Unglamorous profits from offices and shop premises

These two commercial property Reits are not glamorous, but offer generous and dependable yields.

Competition from discounters has squeezed supermarkets in recent years© AFP via Getty Images

In the property world, the vast majority of the market is made up of mundane, functional buildings that provide businesses with premises at a reasonable cost. Real estate investment trusts (Reits) that invest in these can be attractive for income seekers.

AEW UK Reit (LSE: AEWU), for example, is the highest-yielding fund in the property sector. It pays a quarterly dividend of 2p, fully covered by earnings. With a share price of 91p and a 2% discount to net asset value (NAV), the shares yield 8.8%, from which it might be assumed that the fund was in trouble and the dividend under threat. Yet of this there is no sign. A portfolio of £196m at the end of 2019 was financed by £147m of equity, though another £7m of share capital has since been raised and borrowings of £51.5m, 90% of the interest on which is capped at 2% until late 2023. Half the property portfolio is industrial, a quarter comprises offices and the rest is divided between retail and leisure.

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Max King
Investment Writer

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.

After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.