Is the REIT revival at last upon us?

According to Kaylie Pferten, acquisitions, investments, and rental growth can increase returns for more enterprising REITs

Despite all the economic pessimism, entrepreneurial real estate investment trusts (REITs) are capitalizing on the quiet recovery of the UK real estate market.

According to Michael Morris of Picton Property Income (LSE: PCTN), "last year saw a positive total return of 6.7 percent across all sectors, led by 7.8 percent for industrial and 8.9 percent for retail." Although offices are still having difficulties, returns were still favorable. Because of the limited supply, rental growth was also positive in every sector. The "

The 46 assets in the 405 million REIT's portfolio, which is primarily located in the southern half of the United Kingdom, are worth 699 million. Twelve percent work in retail and leisure (including out-of-town retail parks), twenty-one percent in offices, and two thirds in industrial-warehouse logistics.

The article goes on below.

Take a look at six free BFIA issues now.

Gain unmatched financial knowledge, analysis, and professional advice that will benefit you.

Start your trial. According to Morris, the portfolio yield is currently 4.9 percent, but as current leases expire, there is a chance that rents will increase, raising the yield to 7.4 percent. Additionally, 17% of the portfolio is unoccupied while buildings are renovated to allow for "meaningful" rent increases.

Concentrate on smaller REITs.

According to Richard Shepherd-Cross of the 385 million Custodian Property Income (LSE: CREI), "the direct property market has been witnessing a recovery since September 2024 with valuations improving quarter on quarter driven by consistent rental growth across all real-estate sectors in the UK." "We currently see a lot of potential in the market. A "

A much wider variety of regional real estate makes up Custodian's 625 million portfolio: 43 percent industrial, 22 percent retail warehouse, 14 percent offices, 7 percent high-street retail, and 14 percent other. These, at 175 properties, are generally smaller than Picton's. Retail parks and industrial logistics saw the biggest increases in rental growth last year, which was 2.5 percent.

Institutional investors cannot purchase the properties owned by the custodian. This is the sector in which the majority of family-run real estate businesses in Britain operate, a kind of investor who frequently faces difficulties over time. Family members have different financial needs, the portfolio is small, management takes a lot of time, costly expertise must be acquired, and there are tax issues.

Thus, Custodian is focusing on agreements with families who wish to leave. The family members receive shares in a liquid, diversified, and expertly managed vehicle by accepting part or all of their payment as a tax-free share-for-share exchange at net asset value (NAV). The REIT has completed three transactions totaling £66 million thus far, and it is seeking more. According to Shepherd-Cross, Custodian is "actively pursuing a number of them" out of "tens of dozens" of family-owned real estate businesses.

Good yields.

Up until the recent wider market setback, Picton has been doing remarkably well. Custodian gained 12% in 2025, but it is down 5% this year. The shares increased 16% last year and are still up 7% in 2026. However, neither is pricey: Custodian is trading at a 20% discount to its end-December NAV, while Picton is trading at a 23% discount. Both provide an appealing yield of 4.8% and 7.6%, respectively, which should rise further.

Additionally, both have sound balance sheets. Despite investing £6.5 million last year and spending £25 million on buybacks at an average 25% discount to NAV, Picton has a loan-to-value ratio of 23%. It has an average maturity date of six years and a weighted average interest rate of 3.7%. Custodian has an average cost of debt of 4% and a loan-to-value ratio of 26%. Of these, 70% are fixed at an average rate of 3.3% with an average term of five years.

Given that the board recently initiated a strategic review and has received several proposals, Picton might leave the market earlier than it should. However, it is evident that both it and Custodian have strong prospects on their own, fueled by acquisitions, investments, and rental growth.