Housing provider sees rental income and profits rise as demand increases

Steve Smith

PRS REIT, the Manchester private rented sector housing group, revealed strong annual results today (September 11).

Rental income rose from £26.636m in 2021 to £41.963m in the 12 months to June 30, 2022.

Pre-tax profits rose from £44.113m last year to £115.889m.

A total dividend of 4p per share has been declared, the same as 2021, and the company is targeting a minimum dividend of 4p per share for fiscal year 2023.

Assets continued to perform strongly, with rent collection at 99% for 2022, up from 98% the previous year, and occupancy at 98%, similar to last year.

Gross arrears remained low at £600,000, although this was up from £400,000 in 2021.

Operating costs reduced to 18.2% from 19.5%, reflecting the benefits of scale and close management.

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

Estimated rental value is up 27% to £49.4m per annum as at June 30, 2022, and a further 693 contracted homes with an ERV of £7.2m pa were under way at June 30, 2022.

The portfolio total has been revised to around 5,600 homes with an ERV of approximately £57.5m pa – previously 5,700 homes, with ERV of circa £55.0m pa. This reflects price inflation on new sites and higher debt costs as well as significantly stronger rent.

The group said the UK rental market remains strong and there is a growing mismatch between supply and demand with the macro-economic environment – especially rising interest rates – increasing the numbers moving from buying to renting.

PRS REIT chair, Steve Smith, said: “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.”

He added: “We are now targeting 5,600 homes, providing over £1bn of assets with an anticipated rental income stream of £57.5m 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%.”

He said: “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.”

Miranda Cockburn, an analyst with broker Panmure Gordon, reiterated the Buy call on PRS REIT’s stock, saying: “Looking forward the 5,000th home milestone is expected to be reached by the end of 2022 with a further c.600 homes to come.

“The shares are down 20% year-to-date, outperforming the UK REIT sector down 41%. At 89p they are trading on a 24% discount to the reported NAV and offer a 4.5% dividend yield, which we find attractive given the underlying and growing demand for a professional affordable rental product – given mortgage affordability is reducing and buy-to-let investors are exiting the sector.

“We, therefore, believe the shares should continue to outperform the sector and retain our Buy rating.”

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