Investors are still out (and other REITs…)

AAnother disappointing result for DIY corporate financiers this week. After we organized the “Fair Sale” about ourselves almost two years ago, Secure housing income (LSE: RESI) has announced that almost all of its assets might be acquired by the Public Housing REIT (LSE: SOHO).

SOHO will receive RESI’s retirement home portfolio, with the rest of RESI’s assets going to a currently unnamed bidder.

The largely paper-based deal values ​​RESI at around 57 pence per share, depending on the performance of SOHO’s share price.

There are a couple of moving parts to the deal. However, it’s value noting that RESI’s price was around 60 pence per share in October 2024 when the corporate first announced its dissolution. Therefore, this was hardly an eye-popping return for anyone who bought into the REIT ^{hoping so as to add value.}

In addition, RESI’s tangible NAV ^{was closer to 80p at the top of 2024, in comparison with around 63p on the last count. RESI did sell one other portion of its portfolio in early 2025, nevertheless it was all to pay down debt.}

So the corporate’s managers managed a shrinking asset base that ultimately sold at a still significant discount to net asset value.

The total return situation is not quite as daunting. RESI yields are over 7%, so when dividends are taken under consideration, investors were no less than paid to attend for his or her mediocre result.

RESI’s managers would little doubt also emphasize that shareholders who retain their SOHO shares after the sale closes will proceed to have an interest in RESI’s attractive (and discounted) assets through the newly enlarged parent company.

Still, that is hardly the form of final result Joel Greenblatt touted in his classic book when he explained how extraordinary investors can benefit from corporate activities in the general public markets.

REIT petite

I wrote concerning the opportunity at RESI for January 2025. I also highlighted this in the identical post Abrdn European Logistics Income (LSE:ASLI) was also on the block.

The ASLI result was barely higher. Once the drawn-out endgame is over, shareholders should ultimately see a return of around 20% from memory.

(Surely we will all be completely satisfied at any time when a replica of the dreaded nickname “Abrdn” is put out of its misery!)

But here too, the liquidation of ASLI didn’t release much value. And that has been the trend on this REIT consolidation that began after the yield-driven decline in 2022.

Savings offers: Everything has to go

AJ Bell recently published a practical summary of all this REIT sales and merger activity and the premiums achieved – or otherwise:

Source: Corporate Accounts / AJ Bell

While these moves resulted in some worthwhile increases in stock prices, just about all resulted in assets being withdrawn at a big discount to net asset value. Which in hindsight I do not think is surprising provided that even the most important and most liquid UK REITs are still trading at huge discounts.

This suggests two things.

Firstly, there aren’t many buyers for this real estate asset – neither in the general public nor within the private sector.

Second, neither the market nor the businesses themselves consider these business real estate NAVs to be anywhere near spot on. They are greater than The pirate’s code says soGuidelines.

Clearly, there remains to be a variety of fear and uncertainty – six years after Covid called the longer term of economic real estate into query, three years after rate of interest hikes wreaked havoc on the economy, and a few years where AI has left everyone already nervous about what the longer term of individuals at work really looks like.

The REIT stuff

When a sector is so unloved, it’s hard to keep in mind that it wasn’t at all times that way. However, the status of the actual estate sector as a bogeyman on the stock market will not be a law of nature.

In the Nineteen Nineties and early 2000s, real estate was considered a cross between bonds and stocks.

The playing field? You profit from the attractive returns of bonds and a few capital gains from stocks, plus a dose of inflation protection. Back then, even passive investors recognized the worth of adding REIT exposure to their portfolios. They hoped for a rather lower-risk additional diversification.

Real estate developers prospered, as did the more stable landlords. Money was low cost, and as global capital sought more sensitive returns after the dot-com crash, prestigious skyscrapers emerged on this planet’s major cities, minting thousands and thousands.

It’s hard to consider today, but many UK REITs and blue chip property developers actually used to trade at a premium to net asset value!

Confident investors expected valuation gains and better returns and were completely satisfied to exceed them.

Bargain Building

However, this ended with the financial crisis and the asset class never recovered. There are large discounts to net asset value for business real estate REITs.

Here’s how the UK’s reserve currencies trade relative to their assets:

Source: Company reports / prices as of June 18, 2026

Imagine walking around the town and seeing huge 30% discount labels on the facades of office buildings and shopping centers. That’s mainly what you get with most REITs today, large and small. Assets value £10 on the market for £7 or less.

LondonMetric – which drove much of the sector consolidation we began with – does have a smaller discount. This is partly attributable to the stronger balance sheet and stricter tenant conditions.

But I might also argue that LondonMetric won over investors by telling a greater story. That’s what the remaining of the REITs must do. (And ideally, after all, that it’s true!)

REIT-sized exposure

Even my co-blogger, , recently informed me about REITs.

Apparently I had convinced TA that he should keep it in our portfolio when he disliked the asset class.

It was a couple of years ago, but he hadn’t forgotten!

The disillusionment with REITs is driven more by a review of the historical record than by the sector’s recent troubles. Still, I’m wondering if there can be as much thought for REITs that may be a multiple package like semiconductor stocks?

I also consider that I suggested keeping it more out of my preference to not mess an excessive amount of with a model portfolio, reasonably than any belief that the asset class was low cost.

Maybe that is one other signal?

Most things about investing are cyclical. When even die-hard passive investors are able to throw within the towel, the underside could also be near.

Most major REITs have been doing significantly better recently. Rents are rising and even office space valuations are stabilizing, if not increasing. However, more for the upper class.

The surviving players have also weathered a once-in-a-generation rate of interest shock.

Real estate investment vehicles invariably involve high levels of debt. So when rates of interest skyrocketed, not only did their dividend payouts turn into relatively less attractive, putting pressure on their tenants, but in addition they put a strain on their very own balance sheets.

However, during the last three years, debt has been refinanced and restructured, and in my view the foremost REITs at the moment are looking pretty solid. They have even began investing in recent developments.

Improving money flow provides generous dividend yields of 4-7% for the REITs in my table. I might say that is attractive as there’s an inherent ability to reply to inflation (in comparison with vanilla bonds) and – ultimately – the prospect of more capital growth.

Priced for imperfection

While I’ll retain my shares in SOHO when the RESI deal closes, I feel I’m more inclined to try the stronger REITs reasonably than bet again on the little guys getting acquired.

In retrospect, it was optimistic to expect that the smaller prey can be caught near the NAV when the big predators themselves were still limping badly.

Industry consolidation was needed – too many sub-scale REITs were launched within the era of near-zero rates of interest. But investors aren’t rewarded for the extra risks.

In contrast, the big REITs will hopefully proceed to see high dividends and eventually further share price growth. And there’s the prospect of a double win as property valuations rise, at the same time as discounts narrow to match rising net asset values.

Of course, there are risks – from the dire state of the UK economy and politics, to the necessity to modernize old offices to fulfill environmental standards, to AI threatening to go away employees unable to earn a living from home endlessly.

But the discounts likely reflect a lot of these threats, as underlying metrics at the moment are improving. And with Hormuz oil flows expected to extend again and inflation risks hopefully contained, there could even be further rate of interest cuts.

This would really help increase the appeal of a property. Just ask Donald Trump!