Build to rent specialist agrees new £177m funding facility

PRS REIT, the Manchester private rented sector housing group, has agreed a new revolving credit facility (RCF).

The original £150m RCF with The Royal Bank of Scotland and Lloyds Banking Group had been originally due to mature in February this year, and was extended on substantially the same terms to mid-July 2023, with an option to extend until October 2023.

The board said it views the refinancing as having been completed on attractive commercial terms in light of the current interest rate environment.

The investment manager has secured a £102m facility of fixed-rate debt for 15 years, together with a further £75m of floating-rate debt agreed for two years, providing the company with the flexibility to refinance this element over that period.

An interest rate cap will be put in place on the floating rate debt to hedge against downside risk on further interest rate movements. These new facilities have been established with Legal and General Investment Management and RBS, respectively.

The investment manager will immediately deploy almost two-thirds – £115m – of the total debt, specifically the entire £102m fixed-rate facility and £13m of the floating-rate facility, to fund already completed and stabilised sites.

The balance of £62m of floating-rate debt is expected to be drawn down to fund sites completing and stabilising before calendar year 2024.

The refinancing and a near to completed construction programme, alongside excellent fundamental performance in letting, affordability, occupational levels and rental growth, have substantially reduced the risks facing the portfolio, reinforcing its strong position as a market leader in the build-to-rent sector.

The PRS REIT now has total fixed long term debt facilities of £352m, with an average blended interest rate of 3.8%. This compares favourably with the average net initial valuation yield of 4.3% as at December 31, 2022.

Approximately 82% of the company’s overall debt is now covered by long term facilities, which have an average term of 16 years. This compared with 63% of overall debt previously covered by long term facilities, with an average term of 17 years.

The two new facilities significantly lengthen the maturity of the company’s overall debt facilities.

The average term for all debt has increased to 13.7 years at June 30, 2023, from 10.9 years at December 31, 2022.

PRS REIT said today that its portfolio of completed rental homes continues to perform well, in line with management expectations. Performance data as at May 31, 2023, shows:

• Occupancy at 97%, and at 98% including applicants who had passed referencing and paid rental deposits;
• Rent collection at 100% for the 11 months ended May 31, 2023;
• Total arrears modest at circa £0.6m; and
• Like-for-like rental growth over the 12 months ended May 31, 2023, averaged 6.5%, an increase on rental growth of 5.7% over the 12 months ended March 31, 2023.

Affordability remains strong, with average rent as a proportion of household income at around 25%. This is comfortably within Home England’s 35% target.

The company expects to provide an update on trading in the fourth quarter of its financial year in late July.