City round-up: PRS REIT; Rathbones Group

Manchester private rented sector housing group, PRS REIT, said its homes delivery programme is now at a very mature stage, in a second quarter trading update for the period ended December 31, 2023.

During the second quarter, which included the Christmas period, a further 135 rental homes were completed, taking the number of completed homes in the portfolio at the half-year end on December 31, 2023 to 5,264 and overall delivery to approximately 95% complete.

The estimated rental value (ERV) of the 5,264 completed homes is £60.3m per annum, approximately 19% higher than at the same point in the prior year (December 31, 2022: 4,913 homes, ERV of £50.7m per annum). The ERV increase reflects both the increase in completed homes and strong rental growth.

As at December 31, 2023, a further 312 homes, with a combined ERV of £3.1m, were contracted and under way, at varying stages of the construction process. Once these homes have been completed, the ERV of the portfolio is expected to increase to circa £63.4m per annum (September 30, 2023: £60.7m per annum).

Rental demand for the company’s homes remains very high, reflected in very strong rental growth and occupancy rates. Occupancy at December 31, 2023 stood at 97% with 5,087 of the 5,264 completed homes occupied.

A further 47 homes were reserved for applicants who had passed referencing and paid rental deposits, giving an occupancy rate of 98%. Like-for-like rental growth for the 12 months to December 31, 2023 was 11% (2022: six per cent).

Rent collection (defined as rent collected in the period relative to rent invoiced in the same period) for the quarter ended December 31, 2023, was extremely robust at 99%. Arrears were low at £0.6m at December 31, 2023 (December 31, 2022: £0.7m). This represents around one per cent of annualised ERV on completed units.

Affordability, which is average rent as a proportion of gross household income, continues to be well within Homes England’s upper guidance limit of 35%. Reflecting the tenant base, where average household income has increased, the company’s homes have an affordability ratio of circa 22% of gross household income at December 31, 2023 (September 30, 2023: 22%).

The company expects to announce the interim quarterly dividend, relating to the second quarter of the current financial year, towards the end of January 2024.

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The Port of Liverpool Building

Rathbones Group, the private wealth manager with a key base at the Port of Liverpool Building on the Liverpool waterfront, reported an increase in its funds under management and administration (FUMA) for the year ended December 31, 2023.

Total FUMA, including Investec Wealth & Investment (IW&I), reached £105.3bn at December 31, 2023 (September 30, 2023: £100.7bn, December 31, 2022: £60.2bn) consisting of: £48bn in Rathbone Investment Management (RIM) (December 31, 2022: £45.1bn); £42.2bn in IW&I (December 31, 2022: £nil); £1.3bn in Saunderson House (December 31, 2022: £4.1bn) as FUMA in that entity continues to migrate as planned to Rathbones investment propositions; £13.8bn in Rathbone Asset Management (RAM, formerly Rathbone Unit Trust Management) (December 31, 2022: £11bn).

Total net flows in wealth management were flat in the quarter as positive inflows in Rathbones offset anticipated outflows in IW&I. Rathbones discretionary and managed net inflows for the quarter totalled £0.4bn. Net outflows in IW&I were £0.3bn, reflecting the anticipated impact of investment manager departures that predominantly occurred prior to the announcement of the combination with Rathbones. Since then, investment manager turnover has been low, engagement with colleagues at IW&I has been very positive, and integration work remains on track.

Net inflows into the multi-asset fund range, comprising both direct and managed solutions via in-house funds, totalled £0.6bn in the quarter. Net outflows in RAM single strategy funds of £0.1bn were resilient against the wider asset management industry backdrop.

Market and investment performance added £4.9bn to FUMA in the quarter.

The group said economic uncertainties are expected to persist in 2024, however, Rathbones said it will continue to remain focused on client engagement as we deliver toward its key strategic objectives.

Until the IW&I business is fully integrated, the existing client billing dates of each of the investment management businesses will be maintained. The principal charging dates for Rathbone Investment Management clients are April 5, June 30, September 30, and December 31. The principal charging dates in 2024 for IW&I are February 29, May 31, August 31, and November 30.

Rathbones said it begins 2024 as an enlarged group that remains well positioned to take advantage of both benefits of scale and future growth opportunities.

The preliminary statement of annual results for the year ended December 31, 2023 will be published on Wednesday, March 6, 2024.

Rae Maile and Ross Luckman, analysts with investment bank, Panmure Gordon, retained their Hold call on Rathbones stock, saying: “The merger with Investec is aimed at delivering scale which will allow the company to retain the best talent, deliver operating leverage and hence enhance EPS.

“It is, of course, far too early to see much of that in practice apart from in FUM which at £105bn was ahead of a surprisingly low consensus but in line with our own estimate. The retention of staff is, inevitably, front of mind given the loss of staff from Investec both before and since the deal, with the risk that retention costs are higher and replacement costs higher still.

“Much is promised from the deal, it will take time to see that promise realised in particular in respect of a consistently better rate of new business generation. The rating is fair, we believe, given the opportunities but also risks in the deal and the fact that any hope that the company would participate in consolidation as a target has been removed.”