PRS REIT : Annual Report and Financial Statements for the year ended 30 June 2021

Company Number 10638461

THE PRS REIT PLC

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2021

EDINBURGH	MANCHESTER	LONDON (postal only)
18 Alva Street	Floor 3, 1 St Ann Street	8 Harley Place
Edinburgh	Manchester	London
EH2 4QG	M2 7LR	W1G 8QE
	Tel: [phone]

ANNUAL REPORT AND FINANCIAL STATEMENTS

For the year ended 30 June 2021

CONTENTS		PAGE
HIGHLIGHTS	2
STRATEGIC REPORT	4
Chairman's Statement	4
IFRS AND EPRA PERFORMANCE MEASURES	8
Going Concern Review and Stress Test	9
Market Dynamics	13
Portfolio Analysis	14
Investment Strategy and Business Model	30
Investment Adviser's Report	33
Environmental, Social and Governance	39
Principal Risks and Uncertainties	45
STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT	49
CORPORATE GOVERNANCE	52
Directors	52
Advisers	53
Report of the Directors	54
Statement of Directors' Responsibilities	59
Corporate Governance Statement	61
Audit Committee Report	69
Directors' Remuneration Policy	72
Directors' Remuneration Report	74
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF THE PRS REIT PLC	77
FINANCIAL STATEMENTS	84
Consolidated Statement of Comprehensive Income	84
Consolidated Statement of Financial Position	85
Consolidated Statement of Changes in Equity	86
Consolidated Statement of Cash Flows	87
Company Statement of Financial Position	88
Company Statement of Changes in Equity	89
Company Statement of Cash Flows	90
NOTES TO THE FINANCIAL STATEMENTS	91

HIGHLIGHTS

Key points

Financial

	Year to	Year to
	30 June	30 June
	2021	2020	Change
Revenue	£26.6m	£12.9m	+106%
Net rental income	£21.5m	£10.2m	+111%
Operating profit	£53.7m	£19.9m	+170%
Profit after tax	£44.1m	£16.4m	+169%
Basic earnings per share	8.9p	3.3p	+170%
Net assets at 30 June*	£490m	£471m	+4%
IFRS NAV and EPRA NTA* per share	99.0p at 30 June 2021	95.1p at 30 June 2020	+4%
	96.2p at 31 Dec 2020	95.0p at 31 Dec 2019	+1%

*after dividend payments

Operational

	At	At	At	Year-
	30 Sept	30 June	30 June	on-year
	2021	2021	2020	change
Number of completed homes	4,291	3,984	2,082	+91%
Estimated rental value ("ERV")	£41.1m p.a.	£37.5m p.a.	£19.1m p.a.	+96%
Number of contracted homes	764	1,071	2,803	-62%
ERV	£7.0m p.a.	£10.6m p.a.	£27.4m p.a.	-61%
Completed and contracted sites	64	64	62	+3%
ERV of completed and contracted sites	£48.1m p.a	£48.1m p.a.	£46.6m p.a.	+3%
Rent collected (as a percentage of total
rent due)	99%	98%	98%

• Delivery progressed well, with 4,000th home milestone reached just after financial year-end
• • 1,902 new homes added to the portfolio (2020: 909), taking total at financial year-end to 3,984 homes
    with an ERV of £37.5m p.a. (2020: £19.1m p.a.). A further 1,071 home were under way (30 June
    2020: 2,803)
  • coronavirus-relateddisruptions reduced activity levels by c.5-10% (2020: c. 40%)
• Total dividends per share declared, 4.0p (2020: 4.0p)
• • post equity placing, current dividend expected to be almost fully covered on a run-rate EPRA EPS basis by the financial year-end

Outlook

• In Q1 2022, a further 307 homes were added, taking the portfolio to 4,291 completed homes, with an ERV of £41.0m p.a. A further 764 homes were under way at 30 September 2021
• Rental demand remains strong; at 30 September 2021, 98% of 4,291 completed homes were occupied, and a further 52 homes reserved for qualified applicants with rental deposits paid
• Gross proceeds of £55.6m were raised on 29 September 2021 through an equity raise. The net funds will support the acquisition of five sites, expected to deliver c. 500 new homes with an ERV of £4.8m p.a. Two of the five sites have now been acquired
• The Company remains on track to reach its 5,000th home in the middle of calendar 2022 and, following the recent equity placing, a higher target of 5,700 homes, with an ERV approaching £55m p.a.
• Long-termgrowth opportunity is strong underpinned by structural undersupply of high-quality, family rental homes

2

HIGHLIGHTS (Cont.)

Steve Smith, Chairman of the PRS REIT, commented:

"We are pleased with the continued progress of The PRS REIT plc in its fourth year of activity. We have effectively navigated the ongoing challenges posed by the coronavirus pandemic, delivering almost 2,000 new homes in the year. By the end of the first quarter of the new financial year, the portfolio comprised 5,055 completed and contracted homes, and following the recent equity placing we are firmly on track to deliver a higher target of 5,700 homes.

"Demand for our homes remains strong, and in a recent survey of customers 10 months into their tenancies, 96% of respondents reported that they were happy in their homes.

"The continued undersupply of high-quality,well-managed family rental homes means that we remain highly confident of long-term prospects for the Company. We are very pleased to be playing a role in helping to solve the UK's housing shortage, providing desirable homes across the country for hard-working families"

3

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present The PRS REIT plc's ("the PRS REIT", "the Company" or "the Group") audited financial results for the year ended 30 June 2021. The Company has continued to make good progress in the delivery of the largest portfolio of single family homes for rent in the UK, despite the continuing challenges presented by the coronavirus pandemic. While we estimate that activity levels decreased by about 5-10% as a result of coronavirus-related disruptions, this was significantly less than in the previous financial year, when the construction industry was shut down completely for some six to eight weeks, which contributed to an estimated decrease in activity levels in that year of about 40%.

Instead, construction continued throughout the year, and by the financial year-end we were very close to reaching 4,000 new rental homes in our portfolio, having achieved the milestone of 3,000 new homes in December 2020. In total, 1,902 new homes were added to the portfolio over the financial year (2020: 909). This took the size of the portfolio at 30 June 2021 to 3,984 completed homes, with an estimated rental value ("ERV") of £37.5 million per annum (30 June 2020: 2,082 homes with an ERV of £19.1 million per annum). A further 1,071 homes, with an ERV of £10.6 million per annum, were at various stages of the delivery process at 30 June 2021. The total gross development cost ("GDC") of the 44 completed sites and the 20 additional sites under way at 30 June 2021 amounted to £789 million (2020: £757 million).

The Company's portfolio of assets across its now 66 sites, as of 11 October 2021, is geographically widely spread, with sites located throughout the major regions of England, including the North West, North East, Yorkshire, the Midlands, the South East (excluding London) and the East of England, and now Scotland.

During the first quarter of the new financial year, we added a further 307 new homes to the portfolio, taking it to 4,291 new homes at 30 September 2021, with an ERV of £41.0 million per annum. The number of homes contracted at this point was 5,055. This includes development sites that are under forward-purchase agreements. Following the equity placing at the end of September 2021, the Company's initial target of 5,200 homes with an ERV of approximately £50.0 million has been revised upwards to 5,700 homes with an ERV of approximately £55.0 million.

Demand for the PRS REIT's properties remained strong, and rental income has more than doubled year-on- year, reflecting the volume of new homes added to the portfolio and let. Rent collected (relative to rent invoiced) over the year stood at 98% (2020: 98%). While we froze rental rates for tenant renewals at pre-pandemic levels from March to December, rental rates from new tenancies show annual growth of approximately 6.2% for re-let properties and 4% for those properties whose occupiers renewed their tenancy, since the re-opening of the market in May 2020. Of the 3,984 completed homes at 30 June 2021, 3,888 (98%) were occupied with a further 80 homes reserved to qualified applicants, and data for the end of September shows a similar occupancy rate of 98% on completed homes.

We completed some important steps in the second half of the financial year. In January 2021, we extended our Investment Advisory Services contract with Sigma PRS Management Ltd, agreeing a reduced fee structure as the net asset value increases. This extension has enabled us to plan for the next stage of the Company's development with greater clarity. In March 2021, we completed the transfer of the Company from the Specialist Fund Segment to the Premium Segment of the Main Market of the London Stock Exchange. The migration facilitates our eligibility for inclusion in FTSE's EPRA and UK Index Series and should help to broaden the share register.

As the Company's activities grow our social impact increases commensurately. Aside from the contribution the Company is making to creating high-quality new homes for families across the country, we continue to strive to foster a sense of community within our developments. Through our Investment Adviser we are also focusing on making a wider societal and environmental contribution.

In March 2021, we were pleased to welcome Geeta Nanda to the Board as a Non-executive Director. She is Chief Executive Officer of Metropolitan Thames Valley Housing Association and brings significant relevant experience.

The Investment Adviser's report provides further commentary on housing delivery, asset performance and our ESG activity over the year.

4