UK REITs: a once-in-a-decade opportunity?

Investing in real estate investment trusts (REITs) can be a great way to get income. And there is an unusually good harvest at the moment.

In some cases, these are 9% marks. To that extent, I think investors looking to give their monthly income a boost should be taking a serious look at the REIT sector in the UK right now.

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What do REITs do?

Generally, REITs own and lease properties to tenants. They pay no tax on their profits, but must distribute 90% of their income to shareholders through dividends.

The shareholders themselves do nothing – the income they receive means nothing. And while returns are never guaranteed, REITs are generally more reliable than other businesses.

In some cases, the name of the company makes it clear what kind of property it owns. Basic Health Structures again Warehouse REIT property are two examples. Sometimes, companies have a diverse group of assets. Alternative Income REITfor example, he owns everything from power stations to kindergartens.

REITs offer investors the opportunity to earn money by renting properties without all the work of owning and managing them. But there are a few things to be aware of.

Investing in REITs

There are several downsides to investing in REITs. The first is that they have limited room for growth – being required to split their rent means they can’t reinvest it elsewhere.

As a result, real estate investment trusts often have to take on debt to expand their portfolios. And this can leave them in a difficult position if their employers fail to do so or have vacant periods.

There is not much that investors can do about this. So they need to make sure that they get enough return on their income to compensate for the risk they are taking.

Currently, dividend yields are unusually high. And with a 6% yield, there’s one in particular that stands out to me from an investment perspective.

LondonMetric Property

The stock is LondonMetric Property (LSE:LMP). Most of the company’s portfolio is made up of industrial distribution centers and some of its assets are grocery stores.

At 6%, the bond yield is the highest it has been in a decade. This could be a sign that investors are concerned about the company’s ability to sustain itself over time, but I don’t see this as the case here.

That doesn’t mean the stock is risk-free. JP Morgan he recently downgraded the stock to Neutral from Overweight, citing the risk of higher debt costs.

This is something that should be taken seriously. But investors should also be aware that LondonMetric’s sale of non-core assets and the proceeds from them could be used to offset this risk.

A once-in-a-decade opportunity?

It’s not just LondonMetric Property that looks extraordinarily attractive. Segro (4%), Real Estate Securities (7%), and Get the team together (4.5%) all have profit gains not seen in the past decade.

Each brings its own risks and rewards. But in each case, now looks like the time to consider buying – I don’t think the income equation has been this attractive 10 years ago.