Prs Reit Share Discussion Threads

[pdosullivan] 11/4/2024 12:25

Yes and the average rent charged on the PRSR portfolio is only 23pc of the average gross income of the tenants so very affordable and hence more defensive or stickier, providing more reassurance on the dividend.

[asagi] 11/4/2024 12:13

lots of posters making good points but to me the big ones are:

. residential rents generally DON'T come down
. interest rates are likely to come down in the UK soon

it's the hoped for effect on the share price of lower rates that has got me in here.

Asagi (long PRSR)

[giltedge1] 11/4/2024 11:18

3 Bed new build semi attached in NW on rightmove about £220K as move south increases to £300K at least. Point is valuation conservative, also factor in starting portfolio from scratch, finding land, planning permission headache, finding builder, why bother?, when you can buy this company for £1.20 thereabouts. Not saying it will happen soon, but on a 3 year view £0.79 to £ 1.20, + 5% while you wait = IRR over 20%, in 2 Years 30%.

[spectoacc] 10/4/2024 06:59

@Smithers1 - "With interest rates where they are and debt priced accordingly I do not think the model is viable any longer."

That, in a nutshell.

Particularly considering the business model relies on continually adding new units, something now not possible, to avoid cliff-edges of CapEx in future. BtL property depreciates, fast. (Degrades, may be a better word).

I've been banging on about fees on REITs for ages - LXI was a classic example, why shouldn't they take c.£14m pa for managing a portfolio of over a billion quid? Er, because as a % of earnings, that £14m is massive, just as at PRS. It's not 1%, it's 25%, when judged on earnings.

Worse, the CapEx is on top. Before the 4p, but still - that's where the problems are.

Agree with those who say sell it - there's pension fund etc demand, take advantage.

[smithers1] 09/4/2024 22:59

Giltedge1 agreed. Taking £102m of debt at 6.04% in July last year was a mistake and dilutive as the properties yield less than that after allowing for maintenance and property management costs. It's fixed for 15 years so paying that off early will be expensive.

The shorter term variable rate debt is also an issue. £59m was drawn at 31st Dec at a blended rate of 7.6%.

With interest rates where they are and debt priced accordingly I do not think the model is viable any longer. When PRS REIT secured long term fixed debt tranches at 2.76% and 3.14% it was accretive but with these properties throwing off net income yields of 4-5% debt at 6/7/8% is dilutive.

The investment adviser fee currently amounts to 1.08p per share. With a 4p (not yet fully covered) dividend the fee is significant. I think it needs to be reduced but also if more equity is raised, the IA fee should not be charged on any cash portion of NAV as has been the case to date. It has taken the best part of 7 years to deploy the equity and debt raised to date. If more equity is raised the IA fee moving forwards should only be charged against the value of completed investment properties contributing to NAV. The IA has to date charged its fee against the cash element within NAV as well as the apportioned value of UNCOMPLETED homes which always struck me as generous given they also receive a 2% delivery management fee for overseeing the build of the homes. In that context I think the fee structure has and continues to be an issue.

[arbus5000] 09/4/2024 18:42

thats right makinbucks - i confused my figures with the MV per unit rather than NAV.

[pdosullivan] 09/4/2024 18:20

PRS REIT has only just about gotten to 1x dividend cover on a run rate basis. A scenario where it launches a rights issue and layers on more debt to finance the construction of more houses means we likely have another couple of years of sentiment being dampened by an uncovered dividend and development risk. An outright sale at 1x NAV is preferable to that scenario.

[makinbuks] 09/4/2024 18:01

In the interim results published last month there were 5,264 completed homes and £1,080,058k of investment property on the BS. That's £205,178 per unit. Still seems reasonable but apparently more than you calculated arbus500.

[arbus5000] 09/4/2024 17:55

i very much doubt that the fees are the main cause of the ~50% discount, but who knows!

[giltedge1] 09/4/2024 17:36

I would say opposite we are being milked high fees, sell £100m & pay off expensive revent loan 7%. Glad you mentioned valued at discounted cashflow. Our portfolio valued at £190k per property. Went on Rightmove & searched for 3 beds new builds in North, well over 190k, more like 250k. Also some in more affluent areas south so higher prices for those. Looks like a compelling value play for the patient. Happy to collect divs, while rents are rising & likely takeover over £1.

[arbus5000] 09/4/2024 17:30

i agree wth your analysis makingbuks, the rise in interest rates has killed demand for PRS, which is yielding 5.12% right now at current prices. Its likely to be this that has caused a discount.

The average cost of the houses in the PRS is in the low £100K, so i am confident that the nav could easily be realised in a sale scenario.

With rents rising 10% for new rents - this is equivalent of 500 new builds when the contracts renew!

[makinbuks] 09/4/2024 16:33

Yes I agree, but you have to be realistic. Managers need to grow assets under management and profits too. As we approach the end of the initial 5,500 home portfolio its inevitable they look to what comes next.

The point about the "discount" is that the market simply doesn't believe a NAV based on modelling the present value of future cash flows. The acid test is whether a house or a portfolio of houses can be sold in the open market at that value. The model contains a whole set of assumptions about the future all of which carry risk.

On top of that we face the macro issue of interest rates. Alternative income shares like this were popular when a deposit account paid a fraction of 2%. Now you get 5% with a FCA guarantee up to £85k. That has killed demand for this

For balance, lets not forget that the directors are small holders too and the manager owns a chunk, so they would be hit by any dilution as well. To be honest if a new capital raise were in the form of a rights issue, I'd support it. What I'm dead against is an institutional placing

[giltedge1] 09/4/2024 10:14

Portfolio large enough, no need to build more with expensive debt. Board needs to maximise cashflow, cut costs especially mgt fees & find a buyer close to NAV. NAV realistic & new builds so minimal maintenance.

[arbus5000] 08/4/2024 22:27

a capital raise for some new builds is not a bad idea, however with the share price trading at a discount larger than 50%, it does not make sense to raise equity capital at this point in time.

[smithers1] 08/4/2024 21:53

Agree. An exit anywhere close to £1.20 would be a good result. Citywire published article today noting the dividend is still only 90% covered. Unfortunately I think the Investment Adviser is pushing for a further equity raise as Investor's Chronicle reported. Sigma Capital signed an agreement with Countryside/Vistry in Feb to build a further 5,000 properties over the next 5 years. Clearly to support a conversation with the major shareholders about raising more equity. Not good for smaller shareholders given the discount to NAV

[pdosullivan] 06/4/2024 10:26

To be honest, a sale at the latest published NAV - where the shares have never traded as high as - would likely be the best outcome. Most shareholders are presumably income oriented and there are lots of companies offering stronger yields in this market. Maybe someone like LLOY's Citra would be interested in buying us

[spectoacc] 05/4/2024 15:47

Be interesting to see - they've seemingly mooted a fundraise, and perhaps been knocked back. Could be a great move to sell a portfolio of the houses, proving the NAV, and simultaneously buy more to spread out the CapEx cliff edge. I might even buy some if they did that ;)

[makinbuks] 05/4/2024 15:42

Do nothing, increase borrowing, raise capital at a discount, partner with a second fund marketed directly to the professional market, sell a portion, sell the lot and wind up

[spectoacc] 05/4/2024 15:39

But what are those options/alternatives?

[makinbuks] 05/4/2024 15:34

Well for sure it implies they consider a phase in the funds life is coming to an end. Other than that I don't think it suggests one option over another, simply that they are setting out the alternatives and consulting shareholders on what they would like.

To me the problem is the discount. Do we believe the NAV is the question. Disposing of some houses at above valuation would prove it and narrow the discount. Obviously HOME is a unique situation, nothing to do with PSR but on this point I think there is relevance to what they are seeing as market prices in comparison to modelled ones, ie they don't hold up.

[spectoacc] 05/4/2024 06:43

Out of interest, what do holders think "...Speaking to its shareholders about its next move" implies?

[asagi] 04/4/2024 19:31

reckon that's right MakinBuks? The IC doesn't outsource editorial control to subjects and would surely only amend if they acknowledged their article was erroneous or misleading to IC's readers.

But I know nothing of it.

Asagi (long PRSR)

[makinbuks] 04/4/2024 17:31

Id guess its just a simple case of not thinking the journalist has fairly quoted you and requesting a change. Sounds like the IC fought its corner and the annotated amendment is the negotiated outcome

[spectoacc] 04/4/2024 15:50

Ha, so either some shareholders kicked up a fuss, or more likely PRSR discovered it wasn't an option after all.

But still open-ended - what else could "..Speaking to shareholders.." involve?

[pdosullivan] 04/4/2024 15:39

Very interesting - the Investors Chronicle article has been amended. It now says "The company knows [it does not have cash to build more houses] and told Investors' Chronicle it is speaking to its shareholders about its next move" with a footnote adding - This article has been amended to clarify the nature of PRS REIT's discussions with shareholders