PRS REIT
Money raised via placings £500m | Proposed first annual div 5p
When the PRS Real Estate Investment Trust was listed less than a year ago, it arrived at a big time in the market for rented homes. There was, for example, soaring demand for newly built rented housing, driven by families, young professionals and older people looking to downsize. Smart new housing schemes were, and are, being developed and operated by big operators. And money was, and is, pouring into the sector. Research from Knight Frank suggests that institutional investors will be spending £70 billion in the build-to-rent sector by 2022, up from £25 billion in 2016.
Into all this stepped PRS, the first vehicle of its type to reach the public markets that was focused wholly on this emerging area. It raised £250 million by floating in May last year at 100p a share. Its plan was to help to fund the development of more rental homes and then to run them, providing a steady income to fuel its returns. Indeed, the Reit’s target is to provide net shareholder returns of 10 per cent or more each year.
Investors were largely convinced and the initial public offering was oversubscribed. Homes England, the government agency, put in close to £25 million. But “largely” does not mean “wholly”. Some fund managers expressed reservations about whether rental levels and occupancy would be sustained over the long term.
PRS bought an initial seed portfolio of 492 homes, mainly in Liverpool, and the plan was to have a total of 3,000 properties in development. While it is still relatively early days, the overall plan appears to be on track. The money from the float was committed by the end of December to a portfolio of 1,720 homes that it is estimated will bring in £15.7 million when they are fully occupied. By the end of last year, 264 of those units had been completed and let.
In January, PRS paid a maiden interim dividend of 1.5p and outlined a 5p total payment for the year to the end of June. It also agreed debt facilities of up to £200 million. This month it raised a further £250 million, at 102.5p per share, to boost its capital still further and to allow it to bolster its development pipeline. Its directors said that there were £540 million of property schemes being assessed, with the potential to add a further 3,800 homes.
Sigma Capital Group, the PRS Reit’s investment manager, is looking at opportunities for thousands more homes and is working with Countryside Properties, Keepmoat Homes and Engie Regeneration, along with local authorities in many regions. At the moment, the portfolio is concentrated around cities including Manchester, Liverpool and Sheffield, as well as the commuter towns that link with them. These are not sprawling, faceless estates, though, with the smallest development in the portfolio made up of 24 units and the largest single site of only 110 homes.
While the overall model being pursued by the trust will remain the same for the foreseeable future, there is likely to be an expansion in the geography covered in the coming years. On another measure, the plan is to offer a wide range of sizes of homes, providing options for people at different stages in life and therefore enduring that PRS is not relying on only one demographic group for its rental income.
Research from one of its developments in Sheffield, South Yorkshire, showed that 65 per cent of tenants were aged between 26 and 45 and close to half had children. Forty-three per cent were local people who previously had lived within a three-mile radius of the site, with the remainder coming from further away.
Advice Buy
Why If you want residential property in your portfolio, this looks to be a way of getting exposure to capital growth and a regular dividend
HISCOX
Pre-tax profit £31m | Combined ratio 99.9%
Hiscox markets itself as providing cover for the “small and the brave”, reflecting the fact that the Lloyd’s of London insurer’s biggest line of business is insuring small businesses in professional areas.
The expression is also a motto for Hiscox itself, which has successfully maintained its independence as one of only three Lloyd’s insurers that have not been bought by larger rivals. The others are Beazley and Lancashire. Hiscox is the biggest of the group and has built its business gradually over years by digesting increasing amounts of specialist markets such as professional indemnity and cover for rich people and art.
That slow burn has meant that Hiscox’s retail division now accounts for slightly more than half its revenues, and that its American business is on the verge of overtaking Britain in profit terms.
In fact, the company hopes that its big-ticket lines will have the greater share this year, as that would reflect stronger prices after last year’s catastrophes, which wiped out about $140 billion in capital and reserves. Price rises have already started to feed through, particularly in property and complex directors’ and officers’ liability cover. As more insurers report substantial payouts for the 2017 disasters, that might effect sentiment and drive up prices further.
With its growing presence in the United States, Hiscox is able to compare itself to specialist US insurers, such as RLI and WR Berkley. Given that America’s general insurance market is six times as large as Britain’s, Hiscox’s growth prospects are considerable.
Like its independent peers, Hiscox is highly rated, trading at about 2.4 times net asset value. That seems justified, given its consistent ability to manage risk and underwrite at a profitable level, even in testing times.
Despite paying out $225 million for claims last year, the company remained profitable, keeping its combined ratio just below 100 per cent and increasing its dividend by almost 6 per cent to 29p.
Advice Buy
Why Good track record and growth prospects
