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PRS REIT gaining traction

The current plan is to build 5,600 homes
March 12, 2019

The PRS REIT (PRSR) started to gain traction in the six months to December 2018, with the successful deployment of £900m to create a portfolio of newly built rental homes. The business model differs from other residential landlords in that the focus is on building and renting out family homes as opposed to apartments. This has several advantages in that family homes tend to be better looked after, while the tenants tend to stay put, which cuts down the possibility of lost income through voids.

IC TIP: Buy at 99.5p

Even more important is the fact that the supply of family homes for rent is in very short supply. At the half-year-end, PRS had 2,800 new homes across 32 sites under construction, with the number of completed homes standing at 775. The gross development cost of building out the homes under construction will be around £530m, with a combined estimated rental value of £33.2m a year. The current target is to create a portfolio of around 5,600 homes generating £56m in rental income.

Some delays have been factored into expansion plans, reflecting anticipated delays in local planning procedures with the onset of local elections in May. As a result of these, the stabilised covered dividend target has been trimmed back to 5.5p from the original 6p a share.

Analysts at N+1 Singer are forecasting net asset value (NAV) per share of 96.1p at the June 2019 year-end from 98.3 in 2018.

THE PRS REIT (PRSR)   
ORD PRICE:99.5pMARKET VALUE:£493m
TOUCH:99-100p12-MONTH HIGH:106pLOW: 94p
DIVIDEND YIELD:7%DEVELOPMENT PROPERTIES:nil
PREMIUM TO NAV:3%NET CASH:£230m 
INVESTMENT PROPERTIES:£269m  
Half-year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
201798.20.50.21.5
201896.37.51.53.5
% change-2+1298+582+133
Ex-div:-   
Payment:-   
*Dividends paid quarterly. Last dividend of 1p per share paid on 28 Feb