Blue chip UK REITs are typically the largest listed REITs by market capitalisation in the UK, and are some of the best REITs in UK.
They are also members of the FTSE 100 index, which means they are among the most highly-rated and well-known companies in the United Kingdom. Which makes blue chip UK REITs a safe, reliable and good investment for income investors.
Blue chip REITs are also known to be relatively stable thanks in large part to their strong financial position and market leadership. This implies they’re less likely to fail in the event of a financial crisis, and have a higher chance of surviving tough economic times.
In this article, we’ll explore four Blue chip UK REITs which have a strong history of paying dividends to their shareholders, and they are expected to continue doing so in the future.
4 blue chip UK REITs you should know
| REIT | Ticker | Type | Market Cap (£) | Dividend Yield | Dividend Payout Ratio | Debt/Value | EPRA Cost Ratio |
|---|---|---|---|---|---|---|---|
| Segro | SGRO | Logistics, Industrial | 12,399,217,950.00 | 1.70% | 7.18% | 0.32 | 20.20% |
| Land Securities | LAND | Office, Retail | 5,003,632,462.00 | 5.42% | 31.52% | 0.62 | 26.40% |
| Unite Group | UTG | Student Accommodation | 4,616,972,822.00 | 1.93% | 25.73% | 0.42 | 38.80% |
| British Land | BLND | Retail | 4,223,176,369.00 | 4.80% | 21.21% | 0.46 | 24.20% |
1) Segro (SGRO)
The largest UK REIT is Segro (SGRO) with a market cap of £12.4b. It offers exposure to a portfolio of Urban and Big box warehouses in Europe with a combined value of £18.4b.
It benefited during the pandemic as it saw a surge in demand for extra storage space from retailers, due to the rise of online delivery and e-commerce. As the world moves on and faces new challenges in the global supply chain, Amazon (Segro’s biggest customer at 7%) declared that there is now too much warehouse space.
This alongside with the rise in interest rates globally hit Segro hard, bringing it down -22.8% since early May 2022. Its share price had hit a new 52-week low in early July 2022 but have rebounded slightly since.
Segro has a history of paying dividends and has increased its dividend payout since 2017 while keeping its payout ratio conservative. It was one of the few REITs that continued to increase its dividend payout through the pandemic. The company’s dividend yield was 1.7% at the point of writing.
That said, the current bearish macroeconomic conditions may continue to playout through the rest of 2022. Segro’s income may take a hit and this could affect its ability to continue increasing its dividends in the short term.
Looking forward, Segro remains well-positioned to continue benefiting from the growing e-commerce sector, despite the short-term supply chain issue. If you’re looking for a UK REIT with a strong business model and history of increasing dividends, you may want to take a look at Segro.
2) Land Securities (LAND)
Land Securities (LAND) is a diversified REIT with a portfolio of Central London offices, retail properties across UK and mixed development in urban neighbourhoods within London, Manchester and Cambridge.
You should note that as of 2022, 65% of LAND’s £12.0b portfolio consists of Central London with an occupancy rate of 91%. This suggests that LAND is mostly an office REIT.
During the pandemic, Land Securities suffered a drop in income as offices were emptied due to lockdowns. Hence, they had to cut their dividends payout during the pandemic in 2019. Their dividend payout has been recovering since, and at the point of writing, their dividend yield is about 5.42%.
As work is starting to shift back to office spaces, LAND has experienced good recovery in 2020 and 2021. However, they may not be out of the woods yet as interest rates have been rising significantly in 2022. This could dampen LAND’s performance in the coming months as the rising cost of capital would likely eat into LAND’s potential revenue and profits.
Another worrying sign is that LAND’s office vacant space remains high as of 1Q22:
Overall, LAND offers investors an easy way to gain exposure to Central London offices. If you’re bullish about the recovery of office spaces in the UK, you may want to look deeper into LAND’s portfolio and future direction before deciding if its for you.
3) Unite Group (UTG)
Unite Group owns a portfolio of student accommodation. The company has 172 properties across 25 university towns and cities in the United Kingdom, with a total of about 74,000 beds.
It was no surprise that Unite Group’s income took a hit in 2019 and 2020 when students were no longer staying in accommodations. They had to cut dividend distributions in the same years, but have recovered their dividends close to pre-pandemic levels by 2021. Currently, UTG offers a dividend yield of ~1.93%.
On top of recovering its revenues in 2021, UTG had reduced its Loan-to-Value from 34% to 29% with 90% of its existing debt hedged over the next 5.5 years. This could give it a buffer to navigate the treacherous rising interest rate environment.
Demand for student accommodation is also set to increase as applications for education in the UK are up 7% as compared to pre-pandemic levels for 2022/23. This is a good sign for Unite Group’s business as they are set to open up two developments in London and Bristol by September 2022.
Looking forward, Unite Group seems to be on the road to recovery as the world open up.
4) British Land (BLND)
British Land manages a portfolio of office campuses (64%), retail (33%) and logistics (3%) real estate with a total valuation of £10,467m in the UK.
Recovering from the pandemic, BLND had reported a +24.9% growth in their underlying profit in 31 Mar 2022, as compared to the previous year in 2021. They have also managed to increase their portfolio value while reducing their debt.
At the point of writing, BLND has a dividend yield of 4.8%. However, you should note that BLDN is down -24% over the past 5 years. You should do a deeper analysis into their future plans if you’re thinking of adding British Land to your portfolio.
Do these 4 blue chip UK REITs fit your portfolio?
To sum up, the four blue chip UK REITs that offer exposure to different real estate sectors are Segro, Land Securities, Unite Group and British Land.
Each of these REITs has a strong history of paying dividends to their shareholders and are expected to continue doing so in the future. If you’re an income investor searching for yield, these could be some of the best REITs in UK to consider.
