Podcast Summary: Merryn Talks Money

Episode: REITs Explained: How Real Estate Investment Trusts Work and What Moves Their Prices

Date: February 18, 2026
Host: Merryn Somerset Webb (MSW)
Guests: John Stepek (JS), Jack Sidders (Bloomberg Real Estate Expert)

Overview

This episode delivers an in-depth and accessible guide to Real Estate Investment Trusts (REITs): what they are, how they function, and what drives their performance, especially within the UK market. Host Merryn Somerset Webb, together with regular co-host John Stepek, interrogates real estate expert Jack Sidders on the intricacies, risks, and opportunities found within REITs, using sector-specific examples and busting myths about commercial property investing.

Key Discussion Points and Insights

1. What Is a REIT? (04:41 – 06:22)

• Definition & Purpose:
  REITs are listed investment vehicles primarily focused on property portfolios (rental business and development business), allowing ordinary investors access to a diversified basket of real estate assets while enjoying liquidity and tax efficiency.
• Tax Advantage:
  “As long as they pay out 90% of the income they receive from their property every year, they don't have to pay corporation tax.”
  — MSW (05:58)
• Accessibility:
  Investors can buy shares in REITs for exposure to sectors like commercial or residential, instead of buying whole properties.
• Stock Market Vs. Private Real Estate:
  While REITs offer exposure to real estate, their prices are subject to equity market volatility, which can be very different from direct real estate market movements.

2. Types and Sectors of REITs (07:11 – 09:47)

• Diversity:
  REITs have expanded into subsectors such as residential, commercial, healthcare, data centers, self-storage, student accommodation, and more over the last twenty years.
• Sector Evolution:
  “It always used to be the case that most of the REITs liked to specialise... Now...you've got this huge diversity of subsectors.”
  — Jack Sidders (09:16)
• Strategic Shift:
  Some REITs transition between property types (e.g., moving from retail to warehouses) in response to structural market changes or investor demand.

3. What Drives REIT Performance and Pricing? (09:47 – 15:14)

• Discounts to Net Asset Value (NAV):
  UK REITs are trading at around a 20% discount to their NAV (as per EPRA), worse than historical averages but improved from previous years.
• “REITs are vulnerable to forces beyond their control. Right now, discounts of different sectors are trading at, there's a big variation. So Office is very unloved, Resi is actually also quite unloved. But the warehouse landlords do much better.”
  — JS (11:13)
• Key Drivers of Discounts:
  • Scale: Smaller firms have higher proportional costs, less liquidity, and less attention from global investors.
    • “In order for the UK to get over this structural discount... they really need is scale.” — JS (13:31)
  • Interest Rates: REITs are highly sensitive; rising rates push down property values and thus REIT share prices.
    • “When interest rates rise, the required yield on real estate rises. When the yield rises, the value falls.” — JS (14:35)
  • Market sentiment and sector-specific shifts (e.g., retail decline, flexible office demand, premium for warehouses).

4. Supply, Demand, and Potential Tailwinds (15:14 – 17:19)

• Construction Lull:
  Due to events like Brexit, COVID, and construction cost inflation, there's been very little new real estate supply, especially in London offices, leading to rising rents for the best properties.
• Recovery Prospects:
  With interest rates possibly set to fall and low supply, some REITs might enter a “sweet spot” for performance, yet investor sentiment has been slow to catch up.

5. Consolidation, M&A, and Private Equity Takeovers (20:28 – 22:15)

• Recent Activity:
  Private equity (notably Blackstone) snapped up REITs at large discounts, a trend shifting to more peer-to-peer consolidation as REITs seek scale.
  • “More recently... we've actually seen much more peer to peer consolidation... we've seen a lot of consolidation there.” — JS (20:35)
• Notable Example:
  A recent high-drama takeover battle in the healthcare real estate space saw investors opt for a merger over a private buyout, perhaps signaling renewed faith in public markets.

6. Interest Rates, Inflation, and Sector Resilience (22:15 – 25:04)

• REITs as “Bond-Like” Investments:
  Their payouts and property values are linked to interest and inflation rates but offer some inflation protection through rental income.
• Main Risks:
  Recession and major sectoral shifts are bigger long-term threats than interest rates alone.

7. Structural Change and AI Impact (25:04 – 28:02)

• Structural Shifts:
  The biggest REIT winners/losers are those that adapt to long-term trends: e-commerce (warehouses up, retail down), work-from-home (offices), and AI/data storage.
  • Memorable Quote:
    "You could have bought the world's worst warehouse and the world's best shopping center and you still would have been better off with the world's worst warehouse.”
    — JS, paraphrasing John Gray at Blackstone (24:10)
• AI & Data Centers:
  Major data center demand is a clear play, but there’s concern over future obsolescence risk should tech requirements change.
  • “Finding powered land is... like finding a lottery ticket... suddenly the valuation is going to go to the moon.” — JS (25:18)

8. Where to Start? Compelling REITs & Entry Points (28:02 – 31:37)

• Top Picks by Sector:
  • Warehouses: Segro, Tritax Big Box, potentially Indurant (Blackstone).
  • Beds: Student housing (Unite, though currently less rosy), senior housing, rental housing.
  • London Offices: Derwent, Great Portland Estates, diversified majors like British Land.
• Dividend Appeal:
  REITs generally offer higher-than-average dividends; “You get paid to wait.” — JS (30:33)
• Traditional Profile:
  UK REITs sometimes show more risk and development than US peers, but fundamentally they aim to be steady, income-generating vehicles.

Notable Quotes and Memorable Moments

• On Accessibility
  “For an ordinary investor, it's simply a way of getting exposure to any particular type of real estate without worrying about tax or liquidity.”
  — MSW (05:58)

• On Sector Winners and Pivoting
  "Their chief exec, Andrew Jones, saw the writing on the wall of what was coming for retail and made the big strategic decision to pivot towards industrial property warehouses.”
  — JS (11:47)

• On Current REIT Headwinds
  “So in order for the UK to get over a bit of this structural discount...what they really need is scale.”
  — JS (13:31)

• On AI and Future Threats
  “What happens when someone invents some new material that allows data to be stored or processed in a different way?”
  — JS (26:35)

• On Dividend Income
  “They should just be solid, steady dividend payers...basically just sitting on a big portfolio of income-producing assets and paying it out in the form of dividends.”
  — JS (30:46)

Timestamps for Important Segments

• [04:41] – What is a REIT?
• [07:11] – Types and sub-sectors of REITs
• [09:47] – What makes REIT share prices go up/down?
• [11:41] – Explanation of triple net leases
• [13:31] – Why scale matters for REIT valuation
• [14:35] – Interest rates and REITs
• [15:14] – Tailwinds: supply lull and interest rate shifts
• [20:35] – Consolidation and sector M&A
• [25:04] – Structural change, AI and data centers
• [28:02] – Best entry points and picks in the current market
• [30:33] – Reassurance on dividends: "You get paid to wait."

Final Takeaways

• REITs offer diverse, tax-efficient, and liquid exposure to real estate for every kind of investor.
• Current big issues: sector specialization vs. diversification, the impact of scale, and sensitivity to interest rates.
• Investable trends: warehouses/industrial, top-quality London offices, and data centers (with a wary eye on tech obsolescence).
• REITs tend to provide solid dividends, even when valuations lag—making them a compelling income choice.
• Sector is consolidating, with both private equity and peer mergers shaping the landscape—scale is king.

Contact & Further Reading:
Follow Merryn Somerset Webb and John Stepek for continued coverage. Email: merriamoney@bloomberg.net

This summary provides a comprehensive guide to getting started in REIT investing and understanding the sector’s current dynamics, perfect for listeners who want the analysis without the full listen.