For anyone considering property investment, the volatility of markets might often be a concern, especially in periods of economic uncertainty. While many investments can fluctuate during such periods, one sector that has shown great resilience is residential property. A prime example that has spotlighted this resilience is PRS REIT, a real estate investment trust (REIT), whose shares offer a fantastic opportunity for earning passive income from property investments, according to The Motley Fool. The attraction lies in the combination of robust rental growth, attractive dividends, and a smart business focus on family homes—one of the property types with the highest demand.
The PRS REIT’s Market Performance
Trading on the London Stock Exchange under the ticker PRSR, The PRS REIT’s shares have made a favourable recovery throughout the year. As of recently, the share price stood at 69.2p, which represents a 4.4% rise—an impressive rally that winningly followed a positive response from the market.
Despite this encouraging climb, the shares are currently 22% cheaper than they were at the start of 2023. This slight dip is being attributed to the rise in interest rates, leading to increased borrowing costs. However, for those of you eyeing a long-term investment, this creates an excellent opportunity to buy into The PRS REIT at this dip.
The Strength of Rental Growth
The PRS REIT has demonstrated an impressive rental growth throughout the past year, driven largely by its strategic focus on building family homes—a sector experiencing significant supply shortages. In the financial year ending in June, the company saw its revenues leap by 18% to £49.7m, underpinned by a notable 17% increase in net rental income to £40.2m.
This pattern of growth was highlighted in the company’s like-for-like rental growth, which stood at 7.5% during the financial year. The data revealed approximately 12% growth on re-lets to new tenants. Renewals with existing tenants also saw an appreciable increase of around 7%.
To capitalize on these positive trading conditions, the trust has ramped up construction and raised the number of completed homes on its books to 5,080 as of June, which represents a 6% increase year on year.
Durable Revenues and Long-term Prospects
For those of you worried about the impact of economic downturns on your property investments, Fool.co.uk says that the residential property sector, and subsequently The PRS REIT, remain resilient. Evidence of this is the trust’s successful rent collection. Throughout the financial year, the company managed to collect 99% of its rents.
Yes, there was a dip as the pre-tax profit sank by 63% to £42.5m, year on year. Nonetheless, this drop was mainly due to fair value adjustments on its investment portfolio, a result of the interest rate rises rather than operational decline.
Jumping Ahead: The Rental Market Trends
Several indicators signal that The PRS REIT’s rental income has the potential to rise even higher. In the third quarter, average rents in the UK reached a new record high of £1,278 per month, which is a 10% increase year on year, according to Rightmove. The PRS REIT’s quarterly financials also highlight how the worsening supply and demand balance is boosting its revenues. The like-for-like rental growth for the company accelerated to 9.8% between July and September.
In line with REIT rules, The PRS REIT needs to distribute at least 90% of annual rental profits out in the form of dividends. Given the steady rise in rents, there’s a high probability that dividends will continue to beat market levels. Analysts seem to agree too, expecting the investment trust to follow through on its promise of a 4p per share dividend for financial 2024. This suggests a future dividend yield of a healthy 5.8%.
In conclusion, The Motley Fool says that PRS REIT shares represent an excellent passive income opportunity for potential investors. The company is well-placed to benefit from the continuing shortage of rental homes in the UK, driven by low housebuilding rates, the decline in buy-to-let, and a steadily growing population.