PRS REIT faces investor rebellion to topple chair

Investment trust PRS REIT is facing a significant shareholder rebellion, which is attempting to oust its chair and change the direction of the property investor.

Investors including Waverton Investment Management and CCLA Investment Management, representing 17.3 per cent of shareholders, have requested an extraordinary general meeting to vote on a slew of measures.

These include replacing chair Stephen Smith with former Hipgnosis Songs and Round Hill Music chair Robert Naylor as well as replacing non-executive director Steffan Francis with City grandee Christopher Mills.

Mills is majority shareholder of Harwood Capital Management, one of the fund houses supporting the rebellion, and co-founder of Jo Hambro Capital Management.

He also worked with Naylor at Hipgnosis Songs as a non-executive director, and currently heads up UK investment trust North Atlantic Smaller Companies.

Mills said he would give away any remuneration received from his role as a director to charity, while none of the other investors said they would receive any fees or financial benefits as a result of the director changes. 

“Activist shareholders requisitioning general meetings and calling for the removal of directors is hardly commonplace in the investment trust sector,” Emma Bird, an analyst at Winterflood, said.

This is especially the case where there are “no obvious governance issues or substantial performance concerns”, as PRS REIT has seen stock prices rise a substantial 33 per cent over the last year.

Since the trust launched in 2017, its underlying assets have risen 7.4 per cent a year, notably ahead of the FTSE real estate index that it tracks, which has been broadly flat over the last seven years.

However, the trust has still had some issues, with its share price down 10 per cent since it floated, thanks to a wide discount between its shares and its underlying assets.

“We suspect there is some shareholder frustration with the fund’s sustained wide discount since mid-2022, with a share price total return of just 2.3 per cent annually since launch and a current discount of nearly 30 per cent,” Bird said.

The REIT’s latest portfolio update revealed that its initial portfolio of build-to-rent homes was expected to be substantially complete by the end of 2024, meaning shareholders caught in the middle of the fight may want to hold off to see if the current board are able to drive value from the complete portfolio.

The shareholder group is arguing that the trust should potentially sell properties to repay its debt when the cost exceeds the net rental yield of the trust’s portfolio, and buy back shares to reduce the discount to 10 per cent or below.