Reits (Real Estate Investment Trusts)

edited 30 November -1 at 1:00AM in Savings & Investments
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ashm1ashm1 Forumite
234 Posts
edited 30 November -1 at 1:00AM in Savings & Investments
http://business.guardian.co.uk/story/0,,1980785,00.html

Does anyone plan to add these into their portfolio ?

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  • dunstonhdunstonh Forumite
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    No intention to change my current position which is to continue with unit trusts/oeics. A number of unit trusts are/will be investing into a spread of REITs and I prefer that approach as a spread of risk.

    REITS are not new. They are new for UK. UK property is weak compared to European or Asian and some other global areas. So, when it comes to UK property, I think I will just stick to bricks and mortar property funds and not REITS.
  • EdInvestorEdInvestor
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    ashm1 wrote:
    http://business.guardian.co.uk/story/0,,1980785,00.html

    Does anyone plan to add these into their portfolio ?


    I already own shares in Land Securities plc which plas to convert to a REIT. It expects a 30% rise in its dividend ( curretly just under 3%) after that, so I will hold.

    REITS are likely to be pretty popular in the UK among investors looking for stable income and some capital growth with low risk.

    There are already other ways to invest in commercial property funds of course ( via pensions,unit and investment trusts, as well as shares in property companies and direct holdigs) and recent returns over the last few years have be excellent, in the 20% area.

    One assumes that can't last forever, but a crash doesn't look likely.IMHO REITS will be popular and a flood of money into a sector is always positive in the short term :)
    Trying to keep it simple...;)
  • Cook_CountyCook_County Forumite
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    dunstonh wrote:
    So, when it comes to UK property, I think I will just stick to bricks and mortar property funds and not REITS.

    Can you please translate? Land Securities, Brixton plc etc are all individual companies that will convert to REITs. What is different about 'bricks and mortar property funds'; or do you just mean open/closed end funds that invest in these kind of companies?
  • dunstonhdunstonh Forumite
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    All the articles I have read so far aimed at advisers warn that the quoted anticipated yields are too high and are unlikely to occur. Expectation is still around the 2-4% mark for next year.
    REITS are likely to be pretty popular in the UK among investors looking for stable income and some capital growth with low risk.

    They are not low risk though. They are shares in a property investment company. Although risk is likely to vary, it should be much closer to the property share funds, like Aberdeen property share (9 out of 10 on the crude risk scale) than the bricks and mortar property funds (5 out of 10).

    Borrowing is allowed so there is the possibility of much greater risk as well.

    Demand will certainly be there as many flood to anything with the word "property" in it thinking it will make money.
  • EdInvestorEdInvestor
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    Land Securities is a property company.It owns office blocks, shopping malls and business parks, just like any bricks and mortar property fund run by the insurance companies or fund managers.It derives its income from rents and growth in capital values just as they do.

    The difference is in the fact that Land Secs is a company listed on the stock market,and also that it tends to pay a lower (though fast growing) dividend (because of outstanding share price growth) than the insurance funds/unit trusts, which are more income focussed.

    Because it is listed, it is more volatile ( ie price goes up and down) than the insurance/unit trust funds.But volatility is not the same as risk. The underlying assets are exactly the same and so are the returns, within the range.

    The best comparison is probably with the offshore property investment trusts run by the big insurers (eg UK Balanced property (Widows), SLI (Std Life) .These are also bricks and mortar funds but because they are listed they are also more volatile than the insurance and unit trust funds, though less so than the listed companies.

    The reason for this volatility is partly because you can sell these shares and ITs immediately,whereas with the insurance funds/unit trusts, you can get locked in if the fund manager so decides (remember MVAs?).Some people would regard volatility plus freedom to go as lower risk than less volatility with potential lock in.

    At present companies like Land Secs are more volatile than the offshore ITs, but the expectation is that after they become REITs, their price will stabilise more and their divis rise so the REITS and the offshore ITs will be virtually indistinguishable - except that some of the REITS will be much larger.

    In addition there are also the unit and investment trusts which invest in property shares (eg Aberdeen) .These are the most volatile of all, as the underlying assets are listed, as well as the invetment vehicle itself.This area is growing fast and is spreading to Europe and other foreign parts. Fingers could easily be burnt in this area in future IMHO.

    To my mind the combination of bricks and mortar assets and the liquidity of a listing (whether as a share or an IT or a REIT) offers the best combination of returns vs risk.

    Though anyone who has money locked in a pension should consider putting a chunk in the company's property fund, as it's one area where almost all the insurance companies have achieved consistent reliable performance over many years.
    Trying to keep it simple...;)
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