I own a number of real estate investment trusts (REITs) currently as part of my holdings. These types of stocks are designed to return 90% of profit from income-yielding properties to shareholders. I believe they are perfect for boosting my passive income stream. Another REIT I’m considering adding to my holdings is PRS REIT (LSE:PRSR). Let’s take a closer look to see if buying the shares could boost my returns.
Rental properties
As a quick introduction, PRS is a REIT that focuses on providing quality rental homes for consumers in the private rental market. PRS was the first of its kind to target the rental market as an investment trust.
So what’s happening with PRS shares currently? Well, as I write, they’re trading for 100p. At this time last year, the stock was trading for 102p, which is a decline of 2% over a 12-month period. Recent macroeconomic headwinds have put pressure on the shares and stopped them from climbing, in my opinion.
Risks to consider
I have two main concerns with PRS. Firstly, it builds its own properties. Due to soaring inflation, the rising cost of materials, and the supply chain crisis, this could hinder performance and returns. Many house builders are contending with these challenges. Rising costs put pressure on profitability. Furthermore, the supply chain crisis is affecting completion dates and sales, or rentals, in PRS’ case.
Next, as with any stock I buy to boost my passive income stream, I must remember that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time to help conserve cash. In times of economic volatility, like now, this is more likely.
The bull case and what I’m doing now
So let’s take a look at some positives then. First off, I’m buoyed by PRS’ performance track record. I am aware that past performance is no guarantee of the future. However, looking back, I can see it has grown revenue and profit year on year for the past four years.
Next, I believe PRS could benefit from the current housing market in the UK. To provide some context, the demand for homes is outstripping supply. Due to this, as well as the tougher conditions to obtain a mortgage, many consumers turn to the rental sector. PRS could experience a surge in demand for its properties. In turn, this could boost performance and level of returns for potential investors like me.
For any stock that is designed to reward shareholders, I want to know what the dividend yield is. At current levels, PRS’ yield of 4% is enticing. This is in line with the FTSE 100 average yield of 3%-4%.
Finally, I can see that PRS shares also look decent value for money currently on a price-to-earnings ratio of just eight.
In conclusion, I believe PRS REIT is in a great position to boost my holdings. It operates in a burgeoning market with favourable conditions. Furthermore, the passive income opportunity is enticing. I plan on adding PRS shares to the other REITs in my portfolio.