What Are the Best UK REITs to Invest in?
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 in 2023? And why should you consider investing in UK Real Estate Investment Trusts in the first place? Keep reading to find out.
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Why Invest in UK Real Estate Investment Trusts?
UK Real Estate Investment Trusts own and manage portfolios of property on behalf of their 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.
This allows investors to gain exposure to income generating property market without needing the high level of capital required to buy this kind of real estate, or the headaches that come with managing them.
REITs in the UK are exempt from corporation tax on both rental income and any capital gains made from the sale of their UK rental properties. However, in exchange for this advantageous tax status, UK REITs 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, UK REITs can be an appealing prospect for income investors, as they often have high dividend yields.
Furthermore, REITs offer investors the opportunity to diversify their portfolio into property, without needing to buy the physical asset. A diversified portfolio is an important aspect of risk management and, moreover, property has historically proven to be an effective hedge against inflation.
Top 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 2023?
Primary Health Properties
Primary Health Properties (PHP) focuses on properties in the health care industry, with a portfolio of more than 500 properties across the UK and Ireland.
There are not many industries as defensive as health care. 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.
In the first six months of 2023, net rental income rose 6.2% to £75.5 million and adjusted earnings rose 2.7% to £45.9 million, allowing PHP to hike its dividend per share by 3.1%.
Like many other UK REITs, PHP had a difficult time in the stock market in 2022, with share price dropping almost 27%. So far in 2023, share price has continued to come under pressure, falling more than 15% in the first eight months of the year. This fall in share price has resulted in a high dividend yield of 7.3% at the time of writing.
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 that Tritax Big Box is well-positioned to potentially benefit from further growth in the e-commerce market.
In the six months ended 30 June 2023, Tritax Big Box’s contracted annual rent roll remained flat at £224 million, with operating profit and dividend per share increasing 7.5% and 4.5% respectively.
After a strong year in 2021, Tritax’s share price collapsed in 2022, falling more than 40% and has been stuck in a sideways range thus far in 2023. However, the UK REIT currently has an attractive dividend yield of 5.2%, which is considerably higher than the wider FTS0 250’s yield of 3.5%.
Headwinds for REITs in UK
Whilst REITs in the UK may be a good option for income investors in 2023, there are headwinds facing the property sector which must be factored into any investment decision.
As has been reflected in the recent share price movements of the two UK REITs examined above, the economic outlook in the UK is currently fairly gloomy. Stubborn inflation and rising interest rates are stifling economic growth and, although it has thus far avoided one, we shouldn’t rule out the prospect of the UK falling into recession.
A recession would not only jeopardise the rental income of Real Estate Investment Trusts, but could also negatively affect property prices, which would most likely put further downward pressure on UK REIT share prices.
Furthermore, a consequence of having to distribute the majority of profit from property income is that UK REITs are often compelled to borrow to fund growth. Rising interest rates means that the cost of this borrowing increases, which could negatively affect UK Real Estate Investment Trusts which have a high level of debt.
How to Buy UK REITs
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 MetaTrader 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:
REITs in the UK – FAQ
Do REITs Exist in the UK?
Yes, Real Estate Investment Trusts were introduced in the UK in 2007.
What Is the 90 Rule for REITs?
The “90 Rule” for REITs refers to the fact that REITs in the UK must distribute 90% of its tax-exempt income to investors in the form of dividends.
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 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 investment decision.
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