FTSE Real Estate Investment Trusts

If you’re interested in investing in property, you could buy some property. However, buying and selling property comes with some significant admin and stress overheads. If you’re only looking to invest a few pounds, and don’t fancy having to arrange mortgages, business loans, insurance, and managing tenants then another way to do this is via property businesses listed on the stock market. A Real Estate Investment Trust (REIT) is one type of property business into which an investment can be made.

A REIT will have a portfolio of property assets, and shares in the business managing these assets can be bought and sold. As they are traded on the stock market there is the potential for shares to be bought and sold for a different price to the underlying value of the assets. So when looking at REITs, like other investment trusts, there will be a premium/ discount displayed to illustrate whether shares in the trust are priced at more or less that the value of the assets in the trust.

Categorising a business as a REIT has some advantages – they are exempt from certain taxes on their income and capital gains. But to qualify they need to meet certain criteria:

• Shares must be trading on a recognised stock exchange
• Must be a closed end publicly traded company - investors buy and sell shares in that company in the market, rather than an open ended fund where units are redeemed by the fund
• Must publish an investment policy that sets out approach to asset allocation, risk diversification and gearing, including maximum exposures
• In it’s annual report it has to state how investment risk has been aligned to investment policy. The report must also include a valuation of portfolio, which must be conducted by an external body
• Required to distribute at least 90% of profits from property rents

Since a REIT is closed ended the trading of shares does not need to impact the strategy of the business if the stock market gets upset. Open ended property funds have encountered liquidity issues, such as after the UK referendum result of 2016, when many investors wanted to sell their investments. Since property sales tend to take a while to complete funds were gated to allow fund managers to sell assets which could then enable investors to redeem their investments.

As 90% of rental income is returned to investors, REITs tend to raise funds for further property purchases through either borrowing or issuing shares. So worth keeping an eye on the level of debt, as if it is approaching the ceiling articulated in the investment policy it’s likely that expanding the property portfolio will be done through a share issue.

The longer term income predictability of some of these businesses appeals. There is a list below of (most) of the REIT listed in the UK with a few numbers in case it’s of interest:

REIT Name	Share Price	Market Cap (£m)	Dividend Yield (trailing)	NAV per share	Premium/ Discount	sectors
AEW UK REIT (AEWU)	94.20	139	8.5%	98.61	-4%	Commercial
Assura (AGR)	72.20	1624	3.7%	53.3	35%	Healthcare
Big Yellow Group (BYG)	1034.00	1729	3.2%	724.4	43%	Storage
British Land Company (BLND)	565.00	4887	5.5%	905	-38%	Commercial, Retail
Capital & Regional (CAL)	19.24	119	12.6%	52	-63%	Industrial, Retail, Commercial
Custodian REIT (CREI)	117.00	475	5.6%	107.10	9%	Industrial, Retail, Commercial
Civitas Social Housing (CSH)	88.30	526	5.7%	107.10	-18%	Social Housing
Derwent London (DLN)	3250.00	3435	2.0%	3852.00	-16%	Commercial
Drum Income Plus REIT (DRIP)	80.50	31	7.5%	93.80	-14%	Industrial, Retail, Commercial
Ediston Property Investment Company (EPIC)	85.40	184	6.7%	111.03	-23%	Commercial, Retail
Empiric Student Property (ESP)	93.00	557	5.4%	108.50	-14%	Student Accomodation
GCP Student Living (DIGS)	170.80	673	3.6%	165.52	3%	Student Accomodation
Great Portland Estates (GPOR)	719.20	1812	1.7%	853.00	-16%	Commercial, Retail
Ground Rents Income Fund (GRIO)	83.00	79	4.8%	113.20	-27%	Ground Rents
Hammerson (HMSO)	273.00	1981	9.5%	685.00	-60%	Retail
Hansteen Holdings (HSTN)	91.30	409	6.8%	104.40	-13%	Industrial
Highcroft Investments (HCFT)	890.00	48	5.9%	1195.00	-26%	Industrial, Retail, Commercial
Impact Healthcare REIT (IHR)	111.00	318	5.4%	104.67	6%	Healthcare
Intu Properties (INTU)	38.66	566	11.9%	252.00	-85%	Retail
KCR Residential REIT (KCR)	49.00	14	0.0%	70.97	-31%	Residential
Land Securities Group (LAND)	846.80	5849	5.4%	1339.00	-37%	Retail, Commercial
Local Shopping REIT (LSR)	31.50	25	0.0%	31.33	1%	Retail, Distribution
Londonmetric Property (LMP)	214.40	1740	3.8%	174.90	23%	Industrial, Retail, Commercial, Student
LXi REIT (LXI)	128.60	680	4.5%	114.60	12%	Industrial, Retail, Commercial, Student
McKay Securities (MCKS)	228.00	213	4.5%	326.00	-30%	Commercial
Newriver Reit (NRR)	189.00	528	11.4%	261.00	-28%	Retail
Picton Property Income (PCTN)	88.10	476	4.0%	93.00	-5%	Industrial, Retail, Commercial
Primary Health Properties (PHP)	138.00	1533	3.9%	105.20	31%	Healthcare
PRS Reit (PRSR)	86.20	435	5.8%	96.30	-10%	Residential
Real Estate Investors (RLE)	54.00	98	6.6%	68.80	-22%	Commercial, Residential
RDI Reit (RDI)	104.00	401	2.6%	190.20	-45%	Retail, Commercial
Regional REIT (RGL)	102.80	445	7.8%	114.30	-10%	Commercial
SEGRO (SGRO)	784.80	8451	2.4%	637.00	23%	Industrial
Safestore Holdings (SAFE)	651.50	1364	2.5%	402.00	62%	Storage
Secure Income REIT (SIR)	439.00	1420	3.6%	420.50	4%	Healthcare, Leisure
Schroder REIT (SREI)	53.90	285	4.7%	68.70	-22%	Commercial
Shaftesbury (SHB)	893.00	2582	1.9%	987.00	-10%	Retail, Leisure, Commercial
Standard Life Investments Property (SLI)	87.50	354	5.4%	91.00	-4%	Industrial, Retail, Commercial
Triple Point Social Housing REIT (SOHO)	95.00	312	5.3%	103.96	-9%	Social Housing
Supermarket Income REIT (SUPR)	105.00	258	5.3%	97.00	8%	Retail
Target Healthcare REIT (THRL)	110.60	434	5.8%	107.80	3%	Healthcare
Town Centre Securities (TOWN)	184.00	98	6.4%	384.00	-52%	Commercial, Residential, Retail
Tritax Big Box Reit (BBOX)	149.20	2404	4.5%	150.80	-1%	Distribution
Tritax EuroBox (EBOX)	94.00	399	0.4%	95.92	-2%	Distribution
Unite Group (UTG)	1061.00	2967	2.7%	820.00	29%	Student Accomodation
Warehouse REIT (WHR)	104.00	250	5.8%	109.70	-5%	Distribution
Workspace Group (WKP)	965.00	1590	3.4%	1086.00	-11%	Commercial

August 2019 portfolio update

Plenty of things pushing the markets around over the last month, Trumpy tariffs, Bojo's Brexit plans, Iran, Hong Kong...as a consequence we've seen plenty of volatility. Some of this is going to start hitting business performance, so it's no surprise to see investors getting nervous. Since I'm looking to buy, this is not a wholly bad state of affairs from my point of view. If Mr Market has a few tantrums over the next few months that will hopefully provide a few discounts, and the chance to lock in some higher dividend yields.

However, I'm remaining cautious particularly since Brexit feels somewhat binary: a softer version is likely to cause Sterling to spike, and drop the prices of the big international firms; whereas a harder Brexit is likely to cause a bit of a sell off of UK facing businesses. I'm not too concerned about the long term, but would be nice to be able to capitalise on cheaper prices and bigger dividends. I have plenty of interesting businesses and trusts to research, anything looking relatively Brexit-proof may well make it onto the shopping list.

Portfolio
The portfolio was beaten up a bit during August, like the wider markets, but just sneaked in ahead of my benchmark. The portfolio was down -3.2% compared to my chosen benchmark the Vanguard FTSE All Share Accumulation fund which was down -3.9% over the same period.

Sprinting ahead this month was old timer Unilever (ULVR), +5%. It's not often ULVR gets up above walking pace, but managed it this month. I suspect it's a result of people diving into defensive stocks to escape the volatility.

AG Barr (BAG) wasn't so steady on it's feet and took a tumble this month, -13%. Not too concerning just bouncing around after the big price drop last month from what I can tell. Nice to see the firm capitalising on the price and indulging in buy back activity, tick in the box for BAG.

August share purchase:
Network International (NETW) are a digital payment provider operating across the Middle East and Africa. They listed on the FTSE earlier this year - their IPO was in April. This is an unusual one for me, as I would rather a company had been operating as a listed business for a while to make sure any skeletons in the cupboard from their private days had been appropriately dealt with. So, as with any purchase that I think is a little racy, to mitigate some of that risk I've taken a smaller position.

NETW are based out of Dubai, and following the IPO have a valuation over £2.8bn, so they are not exactly a minnow, comfortably nestled in the FTSE 250 amongst household names such as Cineworld. However, compared to the $43bn paid by FIS for Worldpay recently they have some much bigger firms to compete with. It is this sector consolidation and the defensive nature of the payments industry that drove the purchase. I was also encouraged to see Mastercard take a 10% stake at the IPO. I'm not keen on buying at IPOs simply because it's never clear if the price is going to shoot upwards or crash. NETW has been moving upwards and following a recent positive trading update I was convinced to put in a little money. If it continues it's good news I will put in a bit more.