5% yield REITs - too good to be true?

Fulham_Mark

Hi,

Frustrated with v low ISA interest rates, and looking for other investments, I've found Real Estate Investment Trusts.

Schroder Reit, Land securities, MedicX, Civitas etc.

FTSE traded and historically offer 4% - 7% dividend income.

We probably expect property values to fall but apparently this is factored into the share price already. You can also find the value of the property assets shown as a net-present-value and none look over-valued.

Civitas seems to buy social housing - with rent pretty much guaranteed by the government. Sigma Capital is launching a 9% yield REIT and the government has invested 10% of the total value

All looks too good to be true!

Is there anything major I don't know about this?

cheers!

dunstonh

We probably expect property values to fall but apparently this is factored into the share price already.

Opinion is not factored into the property valuations. However, opinion is factored into the price in respect of the discount/premium.

Is there anything major I don't know about this?

Property is worth having in any diversified portfolio. Typically upto around 15%. However, if you are thinking 100% of your risk based investments then that would be a very bad idea.

There are lots of issues to be aware of. We dont know what you do or do not know.

bowlhead99

Fulham_Mark wrote: »

All looks too good to be true!

Is there anything major I don't know about this?

The short answer is yes: when things look too good to be true there is always something major you don't know about it... but as Dunstonh says, there is no way for us to know what you know and what you don't know

What is everything you know about structuring of UK closed ended investment vehicles; the various micro and macro themes in the UK commercial property sector to which these particular REITs might each be exposed to a greater or lesser extent; asset allocation theory and practice, the stock market in general; suitability of REITs over PAIFs or UTs for your needs, the likely direction of interest rates for retail customers and for commercial mortgages; the potential losses you might expect to receive if you bought at the best time and sold at the worst, and so on?

Perhaps if you could summarise your relevant knowledge in a 50,000 word thesis we would be better-placed to say whether there is anything major you don't know about this....

...although if we wrote our own thesis to help fill you in the gaps in your knowledge, we may find perhaps there are some things you did know but hadn't thought to include. And there were other things we could have focused on instead. So it may not be very efficient.

Schroder Reit, Land securities, MedicX, Civitas etc.

Why Land Securities over British Land ? Why Medicx over Primary Healthcare Properties or Assura or maybe even Target Healthcare? Generally when you have just come to the realisation that an asset class exists that you didn't previously realise exists, the second thing you realise is that you don't know nearly enough about it to dive in without a lot of effort working out what's a good deal and what's bad.

elephantrosie

was about to look into REITs too. this thread is good.

EdGasketTheSecond

There's also:

INTU yield 5%
UAI yield 3% but last year they paid a big special dividend and there are likely to be more in future
RDI yield 8.35%

...wait I'm going to remortgage the house and bung it all in property REITs !

steampowered

A yield of 4% - 7% is not "too good to be true". That is perfectly in line with the rest of the market.

The average FTSE 100 yield is about 3.7%. The yield on HSBC shares and Marks & Spencer shares is currently about 5%. The yield on shell or BP shares is about 7%.

Investing in REITs is a perfectly sensible thing to do. However I would not put your entire portfolio in REITS - this would expose you to an unnecessary level of risk. Consider putting some of your money into REITS and the rest of it into other stock investments offering a similar yield in other sectors.

elephantrosie

why is REITS not popular among UK investors?

EdGasketTheSecond

I've got plenty of them. Who says they are not popular? The yield might be high but usually is barely covered by earnings; in fact REITs have to pay out 90% of income by law I believe. Add to that the outlook for commercial property is uncertain with Brexit looming and you can see why the yields are on the high side of average (hint: low dividend cover and prospect of low or negative capital growth).

However if you think that inflation will take off then fill yer boots with any hard assets like property of any sort as it will definitely do better than cash.

elephantrosie

EdGasketTheSecond wrote: »

I've got plenty of them. Who says they are not popular? The yield might be high but usually is barely covered by earnings; in fact REITs have to pay out 90% of income by law I believe. Add to that the outlook for commercial property is uncertain with Brexit looming and you can see why the yields are on the high side of average (hint: low dividend cover and prospect of low or negative capital growth).

However if you think that inflation will take off then fill yer boots with any hard assets like property of any sort as it will definitely do better than cash.

which platform are you using for yr REITS investment?

longleggedhair

I first purchased two REITS around 2009, for the same reasons you allude to (poor interest rates on cash) but at that times the yields were much higher. I piled in not for capital gain but for income which I always reinvested.

To my surprise the capital value significantly increased over those years in the trusts I held (F&C commercial and F&C real estate) to the point were they had become far too large a portion of my portfolio. I sold them a couple of months ago along with 90% of my equity holdings.

My feeling is that currently prices are too inflated and the only thing I can say is I see far more downside in the market than upside. Remember the saying "be fearful when others are greedy and greedy when others are fearful "

bigadaj

longleggedhair wrote: »

I first purchased two REITS around 2009, for the same reasons you allude to (poor interest rates on cash) but at that times the yields were much higher. I piled in not for capital gain but for income which I always reinvested.

To my surprise the capital value significantly increased over those years in the trusts I held (F&C commercial and F&C real estate) to the point were they had become far too large a portion of my portfolio. I sold them a couple of months ago along with 90% of my equity holdings.

My feeling is that currently prices are too inflated and the only thing I can say is I see far more downside in the market than upside. Remember the saying "be fearful when others are greedy and greedy when others are fearful "

Possibly but the question is where else do you put your money?

I've recently stopped investing into the market apart from pensions and am increasing p2p exposure but stock markets still offer decent yields eventhough dividend cover has been reducing in many instances.

Staying in cash means losing out to inflation and low interest rates with no increase in prospect (for comparison remember the Dotcom boom when yields were down at 1% and savings interest rates were 6%+).

To me most property looks more over valued than equity, bonds offer either no return or pretty much guaranteed capital losses, so equity still looks like one of the few viable options .