REIT stands for Real Estate Investment Trusts and resembles more like mutual funds. However, it operates and manages a portfolio of income-generating properties rather than stock or bonds. A REIT usually holds a portfolio of commercial properties like offices, shopping and hotels etc. that produces rental income. Investors subscribing shares of REITs are having two prime goals, one is receiving rental income in the form of dividends, and second is to get benefited from the property price appreciation.
There are two broader categories of REITs, one is equity REITs, and the second one is mortgage REITs. Equity REITs usually own large commercial properties and operates them. On the other hand, mortgage REITs own the debt provided to the properties developers and do not hold any commercial properties by themselves. They operate like a mutual fund business which own mortgages and collect income upon it.
Generally, REITs are supposed to distribute 90% of their rental income made to the shareholders in the form of dividends along with the potential for wealth creation. In largely low-interest environments, real estate investment trusts are lucrative bet for the yield investors.
In the United Kingdom, REITs are largely close-ended and publicly traded companies that give an opportunity to investors to enjoy tax-efficient investment exposure to property assets. The UK’s REIT regime is comparatively new against the longer established regimes in the United States and Australia; it was introduced on January 01, 2007. Amendments were brought into the primary REIT legislation, effective July 17, 2012, taking out several barriers to entry and further boosting property investment in Britain.
Post amendment that took place on July 17, 2012, several big UK property businesses got converted into the status of REIT, and many newly established REITs went for the Initial Public Offer (IPO). This has boosted the UK property sector, including the newly formed sub-sectors like warehouses (logistics) and student accommodation.
Through various stock filters, we have identified two REIT companies which have distributed decent dividends in the past and witnessed capital appreciation as well. At the current price as well, they are offering decent dividend yields for the yield investors.
Assura plc (LSE: AGR) is a Warrington, United Kingdom-headquartered Health Care real estate investment trust. The group is engaged in the development, investment and management of a portfolio of primary care medical centres in the United Kingdom.
The company’s market capitalisation as on August 27, 2019, stood at £1.64bn (before the market close), and it is a constituent of the FTSE 250 and FTSE 350 High Yields indices respectively. Shares of the Assura Plc got listed on January 28, 2015, on the London Stock Exchange main market. As per the FY19 Annual Report filed by the company, the number of properties in the company's portfolio stood at 563, with a total value of worth £1.96bn.
Institutional holding summary
Artemis Investment Management LLP, Resolution Capital Ltd., Schroder Investment Management Ltd., Invesco Asset Management Ltd. and Aberdeen Asset Managers Ltd. are some of the major institutional investors in the company. (Source: Thomson Reuters)
Trading Update: 1Q FY20
As on July 02, 2019, the company reported its trading update for the first quarter ended, June 30, 2019. The company reported that its development and strategic acquisition has strengthened during the 1Q of FY20, as the development of Darley Dale completed at the cost of £2.3mn and two other developments of Canterbury and St Leonards moved on site. Also, a total of 12 development at the site at the end were reported as of 1Q with a total development cost of £58mn.
During the period under consideration, the company completed two acquisitions at the cost of £5.5mn and 12 disposals were completed at a small premium to book value cash consideration of £17mn. At the end of 1Q FY20, the group's current portfolio comprised of 554 properties. An annualised rent roll of the company at the end of the first quarter of the financial year 2020 stood at £102.1mn post disposals. The group’s gross debt at the end of 1Q FY20 stood at £730mn, with a cash position of £47.5mn.
1-Yr. Comparative performance (Assura vs FTSE, 350). Source: Thomson Reuters
While writing (on August 27, 2019 before the market close, at 10:38 AM GMT), shares of the Assura Plc were quoting at GBX 67.85 and declined marginally against the previous day closing price level. In the past 52week, shares of the AGR have registered a high of GBX 70.0 and a low of GBX 52.40 respectively.
As it is clearly visible in the price chart, that shares of AGR have beaten FTSE 350 return on a YoY basis, as the stock has delivered a price return of 21.6% in the past one year, whereas the benchmark has handed negative return of 7.33%. Also, on a YTD basis, the stock was up by 29.17%.
Also, at the current trading level, the stock was quoting substantially above its 200-day, 60-day and 30-day simple moving average prices, which is a positive technical measure.
After a decent surge in the stock price over the past one year, its shares were offering a dividend yield of 3.97%, which is a decent measure from a yield investor standpoint.
Valuation Metrics of Assura Plc
Source: London Stock Exchange
In the above charts, it is clearly visible that, at the closing price of August 23, 2019, shares of the Assura Plc were available at the cheaper valuation against the industry average, except in terms of Price-to-Book Value. From the PE standpoint, shares were available at a lower valuation as its PE (x) stood at 18.5x against the industry average PE multiple of 28.2x and also in terms of EV/EBITDA multiple, share of the Assura Plc were available at the lower valuation at 34.7x against the industry average EV/EBITDA multiple of 36x. However, in terms of Price-to-Book Value multiple, the stock was quoting at a premium at 1.2x against the industry average P/BV multiple of 0.8x.
Net Debt to Equity, Dividend Pay-out and Return on Equity Analysis of Assura Plc
Source: London Stock Exchange
Assura Plc has a relatively higher return on equity against the industry average. The company's ROE stood at 6.6% whereas Industry average ROE stood substantially below at 2.9%. However, the company has marginally higher Net Debt to Equity at 0.5x against the industry average of 0.4x and the comparatively lower pay-out ratio at 75.4%.
Big Yellow Group Plc
Big Yellow Group Plc (BYG), operating in Surrey, London, Bagshot and South East, is a real estate investment trust company (REIT) of UK, mainly engaged into storage. The company for homes and businesses provide self-storage solutions, which varies in the range of 10 sq ft to 400 sq ft, it also deals into rent and offers available large warehouse space and industrial units.
The company's market capitalisation stood at £1.72bn as on August 27, 2019 (before the market close). Its shares got listed on June-07-2012 on the main market of the London Stock Exchange for trading. The group is a constituent of the FTSE 350 index.
Institutional holding summary
Cohen & Steers Capital Management, Inc., Merian Global Investors (UK) Ltd., BlackRock Investment Management (UK) Ltd., Fidelity Management & Research Co. and The Vanguard Group, Inc. are the major institutional shareholders in the company. (Source: Thomson Reuters)
As on July 19, 2019, the company reported its trading update for the first quarter ended June 30, 2019. During the period under consideration, the group’s store maximum lettable area increased by 1.1% to 4,684,000, its closing occupancy improved by 0.6 percentage points to 84% and on a like-for-like basis, closing occupancy increased by 1.8 percentage points to 85.1%. The group’s revenues during the period under review were up by 3.7% to £31.1mn from £30.0mn recorded in the year-ago period and on a like-for-like basis, the company’s revenue increased by 4.4% to £30.9mn. Average achieved net rent per sq ft was up by 1.6% to £27.26 on a YoY basis, and closing net achieved rent per sq ft up by 1.5% to £27.39 against the year-ago period.
Stock Performance and Analysis
1-Yr. Comparative performance (BYG vs FTSE 350) Source: Thomson Reuters
While writing (on August 27, 2019 at 11:47 AM GMT, before the market close), shares of the BYG were quoting 0.68% higher at GBX 1,037.0, from its previous closing. In the year-ago period, shares of the company have registered a 52week high of GBX 1,077.0 and a 52-week low of GBX 834.0 respectively, and at the current trading level, the stock was hovering close to its 52 weeks high price level.
In the above comparative chart, it is clearly visible that, shares of the Big Yellow Group Plc have performed substantially better than the benchmark FTSE 350 performance in the year-ago period. As on a YoY basis, the stock was up by 10.26%, whereas the broader benchmark index was down by 7.24% during the same period.
Also, at the current trading level, shares of the company were quoting significantly above its 200-day and 60-day long -term moving average prices.
After a decent rally in the stock price against the benchmark index, the dividend yield of the company stood at 3.22%, which is a positive measure from an income investors standpoint.