2 UK REITs to buy now for huge income

UK REITs are a high-yield investment. Tom Rodgers thinks the risks are worth it.

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UK REITS, or real estate investment trusts, invest in UK real estate. And there are two I think could make me a lot of money.

Real estate got hammered by the pandemic. But with the world finally opening up again, I think there’s cash to be made investing here.

UK REIT number one

AEW UK REIT (LSE:AEWU) invests in freehold and leasehold commercial properties across the UK. They include offices, high street retail properties, and industrial warehouses.

Now, you might be thinking that offices and retail are a dying breed. Not quite, in my estimation. While brick and mortar retail has lost market share to online, people still want physical stores. And while offices aren’t the draw they used to be with more working from home, not every company is going fully remote just yet.  

I expect we will see three or four days a week in the office as the UK recovers,” says Paul Swinney, director of research at the Centre for Cities thinktank.

There is one downside to note for this UK REIT. Full-year 2021 earnings are expected to fall to £16m, before climbing back up to £16.8m in 2022. So the share price could take a hit in the near term.

But the dividend yield AEW plans to pay over those two years will jump from 6.93% in 2020 up to a whopping 8.53%. That’s some serious cash returned to shareholders. Of course, dividends are never guaranteed. Earnings per share are expected to lift from 2.4p per share in 2020 to 6.19p in 2021, and 7.31p in 2022.

A forward price-t0-earnings ratio of 12.5 makes AEW UK REIT cheap, for me. And we heard on 15 June 2021 it won a court battle to recover £1.2m in unpaid rent. I’d buy it now for the dividends alone.

Custody battle

The second UK REIT I’d buy today for big income is Custodian REIT (LSE: CREI). Again, the figures stack up nicely for some serious future dividend yield.

A forward P/E of 15 is about average. However, I’m looking at this UK REIT for its expected 180% earnings per share growth next year. It also has a conservative net gearing at 32%, so I know it’s not overly indebted.

Today’s yield is decent enough at 3.66%. But 2022 dividends are slated to come in at 5.69%, climbing to over 6% the following year. Net profit is forecast to recover strongly from just over £2m in FY2021 to £28m in FY2022. The numbers also show that investment giant Blackrock increased its holding in May 2021.

There’s risk here, of course. Operating margins have been thinned out in recent years. And there’s obvious risk that Custodian REIT might not meet its ambitious targets for profit growth. That would hurt my investment badly.

However, I think this UK REIT is a bargain now based on what’s to come. And I do like laying down cash today, and waiting for every other investor to reach the same decision. I get my dividends, and I may get capital gains from share price appreciation, too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tom Rodgers has no position in the shares mentioned. The Motley Fool UK has recommended Custodian REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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