REIT's in a drawdown account


#1

Would British Land be generally considered a reasonable choice for reliable income in a balanced and diversified (5%) drawdown account ? I would appreciate thoughts and opinions please. Thanks.


#2

The British Land yield won’t meet your 5% drawdown @kevdraw64 but at circa 4.4% it’s not far off. Dividend growth over the past 5yrs has been anaemic and negligible though. On the plus side its sitting on a stonking 34% discount to NAV, with demand for commercial property still strong despite Brexit - so maybe not a bad entry point.

I think commercial property investing is made for income investors such as yourself @kevdraw64. The thing to watch from a risk perspective is the loan-to-value, which is coming down at British Land following asset sales of just under £1 billion, though some of that has been used for share buy-backs.


#3

Other options in commercial property REITs could include AEW UK REIT plc (AEWU) which yields about 8.0% and Regional REIT Ltd (RGL) which yields about 7.5%.


#4

A lot of BL holdings are major retail centres and London offices. Neither are flavor of the momentn the former because of the move to online retail and the latter because of the likely impact of Brexit on London. As a result BL shares trade on a significant discount to the (backwards looking) valuation of their assets. In addition they have cautiously cut their development programme and debt.

In the short term the biggest threat will be if property yields soften. That is possibly in the price. In the longer term you need to ask yourself what you believe the future holds for London & the retail sector.


#5

I have held Regional REIT since it IP’d @andrew-smith because it has an experienced team with skin in the game, and good past track record in managing regional property. The yield is fantastic, and whilst it is probably higher risk than a number of other property funds, I take some comfort that the management have a large stake and will be loathe to lose their own money.


#6

I would rate BLND has being a higher risk than the types of REITs which come from an investment trust/company background because property development forms part of its business. A recession could mean that the developments are either mothballed or under-utilised upon completion, so they don’t begin to generate rental income when expected, yet there are still costs to be covered. This is in addition to voids reducing the rental income from the current portfolio - a potential issue for all typle property-holding funds.

So how diversified is ‘diversified’? i.e. what percentage of the total drawdown income would BLND generate? e.g. if the total account income generated was £1000 of which £100 was from a holding in BLND then it would be generating 10% of the income. Then the question is what would that do to your requirements/circumstaces if the £100 was cut or eliminated? And the answer might be swayed by whether the amount to be withdrawn is £800 or £950.

(This probably demonstrates that I tend to like a certain amount of redundancy - so long is it’s the right type of redundancy!)


#7

Taken as a factor in isolation that must be right. But if you take into account the number of pre-lets they have secured and the relative low level of current gearing I worry more about companies with loads of expensive debt and that includes some of the conventional investment trusts. For what it is worth my pick is UK Commercial Property - mostly stuff outside of London, not too much retail, and low debt.