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Tuesday, December 7, 2021

Questor: PRS Reit’s growth in rental income offers shelter from the inflationary storm

Renting has come a long way since Rising Damp. Now you can go online to choose a brand-new home to rent and have everything handled by an agent that aims to develop a reputation for treating its tenants well. You’ll probably find yourself on a new suburban development close to schools and have the flexibility to stay for years or move on after 12 months.

Homes like these are the assets owned by an unusual real estate investment trust called PRS Reit. The trust, established in 2017, focuses on family homes that it leases for an initial term of a year.

After that time, the 80pc of tenants who choose to stay typically pay a rent rise of 4pc. If the house becomes vacant, it is given a spruce up and the new tenant will normally pay 6.5pc-7pc more than the old one. PRS’s homes, 90pc of which are houses and 10pc flats, typically remain empty between tenants for just a matter of days.

The appeal of that kind of annual increase in rents is obvious when investors face the challenge of maintaining the real value of their income against inflation of more than 4pc.

Questor has pointed out before that some property investment trusts have signed leases that specify index-linking of rents but only up to a cap, often of 4pc. One way round this is to own funds whose rents are simply subject to annual review and trust that, if the cost of living is rising, tenants’ incomes will too – and that they will be prepared to pay more each year to the landlord.

“If incomes rise we will see higher rents. Tenants will cut spending on many things before they will move out of their home in search of lower rent – holidays, a car, a new television,” says Matt Norris, whose Gravis UK Listed Property fund has a stake in PRS. “We saw how hard families will try to keep up with their rent during the pandemic: PRS’s rent deferrals were tiny.”

The trust said 99pc of rents due were collected in the three months to the end of September. Norris says the fund is meeting changes in demand for rented homes and an altered landscape for property owners. 

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