Investing in UK REITs
UK Real Estate Investment Trusts, or REITs, are publicly traded companies which own and manage portfolios of income generating property on behalf of their shareholders.
Since being introduced to the UK in 2007, there are now over 50 REITs listed on the London Stock Exchange. But which are the best UK REITs to watch in 2024? And why consider investing in UK Real Estate Investment Trusts in the first place? Keep reading to find out.
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UK Real Estate Investment Trusts Explained
UK Real Estate Investment Trusts own and manage portfolios of property on behalf of investors. The types of properties owned by UK REITs can include office buildings, apartment blocks, shopping malls, hotels or any other property which generates rental income.
Investing in UK REITs, allows investors to gain exposure to income generating property market without the high level of capital required to buy the physical real estate, or the headaches that come with managing them.
UK REITs benefit from advantageous tax status but, in order to do so, they must meet a number of conditions, one of which is to distribute at least 90% of the profit made from property income each year to their shareholders as dividends.
Therefore, REITs can be an appealing prospect for income investors, as they can often have high dividend yields.
Best UK REITs to Watch
Now we know what REITs are and why someone would want to invest in them, what are some examples of top UK Real Estate Investment Trusts to watch in 2024?
Primary Health Properties
Primary Health Properties (PHP) is a UK healthcare REIT, with a portfolio of more than 500 properties in the healthcare industry across the UK and Ireland.
There are not many industries as defensive as healthcare. Property prices may rise and fall, but there will always be demand for health services and these services need locations to treat patients. In fact, with the UK’s ageing and constantly increasing population, it’s likely that demand for health care will rise in the future.
Moreover, almost 90% of PHP’s rent roll is funded by the UK and Irish governments, meaning that the risk of tenants going bust or not honouring their contract is incredibly low.
However, many UK Real Estate Investment Trusts have come under pressure in the stock market recently due to rising interest rates. Not only do higher interest rates increase the cost of borrowing, but they can also weigh on property prices, which can negatively affect the value of a REIT's portfolio.
In the two years ending 31 December 2023, PHP’s share price fell more than 30%.
As a consequence of distributing the majority of their property income profits amongst shareholders, UK REITs are often compelled to borrow in order to fund growth, and PHP is no exception. The UK healthcare REIT has a sizeable amount of debt on its balance sheet, which equated to roughly 46% of the value of its portfolio as of 30 June 2023.
The decline in share price has resulted in a dividend yield of 7.0% at the time of writing, considerably higher than the 3.9% average of the FTSE 100. Moreover, PHP has consistently increased its annual dividend payment for more than 20 consecutive years.
Tritax Big Box REIT
Tritax Big Box REIT owns and leases a portfolio of warehouses to big-name tenants such as Amazon, Morrisons, Tesco and Ocado.
The calibre of these tenants minimises the likelihood of Tritax unexpectedly losing rental income, which is good news for its dividend distribution. Furthermore, its focus on warehouse spaces and logistics facilities means this UK Real Estate Investment Trust is well-positioned to potentially benefit from future growth in the e-commerce market.
Again, with share price, we can observe a similar scenario as before. In the two years ended 31 December 2023, Tritax’s share price fell more than 30% and this pressure could continue if interest rates remain elevated for a long period.
At the time of writing, Tritax Big Box REIT has a dividend yield of 4.4%. The UK REIT’s record of increasing dividends was hampered in 2020, when its dividend distribution dropped during the pandemic. However, in the two years since, it has increased its annual dividend.
How to Invest in REITs UK
With an Invest.MT5 account from Admirals, you can buy shares in both UK Real Estate Investment Trusts examined in this article, as well as a number of other REITs from the UK and the US! Follow these steps in order to get started:
- Open an Invest.MT5 account and log in to the Dashboard
- Find your account details and click ‘Invest’ to open the web trading platform
- Search for the desired UK REIT and open the price chart
- Click ‘Create New Order’ at the bottom of the screen, enter the amount of shares you wish to purchase and click ‘Buy’ to send your order to the market!
Investing with Admirals
An Invest.MT5 account allows investors to buy shares in over 4,500 companies and more than 200 Exchange-Traded Funds (ETFs) from around the world. Click the banner below to open an account:
FAQ
What is the largest REIT in the UK?
At the time of writing, Segro is the largest REIT in the UK by market capitalisation.
Are UK REITs a Good Investment?
For those looking to invest in property, UK REITs can be an effective way of gaining exposure to income generating property in the UK without needing the vast amount of capital required to purchase these types of property. However, as with any investment, there are risks involved, which must be considered before making an investing decision.
Are REITs taxed in the UK?
UK REITs are exempt from corporation tax on both rental income and any capital gains made from the sale of their UK rental properties.
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