Will These REITs Get Brexited?

Includes: HCN, HCP, PLD, VTR, WPC
by: Reuben Gregg Brewer


A number of REITs pushed in the United Kingdom in recent years.

That's not a bad call, but the UK moving out of the European Union deserves their extra attention.

Here are some big names to watch.

The so-called "Brexit" sent markets around the world into a quick tailspin and hit some currency markets pretty hard. Although the actual impact of the United Kingdom's vote to leave the European Union won't really be known for several years, that doesn't mean you should be ignoring the issue and its impact on your portfolio. And if you own real estate investment trusts, or REITs, here are a few big names you'll want to watch a little more closely-some more obvious than others.

Global industrial

One of the most obvious REITs to look at is Prologis (NYSE:PLD). The company's entire goal is to own key industrial assets, like warehouses, around the world to facilitate international trade. That pretty much requires exposure to the United Kingdom, which makes up about 6.5% of its owned and leased square feet. You'll want to watch what happens here, particularly since some market watchers are expecting the United Kingdom to fall into a recession because of the exit decision. That could, in turn, lead to less demand for Prologis' properties.

However, there's more to consider because Europe as a whole makes up roughly a quarter of Prologis' portfolio. So the United Kingdom isn't the only country you'll want to keep an eye on as the exit process moves forward. What the exit decision means for the rest of Europe is less clear, but it will have an impact and you'll want to pay close attention to what's going on if you own Prologis.

Now this?

Another REIT you'll want to keep tabs on is W.P. Carey (NYSE:WPC). Carey is a large and diversified triple net lease player that just lived through something of an existential crisis. It was on track to break itself into as many as three different parts, but then chose to fall back on its roots and remain one, broadly-diversified company. With that drama out of the way, here comes Brexit.

So now that Carey has decided it wants to be a globally diversified REIT, it has to face the complexity of the United Kingdom ditching the European Union. The United Kingdom makes up about 6% of Carey's portfolio, with Europe as a whole making up around a third. Unlike Prologis, however, Carey's portfolio has a varied collection of assets, including office, industrial, retail, and warehouse. So there's more to pay attention to here.

Listen closely during the next conference call. And keep in mind that Carey tends to be an opportunistic buyer. So even if the portfolio is feeling some pain, Carey might just take a contrarian stance and step in as a purchaser.

A health scare...

But these aren't the only well-known REITs or assets classes that you'll want to watch for Brexit effects. Welltower (NYSE:HCN), Ventas (NYSE:VTR), and HCP (NYSE:HCP) have all moved into the United Kingdom in recent years. That said, Ventas only gets about 1% of its revenues from the United Kingdom and HCP only has about 40 "care homes" in England out of some 1,200 properties. So this pair's exposure is pretty limited. But it's worth keeping the issue in the back of your mind, even in the case of HCP where the spin off of its struggling nursing homes is the big story right now.

Welltower, on the other hand, has much more exposure to the United Kingdom. About 8% of the REIT's net operating income comes from the country. So if Welltower is your chosen healthcare REIT, you'll definitely want to pay close attention to what it says about the United Kingdom.

On the one hand, healthcare REITs provide services that are needed and should, to some extent, be protected from any shocks from the Brexit. But these companies tend to focus on assets where the customer pays the bills, not a third party. So a recession could pose larger problems than you might expect. The rest of Europe won't be an issue, though, since this trio has focused on the United Kingdom.

Too soon to tell

It will be years before the full impact of the Brexit takes shape, a process that could take two years or more to complete. This is just a short list of large and well-known REITs with exposure, there are more. Take the time now to find out what you own, or, more to the point, what the REITs you own, own.

That said, the Brexit may open up opportunities for well-financed REITs to buy more assets. All five of the companies here have solid financials (HCP is probably the weakest, at least until it completes the spin off of its nursing homes) and could use a property downturn in the United Kingdom or larger Europe to pick up choice assets. But the United Kingdom leaving the European Union may also, perhaps is highly likely to, cause some near-term pain. (Most obvious right away will be the currency impact.) Either way, you'll want to have a handle on the extent of your exposure and make sure you pay close attention for updates from management. It may turn out to be much ado about nothing, but it's better to go in knowing your exposure.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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