Many investors overlook Real Estate Investment Trusts (REITs). Those who don’t, however, tend to view them as a tax-efficient source of stable and resilient income.
So we asked two Fools to name their favourite REITs in the sector right now, and why. As ever, note that returns are not guaranteed and past performance is not a reliable indicator of future results.
Primary Health Properties: a cure for what ails you
By Mark Tovey. With UK inflation in double digits, the consumer is being crushed. I am hunting for companies with real pricing power and indispensable products.
Primary Health Properties (LSE:PHP) fits the bill. The REIT serves six million patients (around 9% of the UK population) through its portfolio of 513 healthcare facilities.
On 19 April, Primary Health Properties said it had generated £1.3m extra rental income on a like-for-like basis in the first quarter of 2023.
That largely came from rent reviews, with 90% of its facilities leased on inflation-indexed contracts to the UK and Irish governments.
The ‘NHS Long Term Plan’, published in 2019, promised to hire “more GPs, nurses and 20,000 additional pharmacists, physiotherapists, paramedics, physician associates and social prescribing link workers…”
To state the obvious, all those extra staff will need space in which to see patients and do paperwork. That spells a massive growth opportunity for Primary Health Properties, given its existing buildings are already full to the rafters with an occupancy rate of 99.7%.
On the other hand, a political lurch to the left could put the REIT and its peer group in the firing line. For many radicals in the Labour Party, the NHS paying out billions of pounds a year to private landlords is rage inducing.
Still, I bought PHP shares in April this year. For me, its 26 consecutive years of dividend growth clinched the deal.
Importantly, I don’t lose any sleep at night holding a rock-solid stock like PHP. And with a hefty dividend yield of 6%, I’m dreaming sweet dreams.
Mark Tovey owns shares in Primary Health Properties.
Tritax Big Box: robust demand
By Paul Summers: Right now, my favourite REIT is without doubt Tritax Big Box (LSE: BBOX).
As the name implies, the £2.8bn cap owns and operates huge warehouses and distribution hubs. Clients include Amazon, Tesco and Next – essentially the who’s who of retail.
Unfortunately, the cost-of-living crisis seems to have hit sentiment around this investment trust. Realistically, it’s possible things could get worse before they get better if inflation doesn’t drop as quickly later this year as analysts expect and people continue to feel the pinch.
To me, however, a 40% reduction in the share price over the last year already feels excessive given that online shopping has become the norm for many of us. Surely demand for the sort of assets Tritax specialises in will only grow in the years ahead?
Contrast this defensiveness with other REITs. Offices, for example, are arguably no longer so essential thanks to the rise of home-working. Even doctor surgeries aren’t immune to a drop in demand as more consultations move online. But there will always be a need for the aforementioned companies to store their products and send them to customers as quickly as possible.
The dividend stream should be considered too. Based on analyst projections, Tritax yields 4.8%. That’s significantly higher than the 3.2% offered by the FTSE 250, of which it is a member.
If I had the spare cash, I wouldn’t hesitate to begin building a stake here.
Paul Summers has no position in Tritax Big Box, Amazon, Tesco or Next.
