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New fund targets 6% yield from home rentals
Private investors have the chance to participate in the IPO (initial public offering) offer for first real estate investment trust to target the private rented sector.
The PRS REIT plans to raise £250m to invest in newly-built family rental homes across England. It hopes to offer a 6% dividend yield and deliver 10% total shareholder returns each year, which is the dividend plus a small rise in the share price.
The dynamics behind the private rented sector look strong given many people are priced out of buying their own home and the rental market for family properties is particularly undersupplied.
The launch is supported by sector specialist Sigma Capital (SIG:AIM), which will act as investment adviser to the REIT.
The IPO is being backed by a direct £25m investment from the Government’s Home and Communities Agency.
The PRS REIT is targeting a 5% dividend yield for the period to 30 June 2018. The plan is to pay a quarterly dividend from 1 January 2018.
It hopes to achieve 6% dividend yield once all the IPO money is invested in properties.
According to The PRS REIT there is a pipeline of £17bn worth of rented stock against a forecast requirement of £300bn over the next five years.
From this pipeline, more than 2,500 new homes have been identified and contracted by the REIT with a total cost of £375m. This includes a seed portfolio of £72m worth of assets which are either complete or under construction.
The REIT will focus on newly constructed assets which benefit from 10-year National House Building Council or equivalent warranties. This could result in a low level of capital expenditure and modest and predictable maintenance costs.
Property locations are set to follow existing and planned rail and road infrastructure including the proposed HS2 and HS3 rail networks.
Chairman Stephen Smith says: ‘We believe The PRS REIT will break new ground, being the first quoted real estate investment trust to address the shortage of high quality family homes in the private rented sector.’
The REIT has relationships with local authorities and housebuilding partners, including Countryside Properties (CSP), which should help with land access and development expertise.
The IPO offer will run until 23 May. You can apply, if you so wish, via certain stockbrokers or investment platform providers. The shares will start to trade on London’s Main Market on 31 May. (TS)