Prs Reit Investors - PRSR

Prs Reit Investors - PRSR

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Stock Name Stock Symbol Market Stock Type
Prs Reit (the) Plc PRSR London Ordinary Share
  Price Change Price Change % Stock Price Last Trade
0.70 0.8% 88.20 09:45:43
Open Price Low Price High Price Close Price Previous Close
87.50 87.50 88.40 87.50
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Industry Sector
REAL ESTATE INVESTMENT TRUSTS

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Posted at 29/7/2022 09:02 by giltedge1
Hope my posts have helped a few new investors come on board, upcoming results will be excellent chronic shortage of EPC B family homes. I hope 4% Income + 5% Capital gains next few years. Done so well I am now moving to GRI as well, good luck.
Posted at 15/6/2022 13:31 by giltedge1
Think I will add before next update as good hedge against inflation which may stick around another 12 months. Found this analysis on Legal & General website.
All in all, the historical evidence suggests that the residential sector typically generates stable and long-term income streams that tend to outpace inflation. With the fundamental backdrop of continued pressures on UK housing, we expect this to continue. We believe this makes exposure to the residential sector a worthwhile complement for investors with liabilities linked to inflation.

Posted at 21/12/2020 10:28 by wingchan
Another massive conflict. The investment advisor sigma capital sells a site it developed and managed on behalf of BlackRock to the PRS Reit who it acts on behalf on.... presumably Sigma had a financial interest on the site depending on its performance for BlackRock which will have been driven largely by the sale price but don't worry, there was an "independent" valuation by Savills who undertake all of the Reit's and Sigma's valuation services...... total lack of corporate governance! An independent party and an independent valuer should have been appointed to act for the REIT in this transaction given the obvious conflict.

Also for clarity Sigma were contractually obliged to acquire shares in the REIT. Under the terms of their development management agreement where they receive a generous 4% fee, half must be re-invested in the REIT. That they paid Investors Champion to put out a research note implying that they were buying shares of their own free will is seriously misleading. The 1.5m shares acquired by Sigma on 25th Nov were done so as a contractual obligation. What is curious given they could have issued new shares at NAV and invested the funds in their "attractive proposition", was that they instead bought them from an institution that was prepared to sell 1.5m shares at 76p. That says more about the outlook than anything. I hope the appointment of a joint broker is not a preclude to attempting to raise more equity taking the REIT back to cash drag and negative dividend cover. On every financial metric the Reit has underperformed to date. It has some way to go before DEPLOYING the £900m gross which was originally targeted in two years... The dividend yield will be sub 4% not 6%+ and that is after many more years taken to deploy the funds than was originally advised with initial sites having the benefit of rental growth. The NAV remains significantly below the initial raise price inspite of beneficial headwinds through rising house prices. Yield compression and a robust rental collection rate that compares favourably to many commercial property sectors. The NAV was meant to be growing at 10%+ per annum at this point per original marketing forecasts. The only beneficiary has been the Investment Advisor and yet the conflicts of interest continue unchallenged

Posted at 07/4/2020 21:21 by packoflies
Analysis of Interim Results – Improper governance by REIT Board & time to sack the Investment Advisor Sigma Capital

• Claimed £771m completed and contracted GDC + £75m “strategically deferred” spending = claimed deployable funds of £846m

• The £75m balance of funds were meant to be contracted by end of March at the latest as per the 14th Jan “2nd Quarter Update”. Over the intervening period ZERO additional funds have been committed or contracted with the figure remaining static at £771m. Given that the Coronavirus did not impact the UK until early to mid March (https://www.independent.co.uk/news/uk/home-news/coronavirus-uk-timeline-deaths-cases-covid-19-nhs-social-distancing-a9416331.html) it was fortuitous that the PRS REIT had been unable to commit ANY of remaining £75m prior to this and can now look to "deploy it on strategic income producing opportunities". A more cynical view would be that the funds have not been “strategically deferred” to take advantage of opportunities but that these remaining funds are not available to be drawn under the PRS REIT’s 45% maximum gearing as detailed below.

• Current NAV of £470m supports debt of £385m assuming maximum permissible gearing of 45%. Taking account of dividends paid out of equity and overall cashflow to date, estimated deployable equity of approx. £430m. Max. total deployable funds of equity and debt of £815m, not £846m as claimed. Gross yield of 6.2% on GDC of £815m equates to £50.5m gross income. Deduction of 22.5% gross-to-net, administrative expenses and debt interest at 2.72% as per interim results, leaves estimated net income of £22.8m. Stabilised geared dividend of 4.61p per share pre any coronavirus related issues………

• Lack of comment on dividend in interim results other than indefinite deferral of dividend covering the 3 months to 31st March 2020. When the stabilised dividend target is reduced AGAIN from the already reduced 5.5p per share it will be blamed on the coronavirus but in truth would have comfortably been sub 5p regardless.


• 2 years and 7 months from inception up to 31 Dec 2019, the REIT’s rental income just covers costs and debt interest but it remains significantly cashflow negative as there remains no dividend cover. The cancellation of the uncovered dividend for the 3 months to end of March 2020 and subsequent dividends is the sensible option to preserve deployable funds and NAV irrespective of resultant Coronavirus issues.

• Deployed only £487m to 31st Dec 2019, of which only £212m are completed income producing assets (Notes to the Financial Statements 4.), of £900m gross funds. Noted under “debt facilities” it will take a further 18 months to complete the current phase of construction. Once again this makes a mockery of the comments by the Investment Adviser’s chief executive Graham Barnet in September 2018 where he outlined his desire to raise a third £250m in early 2019 with a clear intention to increase assets under management irrespective of the fact it was not in the best interests of PRS REIT shareholders as was the case with the raising of second £250m in Feb 2018……… There is a clear and fact based track record of Sigma acting in its best interests and not its investors but that is for another day. The 3rd raise thankfully did not happen but it illustrates the significant and ongoing conflicts of interest between the Investment Advisor and the PRS REIT. (hxxps://www.propertyweek.com/finance/the-prs-reit-aims-for-new-year-fundraising-of-250m/5098937.article)

• Claimed that completed and contracted sites have a GDC of £771m. However, Capital Commitments outstanding as at 31st Dec 2019 were £189m (notes to the financial statement 3&8). Add to that £487m deployed to 31st Dec 2019 (see notes to financial statement 4) equates to a total GDC of £676m, £95m less than the claimed figure……..

• The Investment Advisor Sigma Capital is paid a (generously high) 4% development management fee. This is separate to the profit it makes from selling its own completed sites to the PRS REIT and the 1% annual management fee it is paid (hxxps://citywire.co.uk/investment-trust-insider/news/liberum-rental-housing-trust-pays-fund-manager-too-much/a1313075). Sigma is required under its contract with the PRS REIT to invest half of the development management fee in PRS REIT shares. Since the REIT’s inception up to 31st Dec 2019 the Investment Advisor had been paid £15.51m in development management fees alone so should have invested approx. £7.75m in PRS REIT shares. Yet as at 31st Dec 2019 Sigma had 4.39m shares……….. even allowing for bi-annual subscription of shares something is awry.


• Stated gross to net of 18.2% in interim results but rental income in 6 months to 31st Dec of £5.607m less non-recoverable property costs of £1.140m as per income statement represents a 20.3% gross to net. This will spike significantly over the coming months in light of coronavirus but was already on an upward trajectory and will be a key determinant of the stabilised dividend yield. Year ended 30th June 2018 gross to net of 15.5%, Year ended 30th June 2019 gross to net of 17.7%.

Posted at 17/2/2020 17:22 by steviet1
Liberum: Rental Housing Trust Pays Fund Manager Too Much

Government-backed real estate investment trust (Reit) PRS (PRSR) may be doing an important job rolling out much-needed homes for rent, but Liberum analyst Conor Finn believes its fund manager Sigma Capital continues to get the better end of the deal over shareholders.

Responding to PRS’ second quarter trading update, Finn criticised the property development fees paid to Sigma that he said had seen the AIM-listed fund manager make as much money as the Reit's shareholders since its flotation, or initial public offer (IPO), nearly three years ago.

‘From IPO to June 2019, PRS has generated £17.8m of earnings but the manager has received £17.9m in investment and development management fees,’ he said.

‘The company does not charge a performance fee but the 4% development management fee seems high given it is generally dealing with established developers,’ Finn said in a note to investors.

The speed of rollout is important for investors after PRS last year cut its dividend target for 2021/22 from 6p to 5.5p, blaming planning delays and political uncertainty.

Finn said investors in the £448 million trust, managed by Sigma’s Graham Barnet, had had a ‘frustrating’ year due to ‘a high level of cash drag’ and the uncovered dividend.

Posted at 23/10/2019 22:21 by 3ratty
Concerning points raised and noted Quintus.

The fact the NAV was not meant to drop below 98p is a real worry. Presumably when this was inserted into the Prospectus it was set at a level low enough to allow some headroom so as not to be breached. Yet two years on the reported 30th June 2019 NAV was 95.8p and is most likely now sub 94p following the 2p per share final dividend paid in August given the ongoing absence of any significant rental income. That suggests things are not going to plan and has the alarm bells sounding.

Following your comments Quintus I have like you focussed on the cashflow from the 2018 and 2019 year end results. Being a property REIT there are not many moving parts so it is fairly straightforward to analyse. Taking account of net funds raised, annual administrative costs (including investment management fee), dividends paid out, net rental income received, interest received on cash on deposit and debt interest paid, from the £500.5m gross raised, investable equity had reduced to £452.25m as at 30th June 2019. That was pre the deduction of the final 2p dividend which amounts to £9.91m paid out on 30th August.

As per the recent first quarter update, the rental value of completed homes had increased to £12.3m from £10.7m as at 30th June 2019. Whilst slightly crude if one estimates the rental value as at 30th June 2020 by applying the same percentage increase quarter on quarter it would take it to £19m as at 30th June 2020. For sake of argument and for optimism’s sake call it £20m, so an average rental income received estimate for the current financial year of £15.5m seems reasonable enough. Perhaps generously applying the 17.5% gross to net deduction as per the 2018/19 year end results (given this had increased from 15.5% year on year so may well be higher again this current financial year) produces a net rental income for the current year of £13.2m.

Keeping administrative expenses flat at £5.9m as per the 2018/19 financial year reduces cashflow to £7.3m. Interest from cash on deposit should likely be lower than the £0.8m received last year as the remaining £130m (from the original £500.5m of funds raised) is expended but for sake of argument again assume +£0.8m. However, having drawn a full £100m of debt pre 30th June 2019 at a swap rate of 1.588% plus margin (albeit not having yet spent any of it) and committed to a further £250m of debt, debt interest and charges will be significantly higher in the current financial year. If one assumes a not unreasonable margin of 2%, debt interest on the £100m would amount to £3.6m. Charges relating to the other debt will likely push this higher but again being optimistic stick with £3.6m. Including the recent dividend payment made in August, the dividend payments made in the 2019/20 financial year will be approximately £24.8m.

That results in a NEGATIVE cashflow for the 2019/20 financial year of -£20.3M. Investable equity is therefore reduced from £452.3m to £432m. As per the 2018/19 year end results that figure is pre the final 2p dividend of £9.9m to maintain the 5p target likely to be paid 30th August 2020.

As per Quintus the concern is around the significant reduction in investable equity and consequential impact on the amount of debt that can be drawn within the 45% gearing restriction, and ultimately on the stabilised dividend.

If optimistically the PRS REIT is able to support a NAV of 94p per share that equates to £465m which would enable £380m of debt to be drawn assuming 45% gearing. £380m of debt plus the say £420m of investable equity (given the REIT is likely to remain in negative cashflow into the 2020/21 year), provides an estimated total of £800m of investable equity. As per the first quarter trading update, the £740m GDC of contracted and completed sites is stated to generate an estimated £46m of rent, so a 6.2% gross yield on cost. If that gross yield is applied to the assumed £800m of total investable equity it would generate rent of £49.6m. Applying a 17.5% rent reduction as per the 2018/19 results (albeit this could well be higher if it continues to trend upwards) reduces income to £40.9m. Administrative costs of £5.9m reduce this further to £35m.

Total debt interest costs are the big unknown. £150m of debt is at a low swap rate of 1.164% plus margin and the existing £100m of debt is at 1.588% plus margin. That would leave £130m to draw from the revolving credit facility at three month libor (currently 0.8%) plus margin. A best guess but if a 2% margin is assumed that would result in annual debt interest charge on £380m of debt of £12m. It is worth noting the revolving credit facility is of a short term nature being only for two years (with an ability to extend for a further two) so it is likely the interest cost on this element of debt would go up if it were to be fixed longer term. Notwithstanding, £12m of debt interest would reduce net income to £23m.

Given 495,277,294 shares currently in issue that equates to a dividend of only 4.64p per share against shares issued at £1.00 and £1.025 respectively.

The uncertainties in that estimate lie in the cost of debt (which could be higher or lower as margins are unknown), the actual gross to net rental reduction against that adopted of 17.5% (which is arguably optimistic given it is trending upwards and certainly longer term will be a key variable to monitor), and rental growth. The above has not assumed any rental growth over and above a 6.2% gross yield on GDC. The 2018/19 annual report provides a portfolio analysis as does the maiden annual report. Comparing the market rental values on those sites featured in the 2017/18 report to the same sites listed in the 2018/19 report produces an aggregate annual rental growth of only 0.39%. Whilst one would hope this picks up it has certainly not been evidenced over the last year.

In conclusion, there is a real possibility the stabilised dividend will be sub 5p per share and as Quintus noted the NAV is likely to remain under pressure. The REIT is currently targeting a stabilised dividend of 5.5% down from the original 6%+ but the evidence suggests this will have to be downgraded again. Given the PRS REIT will be geared to 45% and the risk that brings with it, plus significant uncertainty around the longer term gross to net reduction to the rental income and whether or not rental growth materialises, the PRS REIT is arguably not offering attractive return prospects at present. The annual report states valuations range from 4.3% - 4.8% investment yields. At these levels (which applies to the majority of REITs) any change in yields is likely to have a significant impact on NAV. Were yields to compress by only a marginal amount there could be a significant boost to NAV whilst also allowing debt drawn to increase. Equally were yields to move out marginally, NAV could fall significantly, correspondingly lowering the amount of debt that could be drawn or, if already fully drawn, requiring further equity from investors to provide sufficient security to lenders.

Until the equity and debt are drawn and deployed with stabilised returns established it would be premature to raise additional equity without detrimentally impacting returns through further cash drag. Equally a raise given the current share price is significantly below the initial two raises would be dilutive to existing shareholders and is therefore unlikely.

Posted at 21/3/2019 21:21 by jasper52
Article on PRS REIT that features comment from analyst Liberum:
hxxps://citywire.co.uk/investment-trust-insider/news/prs-reit-cuts-2022-dividend-target-blaming-planning-delays/a1209116

In total agreement. Spoke with property contacts who confirmed 4% development management fee to Sigma the investment advisor is excessive. Advised norm is half that! The institutional investors who signed up to this originally must take responsibility for giving Sigma an overly generous fee structure. If more equity raised that must surely be renegotiated down to 2% in advance. However cannot see more equity being raised for some time yet as still no announcement confirming second £200m of debt is secured. Bizarre that Sigma Chief Exec told PropertyWeek in Oct 2018 that PRS REIT would be raising a third £250m of equity in Jan 2019. That would have increased assets under management by 50% - clearly great for Sigma but extremely premature, which would have further increased cash drag and accelerated decline in NAV. Despite £900m "committed", on further analysis the definition adopted is very loose and includes sites actively under appraisal which could be anything. Use of such ambiguous wording smacks of Sigma focusing on asset gathering when really need to see how much equity has actually been deployed to date which frustratingly has been omitted from recent trading updates. Need to see full deployment and stabilisation of current £900m of equity and debt before more funds raised to avoid further hammering of NAV. After reading Liberum comment that Sigma fees exceed earnings to date, combined with current dividend being paid predominantly from equity as actual rents received are minimal cannot help but feel this is akin to a legalised ponzi scheme with the only person winning being the investment adviser Sigma. I certainly won't be touching until fully deployed and stabilised position is achieved and can assess from there. On reflection John Spiers article at launch in 2017 seems to have been on the money: hxxps://citywire.co.uk/investment-trust-insider/news/john-spiers-what-put-us-off-popular-prs-reit/a1036956

Posted at 21/5/2017 05:38 by jonwig
Asagai - thanks for comments. My motivation was mere reportage of course, but I haven't found any more comments yet on the issue (positive or negative), though there's stuff on Proactive Investors which is just a platform for the company.

The stated 7% yield involves no tax (REITs don't pay corp. tax) and is not taxable within an ISA, but an individual btl investor surely can't match that figure on a new investment today? Dunno!

Posted at 20/5/2017 07:28 by jonwig
Moneyweek 19 May:


The shortage of affordable housing in the UK, especially in areas within reasonable distance of centres of employment, is a perennial issue in British politics. For decades, housebuilding has failed to keep up with demand, which has driven rents and prices ever upwards.

The reasons are complex. Planning restrictions have played a role, though the ability of local authorities to block development has lessened. Housebuilders today aim to maximise profits, not output. Following the financial crisis, banks have also toughened their lending rules, requiring significant deposits that few first-time buyers can afford. But most important has been the decline of social housing construction. All this, together with the dismantling of rent controls in 1988, has in turn led to such rapid growth in the buy-to-let market that private rentals now account for 19% of all housing.

Inevitably, there are entrepreneurs who see the imbalance of supply and demand as an opportunity. Hence the PRS Reit (private rented sector real-estate investment trust) is seeking to raise £250m to invest in new-build housing, mainly for families. The company targets a dividend yield of 6%, and total shareholder returns of 10%. These numbers sound attractive, but there are reasons for concern.

The projected net return of 10% is after costs, which include maintenance and management, as well as voids from empty properties. Low-cost debt, estimated at 35% to 40% of gross assets, raises shareholder returns, but the implied return on each rented property is still close to 10%. Tenants may find renting is much more expensive than buying. PRS’s target tenants are families struggling to get a mortgage, but on these figures they be better off if they could.

PRS is sourcing much of its portfolio from Sigma Capital, an Aim-listed developer that has built and let more than 1,100 homes in the past 30 months. Sigma also owns PRS’s fund manager, leading to a potential conflict of interest. The independent directors and the government’s Homes & Communities Agency, which is investing £25m as a cost-effective means of boosting house-building, will need to keep an eye on this.

At this stage, investors don’t know what the portfolio will look like, except the first purchase will be for 221 homes on a 60-acre regeneration site in Liverpool, comprising 829 homes. With thousands of homes still lyin lying empty in Liverpool and the average price of a terraced house not much more than £100,000, this is not an area where housing is manifestly in short supply. More generally, there must be a concern that PRS will end up developing the plots that buy-to-sell builders don’t want.

Finally, investors should worry about the constantly changing legislation covering rental property. It might seem inconceivable that a Conservative government would introduce rent controls or a freeze, but you would have said the same about utility prices until a few weeks ago. The introduction of “right-to-buy” in the sector is also a threat. Optimists should at least wait for a secondary issue in a year or two, when PRS will have an invested portfolio and a track record. Sceptics – including me – will steer clear for much longer.

Somehow I managed to read this without being a subscriber, so don't feel it's wrong to copy it.

Posted at 10/5/2017 05:37 by jonwig
. Https://www.theprsreit.com/ .



The housing market is facing challenges on many fronts as recognised by the recent government white paper. Key amongst these are the twin issues of supply and cost, both creating a considerable barrier to entry for families and first time buyers alike, with the average deposit now payable by first time buyers representing 62%* of their annual salary. The private rented sector, which is the natural alternative for many of these would be buyers, is predominantly comprised of private, small scale ownerships providing stock of varying quality. The PRS REIT plc is creating a portfolio of newly constructed, professionally managed housing in popular, convenient locations at rents suitable for singles, couples and families.

The Company aims to provide investors with an attractive level of income together with the prospect of income and capital growth through investment in a portfolio of newly constructed private rented properties comprising mainly family homes, to be let on Assured Shorthold Tenancies to qualifying tenants. The properties will be located across multiple sites in key cities and towns across England with a focus on the main conurbations, and largest employment centres, outside of London. The locations closely follow the main road and rail infrastructure, including the proposed HS2 and HS3 rail network.

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