Anthony Speciale Stock Market Analyst

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UK REITs to Keep on Your Radar!

Hi guys! I’m Tim Melvin, and welcome to A Better Way to Wealth.

Early this week, I was reading over the newest report from the real estate consulting firm Knight Frank, and they were talking about global real estate markets.

As I looked through the report, it became obvious that the United Kingdom real estate market is poised for a fantastic 2022 and beyond.

All the fundamentals of the economy and the commercial real estate market in the UK are really setting up for great things to happen.

Remember, the UK has been running about a year behind the United States in terms of economic recovery and market recoveries. 

Look at what US REITs have done over the last year… They’ve really had tremendous performance! In fact, they’ve been one of the leading industry groups. 

Now, this should be happening in the UK, but it’s not.

Somebody forgot to tell the real estate investments trusts over in the UK that things are looking up and the commercial real estate is going to do really well, because they’re actually trading at discounts to their net asset value and nowhere near the valuation levels that REITs are seeing here in the US.

So, there’s a couple UK REITs that trade here in the United States on the over-the-counter market that are worth taking a look at because the total return potential is actually enormous.

British Land Company, Plc

First up is British Land Company, Plc (BTLCY).

BTLCY owns three major office campuses in the London area, some standalone towers, and a bunch of retail properties. 

Recently, they’ve begun to invest in urban logistics. That’s warehouses, so it’s going to be a pretty massive opportunity.

They’ve got a development program called Canada Water, which is a London opportunity zone area.

They’re going to put up a big mixed-use development of 3,000 homes that will be used as office space, retail and leisure space as well as medical and education facilities.

Their retail facilities, like shopping malls and open-air shopping centers, have a 95% occupancy rate, which is absolutely fantastic for the retail business. 

Keep in mind, COVID is going to end, and London is going to come roaring back with the rest of the UK.

The retail business has managed to come through with a 95% occupancy rate, which is going to firm up even further, and rent will increase when this pandemic is behind us.

BTLCY has a very attractive portfolio of properties in the UK and is heavily focused on London, which happens to be one of the most vibrant cities in the world with a growing e-commerce business.

Folks, this thing is sitting here trading at 82% of tangible book value. If this was a US REIT, it would probably be trading at two times book value… at least one and a half.

This thing is worth probably twice what it is trading for right now, and the growth outlook for the United Kingdom property market is really strong, meaning you could see massive total returns out of BTLCY over the next several years.

And, while you wait, with the dividend yield right around 3%, you’re going to collect some cash far in excess of what the two-, 10- or even 30-year Treasury is going to pay you right now!

So, you’re going to collect some cash, and there’s big upside as the UK economy continues to recover 

LondonMetric Property Plc 

Next up is a pretty interesting REIT known as LondonMetric Property Plc (LNSPF).

This is a smaller REIT, so be sure you use a limit order, and don’t get carried away with orders.

They are currently one of the largest portfolios of logistic property. Remember, when we say logistics properties, we’re talking about warehouses and shipping centers that will see massive benefits from the rise of e-commerce. 

In fact, Amazon is one of their largest tenants in the London area!

They’ve really converted… They had office properties before, some retail spaces and some nursing homes, and they’re converting that over to really focus on that logistics supply chain and e-commerce opportunity in the London area.

Again, the pandemic’s going to end someday, all of this is going to go away, there’s going to be a huge recovery and e-commerce is going to continue to rise.

Keep in mind, e-commerce was accelerated by about a decade by the pandemic.

Even people that had no intention of ever shopping online have found out that shopping online is really easy, making deliveries right to your front door.

As such, this industry is going to continue to grow and become a bigger part of the retail landscape, and LNSPF is going to be a major beneficiary of this growth.

Why? Because they own a lot of the warehouse space that’s going to be involved in getting products from the producer to the consumers doorstep.

Warehouses are big business, and this is a great way to invest in REIT industrial properties in the UK right now.

LNSPF trades at a slight premium to book value, but you compare that to US industrial REITs that are trading at two, three and even four times book value, and you can see there is an opportunity for massive upside here.

Add that to the fact that there’s right around a 3% dividend and we are able to collect cash while we wait for the opportunity to play out and to start to appreciate up to more reasonable levels, and we have a situation that I consider A Better Way to Wealth.