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PRS Reit cuts 2022 dividend target blaming planning delays

12 March 2019

Government-backed real estate investment trust cuts long-term dividend target by 8% citing planning delays for slowing the construction of its family rental homes.

PRS (PRSR), the government-backed real estate investment trust (Reit), has cut its long-term dividend target by 8% citing planning delays for slowing the construction of its family rental homes.

Launched in May 2017 when it raised £250 million, PRS is one of the higher-yielding UK Reits, offering 4.9% through quarterly payouts. To date it has paid 7p per share in dividends and for 2018/19 and the two years after intends to pay 5p share as originally planned.

However, it has lowered its dividend target for the year to 30 June 2022 from 6p to 5.5p. At this point the dividend should be fully covered by rental income from the portfolio of family homes, of which it currently has 3,951 built or under construction.

Chairman Steve Smith blamed Brexit uncertainty and local elections in May saying it would be ‘prudent to anticipate lengthening decision-making at local government level’.

‘Taking into account time delays, and while maintaining a 5p per share annual dividend target until stabilisation, our stabilised covered dividend target for the financial year to June 2022 is now c5.5p as opposed to our original target of 6p per share,’ he said.

PRS shares, in which the government’s Homes and Communities Agency holds a 6% stake, slid 2.3% to 99.63p, below their launch level of 100p but at a 3.9% premium to their end-of-December net asset value (NAV) of 96.3p.

Liberum analyst Conor Finn said: ‘The dividend reduction is disappointing, although not entirely unexpected. The company was a long way off achieving the 6p target.’

Finn said the new 5.5p target would be ‘challenging’ given that PRS’ funding needs would likely require it to issue more shares on which dividends would have to be paid.

The analyst said shareholders would expect PRS to start moving towards its annual total return target of 10% a year now it was fully invested. So far PRS has achieved an NAV return of 4.5%, 40% of which reflected the positive impact of a further £250 million share placing in February 2018, Finn said.

Finn also questioned the 4% development management fee paid to its investment adviser Sigma Capital (SISGM), which he said seemed ‘high’. ‘Since launch, PRS Reit has generated £10.8 million of earnings but the manager has received £12.9 million in investment and development management fees,’ he said.

Sigma’s lucrative relationship with PRS has not gone unnoticed in the City where fund managers have snapped up on the stock as it rode high on the Reit’s success. In the past two years the shares have risen over 50% though down 4.5p to 108p today on the Reit’s announcement.

Investment company news brought to you by Citywire Financial Publishers Limited.

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