Several of my friends have recently asked me if they should invest in peer-to-peer (P2P) lending as a way to boost their investment portfolios. In a P2P investment, a lender would receive interest and get the initial investment money back when the loan is repaid. I have encouraged my friends to do further diligence, and possibly talk to a financial advisor to see if it may be appropriate for their own circumstances. For example, in 2019, a P2P lender went into administration, leaving both investors and creditors in a state of limbo. Therefore, it would be important to fully appreciate the potential risk/return profile of this type of investment.
Although P2P may be suitable for some investors, I am more interested in buying into publicly-traded real estate investment trusts (REITs) for a long-term retirement portfolio. Here is why.
What are REITs?
The REIT regime was introduced in the UK in 2007. These real estate investment trusts own and manage property on behalf of shareholders. They can own residential property either and/or a portfolio of commercial real estate such as retail outlets, office buildings, hotels or warehouses.
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Therefore, I regard a REIT as a tool that enables me to own a wide range of property assets without buying property myself. In other words, my money would be pooled in the fund with other people’s investments. I find this approach rather appealing as I would not need to raise a big deposit and get a mortgage for a buy-to-let property.
There are strict regulations governing publicly-listed REITs in the UK. These qualifying conditions are determined by HMRC and can be found on its website. For example, they are required to distribute at least 90% of profits, usually in the form of dividends. The company also has to be a tax resident in the UK.
According to the website of the London Stock Exchange (LSE) “there are over 50 REITs with a market capitalisation of over $70bn listed” on the exchange. Several of these investments trusts that have proved popular with many investors include Derwent London, Hammerson, Landsec, Segro, Tritax Big Box, and Urban Logistics.
Today I would like to take a closer look at another REIT that is part of the FTSE 100 index.
British Land
British Land (LSE:BLND) shares offer exposure and easy access to the UK property market. Its portfolio is split roughly equally between retail sites on one side of the equation and offices and residential sites on the other. The stock, which currently hovers around 587p, offers a robust dividend yield of 5.4%.
Over the past few years, like many other REITs, the group has been beset by fears over Brexit as well as the long-predicted death of bricks-and-mortar retail.
In November 2019, management released half-year trading results. Its net asset value (NAV) per share suffered a 5.4% drop as its NAV fell to 856p. Many of our readers would be familiar with the fact that analysts determine the value of the REIT by the value of the real estate the REIT owns.
BLND shares are now priced at a discount to the value of the real assets of the business, trading at a price-to-book (P/B) ratio of 0.69. Buying securities that trade at a discount to book value is somewhat like buying a £1 coin for less than it is worth, I feel.
