Build-to-rent housing specialist PRS Reit (PRSR ) is aiming to deliver full dividend cover for the upcoming year but the high cost of its debt means it will need to deliver on rental growth to achieve the goal.  

A first-quarter update from the Reit showed earnings from the portfolio of 5,080 homes covered the 4p per-share dividend for the financial year, which ends on 30 June, at 0.9 times on a run-rate basis.

However, Numis analyst Andrew Rees said the high cost of debt means the ‘the onus is on management to continue capturing attractive rental growth to ensure it can deliver on guidance of achieving run-rate dividend cover’. 

The portfolio expanded to 5,129 homes as at the end of September, which, alongside contracted homes, will deliver £60.7m in rent per year, assuming the current 99% occupancy levels and a 10% increase on 2023 levels. A further 395 homes are underway.

Annual results from PRS, which were posted with the quarterly update, showed finance costs for the 12 months to the end of June 2023 soared 49% to £16.5m as the trust floating-rate debt became more expensive in line with rising interest rates and utilised recently refinanced debt facilities. 

In February, the trust deferred its refinancing of its £150m revolving credit facility from RBS and Lloyds to July, ending up with a 15-year £102m fixed-rate facility at a whopping rate of 6.04% a year from Legal & General Investment Management.

It also secured a £75m two-year floating rate facility from RBS at a rate of 1.75% over the Sonia inter-bank lending rate, with a cap put in place on the floating rate to hedge against downside risk on further interest-rate movements.

The entire £102m fixed-rate debt was deployed immediately along with £13m of the floating-rate debt to fund completed and stabilised sites. The balance is expected to fund sites before the start of 2025. 

Underlying returns over the financial year increased to 120.1p per share, driven by estimated rental value growth of 7%, while revenues – which are wholly derived from rental income – increased 18% to £49.7m.

The gain from the fair value adjustment on investment property was £25.4m, reflecting a combination of higher estimated rental growth offset partially by the negative impact of higher yields, which softened from 4.13% to 4.47% in the current period, as asset values moved inversely.

Chair Steve Smith said the £367m trust had positive prospects.

‘The structural shortage of high-quality rental homes in the UK and rising demand place the company in a strong position,’ he wrote. ‘Our high-quality, professionally managed, single-family rental homes are helping to fix an urgent social problem.’

Shares in the 6%-yielder rose 1.5% to 67p in response to the announcement, a 44% discount to the June NAV.

Performance since launch 

Source: Morningstar