5% yield REITs - too good to be true?

bowlhead99

takesyourchances wrote: »

I was looking over other REIT's that may add something a bit different to what I have and have been looking at Primary Health Properties plc, any thoughts on this REIT as a bit if property diversification from the mostly commerical side from what I already hold?

I'm a former investor but no longer hold it having done some tweaks to my portfolio in recent years. Either my Mum or Dad still have it in their ISA which I help them look after. I preferred it to MedicX but they are merging as you probably know (causing the recent 'good run' mentioned by doe above, since that was announced bringing potential efficiencies).

As it is property-centric it will have some themes and risks in common with your other property vehicles but it is a different niche and has a different bag of sector-specific risks from funds that hold e.g. shopping centres/ retail parks, office space, warehouses and logistics, education, leisure etc etc. I mentioned Target Healthcare as one name to throw out there in an earlier post. What proportion of Tritax or F&C is invested in care homes? Not much if any? Why not add that too - yet another reasonably successful niche operator looking for a sustainable yield on a leveraged real estate portfolio...

If you are going to use property as a diversifier to mainstream equities and bonds (and there's no reason you shouldn't), then it makes sense to be properly diversified across opportunities within that asset class. However, even though PHP/ Medicx will be a fund with £2bn of investments, as mentioned it is a niche/specialist sub-sector. If you are targeting, say, 10% of your ISA in property, and you already have three funds in property, perhaps this fourth fund will only be a couple of percent of your ISA and somewhat less than a couple of percent of your wealth.

At small percentages, each fund has a relatively small impact on your wealth when it grows or shrinks by a few percent. At some point you might wonder whether you really need a fourth fund in property, a second infrastructure fund etc etc. It is certainly easier to monitor fewer holdings.

But, if you are doing lots of due diligence to decide which those funds should be and from time to time whether they are still appropriate given the opportunities and risks offered by all the other funds in the sector, and all the other sectors... you still need to evaluate funds that you don't end up buying, because niche funds don't have an easy benchmark other than their peers, which causes you to look at their peers. And if you look at them and like them why not buy them!

A valid answer is usually that you don't need to buy another fund for a token 1-2% of your portfolio because on its own it won't move the performance needle.

James_Green_1982

elephantrosie wrote: »

why is REITS not popular among UK investors?

Maybe because they are expensive to hold (higher OCF / TER) compared to equities and equity / bond funds?

Also - property is reasonably well correlated with equities in general terms. eg in 2008 both equities / tracker funds and property fell in value. So one argument against REITs (or PAIFs etc) is why increase your fees / costs - when in terms of correlation, you're not getting a great deal of diversification (compared to bonds, gold or cash)?

If you're looking to diversify against a general stock market drop / recession etc, then a portfolio of defensive stocks (eg utilities, pharma, consumer staples etc) would be cheaper to hold.

Another reason is that REITs can't really grow as quickly as a tech company / fund etc (which has low physical overhead costs etc). So there's an opportunity cost.

Also some REITs can lack geographical diversity (compared to multinational companies such as BP or the FTSE 100 in general). This makes them potentially at risk from local / national political risk events (eg Brexit referendum result hit UK property funds pretty hard - much better to be holding Apple, Amazon or Shell that day).

James_Green_1982

La_Penardiere wrote: »

I have found an 8% interest on £5000 from London Capital & Finance Plc which came up when I googled Martin Lewis savings tips. However I cannot see it on the MSE site. Has anyone invested with this company please?

I presumed this was a joke - but a few other posters took it seriously!

takesyourchances

doe808 wrote: »

I've held PHP for ten+ years now. I used to do a lot of work in that sector, and they always stood out for me in terms of their approach and the way they operated. One of only 3 or 4 individual 'companies' I hold. Possibly one of the most boring shares out there!



To be clear though, this is not investment advice and the shares have been on a very good run recently. Further, I have no idea how they would fit into your portfolio. Do your own research, as always.

Thanks for your reply, the replies have give me food for thought and I don't mind some boring holds, they have their place



I have a wide spread portfolio overall and thinking ahead with the next tax year coming up and will do my own research and appreciate the reply thank you.

takesyourchances

bowlhead99 wrote: »

I'm a former investor but no longer hold it having done some tweaks to my portfolio in recent years. Either my Mum or Dad still have it in their ISA which I help them look after. I preferred it to MedicX but they are merging as you probably know (causing the recent 'good run' mentioned by doe above, since that was announced bringing potential efficiencies).

As it is property-centric it will have some themes and risks in common with your other property vehicles but it is a different niche and has a different bag of sector-specific risks from funds that hold e.g. shopping centres/ retail parks, office space, warehouses and logistics, education, leisure etc etc. I mentioned Target Healthcare as one name to throw out there in an earlier post. What proportion of Tritax or F&C is invested in care homes? Not much if any? Why not add that too - yet another reasonably successful niche operator looking for a sustainable yield on a leveraged real estate portfolio...

If you are going to use property as a diversifier to mainstream equities and bonds (and there's no reason you shouldn't), then it makes sense to be properly diversified across opportunities within that asset class. However, even though PHP/ Medicx will be a fund with £2bn of investments, as mentioned it is a niche/specialist sub-sector. If you are targeting, say, 10% of your ISA in property, and you already have three funds in property, perhaps this fourth fund will only be a couple of percent of your ISA and somewhat less than a couple of percent of your wealth.

At small percentages, each fund has a relatively small impact on your wealth when it grows or shrinks by a few percent. At some point you might wonder whether you really need a fourth fund in property, a second infrastructure fund etc etc. It is certainly easier to monitor fewer holdings.

But, if you are doing lots of due diligence to decide which those funds should be and from time to time whether they are still appropriate given the opportunities and risks offered by all the other funds in the sector, and all the other sectors... you still need to evaluate funds that you don't end up buying, because niche funds don't have an easy benchmark other than their peers, which causes you to look at their peers. And if you look at them and like them why not buy them!

A valid answer is usually that you don't need to buy another fund for a token 1-2% of your portfolio because on its own it won't move the performance needle.

Thank you very much for the detailed reply, much appreciated and great points to ponder over.



Fair point on smaller percentages on the overall portfolio, I need to consider that. The 3 REIT's I hold at the moment make up around 7% at the moment of my overall S&S portfolio and I am aiming to bring property to the 10% mark so it makes sense that what you explained about adding the 4th that it would be a small overall percent and again even less on my total net worth.



I am planning on topping up my other REIT holdings (along with other areas of my portfolio) as well once the next tax year starts.



Your last point "A valid answer is usually that you don't need to buy another fund for a token 1-2% of your portfolio because on its own it won't move the performance needle." - this would be the case it seems for adding a 4th holding at this stage in property, so I won't jump in as such as there is room for me to keep adding to the 3 REIT's I have at present to at least bring the property up to the 10% level I would like to hit.



Thanks again, I read with interest as always and all great points to think about.

takesyourchances

I hold F&C Commerical Property IT along with a couple of other property IT's, I see it has dropped a fair bit in the last year and is on a large discount, I am thinking of topping it up (in line with other investments) and thinking this could be a good price to get in at and holding long term. Any thoughts on F&C property at the moment?


I am happy to collect the dividends and build the holding with no plans to sell.

ColdIron

I have FCPT and bought some more shares last month to restore my intended allocation. Most of the fall in share price seems to be due to a widening discount. According to the annual report the negative contributions come from a number of vacancies in some of their properties and Company Voluntary Arrangements

Going forward they plan to restructure to a UK REIT rather than a Guernsey trust due to changes in UK corporation tax which should be positive and make my self assessment slightly easier to complete

https://www.ftadviser.com/investments/2019/04/25/property-tax-rules-prompt-change-at-1-3bn-f-c-trust/

There is also a change of name due

• On 3 June 2019, if shareholders agree at the AGM, the company will become BMO Commercial Property Trust Limited. This brings it into line with many other former F&C trusts.

I use it for dividends and diversity and as long as the dividend holds up I'll worry about the absolute share price when I need to sell it, hopefully many years down the line

takesyourchances

ColdIron wrote: »

I have FCPT and bought some more shares last month to restore my intended allocation. Most of the fall in share price seems to be due to a widening discount. According to the annual report the negative contributions come from a number of vacancies in some of their properties and Company Voluntary Arrangements

Going forward they plan to restructure to a UK REIT rather than a Guernsey trust due to changes in UK corporation tax which should be positive and make my self assessment slightly easier to complete

https://www.ftadviser.com/investments/2019/04/25/property-tax-rules-prompt-change-at-1-3bn-f-c-trust/

There is also a change of name due

• On 3 June 2019, if shareholders agree at the AGM, the company will become BMO Commercial Property Trust Limited. This brings it into line with many other former F&C trusts.

I use it for dividends and diversity and as long as the dividend holds up I'll worry about the absolute share price when I need to sell it, hopefully many years down the line

Thanks for this information and the link, interesting reading and it seems positive indeed heading towards a REIT. with the UK corporation tax.



I read after you mentioned it about the negative contributions coming from a number of vacancies in some of their properties and Company Voluntary Arrangements.



Like you, I hold for the dividends which seem solid and plan to hold for many years to come and for diversity too, so the price down at the moment I saw it as an opportunity - today my FCPT absolute share price is at -17% which does not bother me - I will top this up along with Tritax Bigbox as part of my property allocation, I see they have planning permission for a new distribition centre. I like this niche sector with how shopping is evolving. Do you hold this IT?



http://www.morningstar.co.uk/uk/news/AN_1557994816239680700/tritax-big-box-secures-planning-permission-for-distribution-centre.aspx

ColdIron

No, FCPT is my only direct property trust although I hold it in my SIPP and a GIA

takesyourchances

ColdIron wrote: »

No, FCPT is my only direct property trust although I hold it in my SIPP and a GIA

I hold it in my ISA, I also have standard life property income as a 3rd property IT. I will top it up later in the year, I keep the 3 property IT''s in line.