Private rented sector housebuilder confident of long-term outlook

Steve Smith

A Manchester housing specialist has reported better first half results, and said it is well positioned in the face of the coronavirus crisis.

PRS REIT, the real estate investment trust established to invest in new-build homes for the Private Rented Sector, revealed gross rental income of £5.6m for the six months to December 31, 2019, compared with £2.3m in the previous period, which is a 143% improvement.

Pre-tax profits of £11m showed a 47% increase.

During the first half 444 new rental homes were completed, taking completed homes to 1,617 at the period end, up 109% from a year ago and up 38% on the second half of 2019.

Annualised rental income was up to £14.9m at period end, a 113% rise year-on-year, reflecting an increased rate of completions and lettings.

Completed assets performed well – rents were two per cent above budget, confirming strong underlying demand.

Six hundred homes were let or reserved between January 1, and March 27, 2020.

The group said that, while there is considerable uncertainty as a result of the coronavirus pandemic, the board believes that the company is well positioned in the face of the crisis.

It said its delivery model substantially mitigates risk, its balance sheet is robust, gearing is low at around 21% and there is considerable headroom on committed bank facilities, the scale and geographic spread of its portfolio of family homes reduces risk, and the cost base is covered by net rental income.

Dividends of 1p per ordinary share were paid for each of quarter one and quarter two. The interim dividend, in respect of the third quarter will be deferred for review in the fourth quarter when the outlook is likely to be clearer.

Looking ahead the group said full deployment of the balance of funding, approximately £75m, has been strategically deferred pending assessment of opportunities, particularly for acquiring completed assets.

At March 27, the completed homes total had risen to 1,947 and around 3,000 homes were under way – together nearly 5,000 family homes once fully completed.

Also, 1,675 homes are let, generating £15.4m annualised rental income.

In response to the coronavirus crisis, construction work on all sites has recently been temporarily suspended.

Given the company’s delivery model, which includes fixed price contracts, there is little adverse cash flow implication for the company during this period of suspension.

The group said the family rental housing market in the UK remains critically undersupplied. The trend underpins the company’s long-term growth prospects.

It also highlighted the strong central and local government support, including from Homes England.

Chairman Steve Smith said: “While the coronavirus pandemic has created significant uncertainty in every walk of life, we believe that our business is resilient.

“Our delivery model and processes substantially mitigate the company’s exposure to construction and other operational risks, and we have a robust balance sheet and low gearing, which are unaffected by a pause in construction activity.

“Our customer base is diversified and the underlying demand for good quality rental housing is strong.

“Our priority is the welfare of our colleagues, tenants and communities, and this remains our focus as we continue to adapt to the changing conditions created by the coronavirus.

“We have added 444 new family rental homes in the first half of this financial year and a further 330 since then, taking the PRS REIT’s portfolio to 1,947 completed homes across the regions of England.

“We are targeting around 5,300 properties once the balance of the company’s existing funds is fully deployed. Our deployment approach has now strategically shifted to focus on the acquisition of completed assets.”

He added: “In light of the coronavirus situation, a decision regarding the payment of a dividend in respect of the third quarter will now be taken in the fourth quarter of the current financial year, when the outlook is likely to be clearer.

“Despite the current macro uncertainty, we continue to view long-term prospects with confidence as we meet the critical need for quality family houses in the UK.”

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