,984	+20%
Estimated rental value ("ERV") per annum*	£49.4m	£47.8m	£37.5m	+27%
Number of contracted homes	670	693	1,071	-35%
ERV per annum	£7.3m	£7.2m	£10.6m	-32%
Completed and contracted sites	70	68	64	+6%
ERV per annum of completed and contracted sites*	£56.7m	£55.0m	£48.1m	+14%
Rent collected (as a percentage of total rent	99%	99%	98%
invoiced for the period)

*based on all completed units being occupied/income producing

Outlook

Portfolio to reach c.5,000 homes around the end of 2022 and completed assets are performing strongly

• portfolio as at 30 September 2022 increased to 4,856 completed homes, with an ERV of £49.4m p.a. and a further 670 homes with an ERV of £7.3m p.a. are under way
• four development sites were acquired in Q1 2023
• energy efficiency of homes is high - 86% have an EPC rating of 'A' or 'B'; the balance is rated 'C', running costs are c. 25% lower compared to homes built in 2010 according to independent survey
• Q1 2023 asset performance was strong, with occupancy at 98% and rent collection at 99% as a proportion of rent invoiced during the last quarter

UK rental market remains strong and there is a growing mismatch between supply and demand

• macro-economicenvironment - especially rising interest rates - is increasing the numbers moving from buying to renting

HIGHLIGHTS

REPORT STRATEGIC

GOVERNANCE CORPORATE

Net asset value up 30% year-on-year to £639m or 116.4p per share at 30 June 2022 (2021: £490m or 99.0p per share)

• reflects ERV increase, underpinned by strong rental growth
• EPRA NTA was 116.4p per share

Assets continued to perform strongly, with rent collection at 99% for FY 2022 (2021: 98%) and occupancy at 98% at 30 June 2022 (2021: 98%)

• gross arrears remained low at £0.6m as at 30 June 2022 (30 June 2021: £0.4m)
• like-for-likeblended rental growth over the year was 5.1% on stabilised sites (where all units have been completed and either all or nearly all have been let). Re-lets to new tenants achieved c.10% rental growth
• average tenant rental affordability ratio now at 25% in 2022 (2021: 29%), notwithstanding 5.1% rental growth, indicating a stronger tenant base
• operating costs reduced to 18.2% from 19.5% reflecting the benefits of scale and close management

Portfolio expanded with the addition of 802 homes in the year, taking the total number of completed homes to 4,786 at 30 June 2022

• ERV up 27% to £49.4m p.a. as at 30 June 2022
• a further 693 contracted homes with an ERV of £7.2m p.a. were under way at 30 June 2022
• portfolio total revised to c.5,600 homes with ERV of c.£57.5m p.a. (previously 5,700 homes, with ERV of c.£55.0m p.a.). This reflects price inflation on new sites and higher debt costs as well as significantly stronger rent

Total dividends of 4.0p per share declared (2021: 4.0p)

• minimum dividend of 4.0p per share targeted for FY 2023

Average net investment yield on the portfolio of 4.125% (30 June 2021: 4.25%)

Gearing on portfolio (measured as net debt vs. investment value) low at 31%, with 62.5% of the existing £400m of investment debt fixed rate at an average of 2.9%

"We've had another successful period with just over 800 new rental homes added to the portfolio during the financial year. This has taken the number of completed homes in the portfolio at the end of September to 4,856. We expect to approach our 5,000th home towards the end of 2022.

"We are now targeting 5,600 homes, providing over £1 billion of assets with an anticipated rental income stream of £57.5 million a year.

"The portfolio continues to perform very well. We have seen strong rental growth and anticipate increased occupier demand, particularly in a rising interest rate environment, which will make home ownership more

unattainable for some. Affordability is more achievable for our customers. Our tenant base spends on average 25% of their income on rent, which is lower than last year's figure of 29%.

"While there are current challenges, we are well positioned to weather the current volatility. More than 60% of our long-term investment debt is at favourable fixed rates for an average

17 years, and the portfolio gearing is low at 31%.

"The structural shortage of high-quality rental homes in the UK and rising demand against a backdrop of higher interest rates continue to demonstrate a need for our model of high- quality, professionally-managed single family rental homes."

STATEMENTS FINANCIAL REPORT AUDITORS INDEPENDENT

• A full reconciliation between IFRS profit and Adjusted earnings can be found in note 16 of the Financial Statements 2 A reconciliation of IFRS NAV to EPRA NTA can be found in note 28 of the Financial Statements

• THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

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NOTES

STRATEGIC REPORT CHAIRMAN'S STATEMENT (Cont.)

Strategic Report

Strong asset performance

I am pleased to report that our assets have performed strongly throughout the year. Both occupancy and rent collection (which is measured as rent collected relative to rent invoiced in any given period) remained high.

Rent collection for the year was 99% (2021: 98%) on this basis and occupancy stood at 98% at 30 June 2022 with 4,674 homes occupied out of the 4,786 completed homes (2021: 98%). Including those homes where a letting had been agreed but occupancy had not commenced, occupancy was 99%.

Net rental income for the financial year increased by 60% year-on-year to £34.3 million (2021: £21.5 million). This reflects the benefit of a full year's rental income on properties that had been completed and let part-way through the prior year, combined with both portfolio and rental growth.

Financial Results

Revenue, which is generated wholly from rental income, increased by 58% year-on-year to £42.0 million (2021: £26.6 million). This principally reflected a combination of the substantial increase in the number of rental homes making up the portfolio and strong rental growth. After the deduction of non-recoverable property costs, which were 18.2% of revenue (2021: 19.5%), net rental income for the financial year was £34.3 million (2021:

£21.5 million), an increase of 60% over the year.

Expenses in the year rose to £7.5 million (2021: £7.1 million, which included £0.5 million of one-off expenses relating to the Company's migration to the Main Market). The increase over the prior year reflects the rise in the size and scale of the portfolio.

HIGHLIGHTS

REPORT STRATEGIC

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present The PRS REIT plc's (the "PRS REIT", or the "Company" or the "Group") audited financial results for the year ended 30 June 2022. Against a very turbulent backdrop, the Company has continued to successfully deliver its objectives and you will see throughout the Report the strong position that it has achieved and the positive actions that it has taken.

Largest portfolio of single-family rental homes in the UK

We have continued to increase the Company's portfolio of new, high-quality family rental homes, with 802 homes added during the financial year. This took the total number of completed homes in the portfolio to 4,786 by the financial year end, an increase of 20% (30 June 2021: 3,984 homes).

The estimated rental value ("ERV") from our 4,786 completed homes is £47.8 million per annum, a 27% rise on the same point last year (30 June 2021: £37.5 million per annum). The percentage increase in rental value over the year compared to the percentage increase in the number of completed homes over the year reflects rental growth over the period.

Of the 802 additional homes, 66 homes were added through the acquisition of two fully-developed and let sites

from Sigma Capital Group Limited, which were bought after having been independently assessed and valued by Savills.

A further 693 homes, with an ERV of £7.2 million per annum, were contracted at 30 June 2022, and are at varying stages of the construction process.

Over the financial year, we acquired four sites, which we are now developing. They have a combined ERV of £3.3 million. We have acquired a further four development sites in the first quarter of the new financial year.

The Company's portfolio of high-qualitysingle-family homes and apartments remains the largest of its kind in the UK. Our assets are geographically widely spread. Currently, we have 70 sites (2021: 64 sites) across the major regions of England and in Scotland. Sites are in the North-West,North-East, Yorkshire, the Midlands, and in the South-East (excluding London) and East of England, with one site in Central Scotland. We are now targeting approximately 5,600 homes with an ERV of around £57.5 million per annum once the homes are fully completed and let. This compares to the previous target of 5,700 homes with an estimated ERV of £55.0 million per annum immediately following our equity fundraise in September 2021. The revision takes into account price inflation on new sites and higher interest costs in relation to variable rate debt.

Like-for-like rental growth on stabilised sites over the year was 5.1%1. This reflects a blended rate of c.10% on re- lets to new tenants and c.4% on renewals with existing tenants during the period. Gross rent arrears remained modest despite the growth in the portfolio, standing at £0.6 million at 30 June 2022 (30 June 2021: £0.4 million).

The PRS REIT's average rental affordability ratio has improved to 25% in 2022 (2021: 29%). This is notwithstanding rental growth over the year and compares to Homes England's affordability target of 35%. We believe it indicates a stronger tenant base.

This strong asset performance demonstrates ongoing robust demand for our high-quality homes, which is also supported by the structural undersupply of family homes in the market.

In Propertymark's latest report on the lettings sector published in September, the leading membership body for the residential letting agents reported that the number of new tenants registered on average per member branch reached a new peak in August, at 141. At the same time, the supply of available homes to rent had not risen in the last three months. Propertymark predicted that this growing mismatch between supply and demand would exert upward pressure on rent. Approximately 77% of its members reported a month-on-month rent price increase in August.

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

The gain from the fair value adjustment on investment property increased significantly from the prior year to £99.7 million (2021: £39.0 million). Almost 80% of this is attributable to higher ERV with almost 20% reflecting yield compression, whilst development surplus on assets under construction accounts for the remaining portion of the uplift. ERV is now approximately £2.7 million higher than passing rent on completed and let properties, reflecting the continuing demand for the Company's product. The fair value of investment property is based on ERV rather than passing rent.

Operating profit increased by 136% to £127.0 million (2021: £53.7 million), which reflected the increase in completed and let homes together with the rise in the portfolio valuation.

Finance costs were higher at £11.1 million (2021: £9.6 million) as we drew down and utilised investment debt facilities and arranged additional development debt funding during the year. Although interest rates rose towards and after the end of the financial year, the impact of this was relatively small during the period due to the quantum of fixed rate investment debt. Finance income from short-term deposits in the year was £4,000 (2021: £nil), again reflecting the low interest rate environment during the financial year.

Profit after taxation increased by £71.8 million or 163% to £115.9 million (2021: £44.1 million) while basic and diluted earnings per share rose by 140% to 21.4p (2021: 8.9p) on an IFRS basis.

STATEMENTS FINANCIAL REPORT AUDITORS INDEPENDENT GOVERNANCE CORPORATE

• Like-for-likerental growth on stabilised sites is defined as the annual rental growth on sites where all units have been completed and either all or nearly all have been let

NOTES

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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

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STRATEGIC REPORT CHAIRMAN'S STATEMENT (Cont.)

STRATEGIC REPORT CHAIRMAN'S STATEMENT (Cont.)

The Group's IFRS net asset value ("NAV") per share and EPRA net tangible asset ("NTA") per share at 30 June 2022, both increased to 116.4p (31 December 2021: 104.3p and 30 June 2021: 99.0p). This is a year-on-year increase of 18% and a 12% increase over the prior six months.

Net assets at 30 June 2022 were 30% higher year-on- year at £639 million (30 June 2021: £490 million). This is after paying dividends of £21.4 million in the year (2021: £24.8 million).

Dividends

For the year to 30 June 2022, aggregate dividends of

4.0p per share were declared (2021: 4.0p per share) and

paid to shareholders (2021: 5.0p per share). Due to the timing of dividend payments, the Company declared a total of 4.0p per ordinary share but paid a total of 5.0p per ordinary share during the prior year under review. Taking into account the dividend paid on 26 August 2022, total dividends paid since the Company's inception in May 2017 amount to 22.0p per share.

Following the September 2021 equity placing, the current dividend of 4.0p was almost fully covered on a run-rate EPRA EPS basis at the end of the financial year. Dividend cover will continue to grow as construction, completions and lettings advance.

Debt Facilities

The Company had £440 million of committed debt facilities available for utilisation as at 30 June 2022. Gearing on portfolio (measured as net debt vs. investment value) remains low at 31%, and 62.5% of the £400 million of investment debt is fixed rate at an average of 2.9%.

The £440 million of committed debt facilities comprised £400 million of investment debt facilities and £40 million of development debt facilities although a small portion of the investment debt facilities can also be utilised as development debt facilities.

Our lending partners are: Scottish Widows (£250 million); The Royal Bank of Scotland plc (£100 million); Lloyds Banking Group plc (£50 million); and Barclays Bank PLC (£40 million). £25 million of the Lloyds Banking Group/ RBS facility and the £40 million Barclays Bank PLC debt facility are available to be drawn as development debt facilities, which enables sites to be developed simultaneously.

The debt facilities are subject to the maximum gearing ratio of 45% of gross asset value. Approximately £350 million of these facilities have been drawn to date, with the remainder presently forecast to be utilised over the next 12 months as we finish the current phase of construction, completion and letting activity. The fixed interest long-term investment debt facilities of £250 million have an average term of 17.6 years and an average weighted cost of 2.9% once fully drawn.

Environmental, Social and Governance ("ESG") Practices

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

The Board is responsible for determining the Company's investment objectives and policy and has overall responsibility for the Company's activities, including the review of investment activity and performance. The Board consists of five independent non-executive directors, who together bring significant and complementary experience in fund management (including listed funds), equity capital markets, public policy, operations and finance in the property and investment funds sectors.

The Board delegates the day-to-day management of the business, including the management of ESG matters, to the Investment Adviser, Sigma PRS Management Ltd ("Sigma PRS"), which is a subsidiary of Sigma, and a signatory and participant of the United Nations Global Compact. Sigma is part of PineBridge Investments, a private, global asset manager with over US$140bn in assets under management at June 2022.

Details of ESG policies and activities are contained in the Investment Adviser's Report. In that report, the results of our recently commissioned Energy Efficiency Study are recorded. Undertaken by Calfordseaden, a property and construction consultancy firm, it compared the energy consumption of the Company's properties with housing stock of various ages, and found that on average, the Company's homes were 74% cheaper to run on an annual basis than homes built between 1900-1929, with running costs 25% lower compared to homes built in 2010. Given the current energy crisis, this is a significant plus point for our tenants.

Outlook

The macro-economic environment has become more uncertain with the war in Ukraine, inflation and rising interest rates driving a more negative outlook in the UK and globally. In terms of the UK housing market, the impact of rising interest rates is expected to reduce mortgage affordability and drive demand in the rental sector as prospective homeowners turn to rental alternatives. We expect these factors, together with the existing structural shortage of quality family rental homes, to provide a strong underpinning to demand in the private rented sector.

Against this backdrop, our high-quality,well-located homes remain highly attractive to prospective renters. Our emphasis on customer service and strong promotion of a sense of community in our developments is also an important aspect of what our homes offer. In addition, the proven energy efficiency of our homes is particularly relevant with high and rising energy prices. The Board remains confident that its cashflow will be stable and sustainable.

The Company's exposure to interest rate increases is limited with approximately 60% of investment debt fixed. In addition, our fixed-price construction contracts will limit the Company's exposure to price inflation on existing contracts.

During the first quarter of the new financial year, another 70 new homes were added to the portfolio, taking the total number of completed homes at 30 September 2022 to 4,856 and the ERV of completed homes to £49.4 million per annum, up by 20%. This compares to 4,291 completed homes with a rental value of £41.1 million per annum at the same point last year. Another 670 homes, with an ERV of £7.3 million per annum, were contracted and under way at the end of the first quarter.

Asset performance remains strong. In the first quarter, rent collection was 99% (2021: 99%) and total occupancy at 98% (30 September 2021: 98%), with 4,774 homes occupied out of the total of 4,856. A further 45 were reserved for applicants who had passed referencing and paid rental deposits. Total arrears at 30 September 2022 were low at £0.6 million. Like-for-like blended rental growth on stabilised sites was 5.0%.

Towards the end of the calendar year, we expect the number of completed homes in the portfolio to near 5,000, which would take the value of completed assets close to £1bn and annual rental income to approximately £51.0 million.

We are targeting a minimum dividend of 4.0p per share* in the new financial year, and will declare the interim dividend for the first quarter of the financial year in October 2022.

On behalf of the Board, I would like to thank our investors, customers and everyone involved in the ongoing delivery and management of our rental portfolio, including our supporters in government and our partner housebuilders. Together we are creating attractive places to live and making an important contribution to the UK housing stock, the welfare of local communities and to families and individuals.

We expect to make further strong progress and look forward to the year ahead. We will continue to consult with investors, advisors and others as we assess the Company's next stage of development.

Steve Smith

Chairman

10 October 2022

HIGHLIGHTS

REPORT STRATEGIC

STATEMENTS FINANCIAL REPORT AUDITORS INDEPENDENT GOVERNANCE CORPORATE

*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.

NOTES

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THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

THE PRS REIT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2022

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