Commercial properties can offer great advantages to investors, but there are also many responsibilities to consider. Finding commercial tenants is never as easy as finding residential ones, and in many cases, it may require specific technical expertise. Your obligations to commercial tenants will also differ from residential ones — for instance, business tenants normally have rights of security of tenure under the Landlord and Tenant Act (1954).

REITs

Keeping this in mind, investing in a real estate investment trust (REIT) rather than buying a physical property might be a better investment for you. REITs can offer returns comparable to those of physical properties, yet they are relatively hassle-free and offer the benefits of diversification. Shares in REITs are also more liquid, enabling you to cash-out of your investments much more easily.

For investors looking for broad exposure to the UK commercial property market, British Land (LSE: BLND) is worth a closer look. The company, which invests in a mix of high quality retail assets and campus-focused London offices, currently trades at a 36% discount to its net asset value (NAV). As such, prospective investors have the opportunity to pick up shares in a prime commercial property portfolio for significantly less than the sum of its parts.

Dividend yield

Another advantage of British Land’s low valuation for prospective investors is the effect that has had on its dividend yield. The yield, which is inversely related to price, has risen substantially from a five-year historical average of 4% to 4.9% now. And looking ahead, shares in British Land offer a forward dividend yield of 5.1%, with City analysts expecting dividends per share will rise 3% this year, to 31p.

Those tempted by its high yield should, however, be prepared for heightened volatility in the short- to medium-term. Sluggish UK economic growth has weighed heavily on valuations, and nobody yet knows for sure what kind of environment property markets will end up facing in the possible event of a ‘hard’ Brexit.

Regeneration

Elsewhere, U and I Group (LSE: UAI) is another stock worthy of consideration. Although not technically a REIT, the regeneration-focused property company offers strong growth potential on the back of its broad and deep pipeline of developments.

In cities ranging from London, Manchester and Dublin, it has a pipeline of existing projects with a gross development value in excess of £7bn, against the company’s NAV of just under £380m. This includes its partnership in the £1.1bn urban regeneration project in Mayfield, Manchester, joint ventures and a mix of public-private partnership (PPP) investments. 

Demonstrating significant progress on the re-positioning of its investment portfolio, development and trading gains last year totalled £68.3m. Looking ahead, management expects gains to be slightly lower going forward, with anticipated returns averaging £50m or more over the next three years.

Trading at a forward P/E of 13.5 and offering a prospective dividend yield of 6.1%, value investors should keep an eye on U+I shares.

The post Forget buy-to-let! Consider these commercial property REITs for 5%+ yields appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended British Land Co. 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.

Urban vibe

Specialist regeneration and property developer U+I Group (LSE: UAI) manages a £6bn portfolio of mixed-use urban regeneration projects in London, Manchester and Dublin. The residential property market may be wobbling at the moment but right now U+I = growth, its share price up 16% in three months. The company is bristling with potential.

It is a company with a social dimension too as it aims to transform “undervalued” parts of towns and cities into thriving communities. Full-year results published in April showed four new large-scale Public Private Partnership wins, adding £1.5bn of gross development value to the company’s portfolio. 

Do your sums

The group was recently appointed to run the £850m Mayfield Depot redevelopment in Manchester, building on earlier high-profile successes include Paddington Central, The Old Vinyl Factory and The Deptford Project in London. Mixed-use urban regeneration is the big thing these days and U+I has shown flair and imagination. But should you invest in it?

Investors cannot expect a smooth ride from a company valued at just £236m and working on a small number of large projects. Erratic revenues mean that earnings per share (EPS) fell a whopping 61% in the year to 28 February 2017, but are then forecast to rise 246%, before going on to slump 37%.

However, there is plenty to tempt. Management reckons it is on track to deliver a 12% post-tax total annual return in the next three years. Today’s valuation of 28 times earnings is forecast to plunge to just eight times, while the 3.1% dividend yield is expected to hit 6.3%, then 8.2%, over the next couple of years. There is an opportunity here, if you thinks U+I’s sums add up.

Country squires

Residential developer and regeneration partner Countryside Properties (LSE: CSP) aims to build homes of “character and quality” across the UK, and its recent share price performance has demonstrated both of those attributes, rising more than 40% in the last three months alone. This £1.47bn company is a much larger entity than U+I and should offer more stable returns, although with Nationwide showing house prices falling for three consecutive months, and housing analysts warning of resurgent negative equity, nothing is certain. 

Countryside’s recent impressive half-year results showed housing completions up 31% to 1,437, and adjusted operating profits up 39% to £70.4m. Its partnerships division, which works with local authorities and housing associations, posted a particularly strong performance, with adjusted operating profit up 66% to £38.5m. Management’s decision to focus on the middle of the private housing market appears to be paying off as well, amid signs the top end is slowing fastest right now.

Home front

The company enters the second half of the year with 81 operational sites and a record private forward order book. City analysts are optimistic, pencilling-in rapid EPS growth of 66% in the year to 30 September, followed by another 27% next time. This should trim today’s valuation of 20.21 times earnings to around 12.1, while the yield is expected to climb to 3.2% in the next couple of years. The only thing that can stop Countryside now is a house price crash.

The post These 2 exciting growth stocks have further to go appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.