PRS REIT building strong foundations in first year of trading

A quarterly update and maiden annual results have been released by the PRS REIT, the Manchester-based closed-ended real estate investment trust established to invest in new-build homes in the Private Rented Sector (PRS)

The PRS REIT is the first UK-quoted REIT wholly dedicated to investment in new family rental homes.

Its annual results, covering a 13 month period from May 31, 2017, the date of the company’s launch and commencement of trading, to June 30, 2018, the company’s financial year end, show total revenues of £1.8m, generated from rental income, with net rental income of £1.5m.

Pre-tax profit was £3.237m, with an operating profit of £2.7m.

The compansy reports significant progress since launch with around £685m of funding deployed or committed to deployment in the period to June 30, 2018, rising to approximately £756m at September 30, 2018, which equates to about 5,100 new rental homes when completed.

A dividend target of 5p per share for the financial period was achieved, which represents a dividend yield of 5%, based on the IPO (flotation) issue price of 100p.

Funding resources were significantly increased over the period with a second equity placing which raised an additional £250m in February 2018, following the IPO fundraise of £250m.

Debt facilities of £200m were secured in June 2018, and additional debt facilities of £200m are under discussion. Once in place the company’s total funding resource is around £900m.

The development of a large-scale, geographically diversified portfolio of high quality family rental homes is well under way.

At June 30, 2018 405 homes were completed, generating annualised rental income of around £3.6m, completed and contracted development amounted to around £248m of gross development cost, and the estimated rental value of the sites when fully completed is approximately £15.5m per annum.

Committed development amounting to gross development cost of around £437m was in process, with an estimated rental value of about £27.4m per annum, once all the sites are fully built-out.

Chairman Steve Smith said: “We have performed well over our first 13 months of trading and, while there were some site-specific delays in the period, we are pleased with overall progress.

“About £756m of our funding resource has now been committed to the delivery of new rental housing, which represents some 5,100 new homes.

“Of this, 595 homes are completed and let, approximately 2,000 are under construction, and the balance is due to start construction after procurement processes have been completed.

“Our access to land and development opportunities is one of our key strengths, and we remain on track to have committed £900m – our full resource when additional gearing is included – to sites early in 2019.”

He added: “The rental market for family homes remains especially undersupplied and we have experienced strong demand for our professionally-managed family housing.

“Overall, therefore, we believe that the company is in an extremely good position to deliver our planned programme of new family homes, and to prosper as the UK rented housing sector continues to grow.”

Today’s quarterly update revealed that, during the period, construction started on four new development sites, which, when completed, will deliver around 710 new homes with an estimated rental value of about £6.4m per annum, for a gross development cost of about £100m.

The company has signed forward contracts to purchase a development site in Harlow, Essex, which has planning consent for approximately 94 homes with a gross development cost of about £27.3m.

In the period, the PRS REIT purchased a newly-completed and let PRS site in Smethwick, near Birmingham, from Sigma for £10.3m.

Comprising 63 homes, the annualised rental income is about £600,000 a year. In addition, the company signed forward purchase agreements with Sigma to acquire two PRS sites, which are due for completion in the second half of 2019.

These two sites, located respectively in the West Midlands and Essex, have a combined estimated rental value of £1.1m per annum.

Today’s statement said: “As previously highlighted, the company’s aim is to deliver family homes near key centres of employment, with convenient access to the transport infrastructure, and close to good primary schools.

“There is continued strong demand for the company’s homes, and forecast demand continues to outstrip supply, particularly for family homes, the PRS REIT’s major focus.

“Our pipeline of development opportunity is extremely healthy and the company is on track to commit the balance of its £900m of funding in early 2019.