These investment vehicles allow investors to buy an interest in a portfolio of real estate.
There are REITs that own central London commercial property, large warehouses, private rental properties, theme parks and medical facilities just to name a few.
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Investors can buy shares in these trusts for just a few pounds, and pick up a regular income from property. REITs have to distribute all of their rental income otherwise they have to pay corporation tax. This means these businesses have a financial incentive to return cash to investors.
And right now, the turbulence in the UK financial markets means many of these equities are trading with high single-digit dividend yields.
With that in mind, here are five cheap REITs worth taking a look at today.
REITs: An easy way to invest in property
Investing in buy-to-let property can be a costly and time-consuming enterprise, but Residential Secure Income (LSE: RESI) offers a way to invest in the sector with little to no effort.
At the end of March, the group owned 3,298 homes with a value of £355m split between affordable shared ownership and retirement rentals across the UK.
Further acquisitions are planned to grow the value of the portfolio. This type of property can also be a great hedge against inflation. Residential managed to push through rental growth of 6.2% across its portfolio in the six months to the end of March (it voluntarily capped rent increases for tenants).
Rental income from these homes supports the group’s dividend. The yield currently stands at 8.3% and management expects further rental growth to support dividend growth in the years ahead.
The best REITs to invest in for growth potential
One of the best ways to invest in property right now, particularly a diverse property portfolio is Landsec (LSE: LAND).
The largest listed REIT in the country, it owns approximately 24 million square feet of retail, leisure and workspace assets. Around 65% of the portfolio is London-based and it has started moving into property development after acquiring MediaCity and U+I in late 2021.
The company is shifting away from London, mainly London offices as occupancy struggles to recover after the pandemic. It has sold £1.7 billion-worth of City offices in the past two years with the cash used to reduce debt and expand its portfolio of higher-returning assets.
As the group focuses on building out its footprint, there’s scope for its dividend and asset base to grow in the years ahead. The stock currently offers a dividend yield of 6%.
The best REIT to invest in for e-commerce growth
The booming e-commerce industry has lit a fire under the demand for so-called big box sheds, the huge warehouses that help retailers fulfil orders.
Also in demand are smaller facilities that allow retailers to process orders closer to their destination, and that’s where Urban Logistics (LSE: SHED) comes into play.
Urban owns over 100 “mid box urban logistics assets” with many more in the pipeline. Occupancy is high and there’s a growing demand for new facilities from retailers already fighting over space. Management thinks the group can use the mismatch between supply and demand to push up rents, and this could lead to higher returns for investors.
In the company's latest market trading update, published at the end of July, it revealed that following two recent rent reviews, it was able to up rents by 20%, illustrating the scale of the opportunity here.
The stock currently yields 6.4%.
A REIT benefiting from record demand
Tritax Big Box REIT (LSE: BBOX) builds and owns the facilities that hold goods before they move into Urban’s warehouses.
The company is taking advantage of the current conditions in the property market to build its portfolio. It snapped up £58.8 million of "high-quality urban logistics assets with significant near-term reversionary potential" in the first quarter of 2023.
The company isn't seeing any dropoff in demand for its property. Headline rents increased by 2% to 3% in the first quarter, as letting demand matched the five-year average.
Tritax has £600 million of liquidity to deploy in the years ahead building new assets and buying property from distressed owners, suggesting the group's growth can continue.
The stock currently offers a dividend yield of 5.1%.
Get access to the best property deals with this REIT
My final pick for this article is Custodian REIT (LSE: CREI) one of the most diversified REITs on the market. It has 161 assets with 319 tenancies across multiple property sectors.
Managed by Custodian Capital, which looks after £15bn of assets for clients around the world, Custodian is backed by a deep-pocketed backer with access to the best deals.
With a dividend target of no less than 5.5p per share this year, the stock’s yield sits at 6.3%.
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Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has freelanced as a financial journalist for 10 years, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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