Real estate investment trusts (REITs) can be some of the best shares to consider for a winning second income. This is because:
- REITs are legally required to distribute at least 90% of rental income as dividends
- Property values and rental income often rise with inflation, providing a buffer against rising costs
- REITs often tie their tenants down onto long-term contracts, resulting in reliable rental flows
- They’re managed by experts who can maximise property value and rental flows
Today, investors can access REITs spanning a variety of sectors and regions. And so they can be a great way for share pickers to balance risk and capture different investment opportunities.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
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Here are three REITs I’ll consider buying when I next have cash to invest.
Warehouse Logistics
Forward dividend yield: 7%
Warehouse operators like Urban Logistics (LSE:SHED) play a key role in the modern economy. This particular one owns 130 assets spanning 9.7m sq ft, making it one of the UK’s largest in its area.
Over the past decade demand for storage and distribution hubs has rocketed, driving rents skywards. Urban Logistics’ latest financials showed like-for-like rents rose 21% between April and September across 13 ‘lease events’ (such as contracts renewals).
I think the long-term outlook here remains compelling for multiple reasons. These include the rise of online shopping, supply chain restructuring following Covid, and the growing role of robotics.
That said, problems with rent collection and occupancy could occur during any future downturns.
The PRS REIT
Forward dividend yield: 4%
As its name implies, The PRS REIT (LSE:PRSR) specialises in the residential private rental sector.
This can have significant advantages for investors. Residential property’s one of the most stable across the economic cycle and a chronic housing shortage means rental levels continue to soar.
Rents have cooled more recently due to tenant affordability. But they’re tipped to keep rising over the long term due to steady population growth and an exodus of buy-to-let investors. Indeed, estate agency Savills predicts private rents will soar 18% over the next five years.
Government plans to supercharge housebuilding to 2029 could scupper this forecast. Yet, on balance, things continue to look good for landlords like PRS.
This is why the business continues to steadily expand, its portfolio growing 6% year on year — to 5,425 homes — as of September.
Supermarket Income REIT
Forward dividend yield: 9%
Supermarket Income REIT‘s (LSE:SUPR) another safe-haven property stock I like. People need feeding at all stages of the economic cycle, providing the business with dependable rental flows whatever happens.
On top of this, the company only lets its 73 properties out to the grocery industry’s biggest players. This includes the likes of Tesco, Sainsbury’s and Waitrose in the UK and, more recently, Carrefour in France. As a consequence, the chance of it failing to collect rents is virtually zero.
The growth of e-commerce poses an obvious threat to the company. However, by concentrating on omnichannel supermarkets that service online and face to face customers, Supermarket Income is reducing this danger considerably.
