Care REIT‘s (LSE: CRT) a relatively small real estate investment trust (REIT) that has surged over 33% in the past month. In late February, it was trading near a five-year low at around 78p. Now it’s escaped penny stock territory, boasting the impressive price of £1.08 per share.
Prior to the jump, it had barely made any gains in the past five years, so I had to find out what was going on — and will it keep going? Let’s take a look.
Real estate investment trusts
REITs are publicly traded companies that own, manage and develop income-generating property portfolios. These can include a wide variety of properties such as offices, retail spaces, warehouses and residential buildings.
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They operate under favourable rules that offer corporation tax exemptions on rental income. In return, they must distribute at least 90% of rental profits to shareholders as dividends. Naturally, this makes them a popular option among income investors.
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They’re also a great way to gain exposure to real estate without the need to own physical property. On the downside, higher borrowing costs put pressure on REIT valuations, as property values typically fall when interest rates rise.
Evaluating Care REIT
Formerly Impact Healthcare REIT, Care REIT specialises in acquiring, renovating and managing high-quality healthcare facilities such as care homes.
It leases these properties on long-term, full repairing and insuring leases to established healthcare operators, aiming to provide shareholders with sustainable returns through dividends and potential capital growth.
In March, the stock experienced a significant 33% surge following the announcement of a £448m takeover deal by American care home provider CareTrust. The offer, priced at 108p per share, represented a 32.8% premium over Care REIT’s prior closing price, reflecting investor optimism about the acquisition’s potential benefits.
Unfortunately, the deal means one more promising UK company will be assimilated into a US conglomerate. So investors hoping to benefit from the company would need to consider the NYSE-listed CareTrust — or look at other REITs.
Fortunately, there’s a similar healthcare-focused REIT on the FTSE 250 I’m optimistic about.
Primary Health Properties
Primary Health Properties (LSE: PHP) specialises in the healthcare sector, primarily via GP surgeries, medical centres and pharmacies. The company benefits from long-term, government-backed leases, providing reliable rental income.
Its portfolio spans both the UK and Ireland, with a focus on modern, purpose-built facilities that support community healthcare services.
As a REIT, its key attraction is the consistently high dividend yield, currently around 7.3%. It has also maintained 26 consecutive years of dividend growth, making it a great addition to a passive income portfolio.
But as always, there are some risks to consider. Rising interest rates are my main concern as they could ramp up borrowing costs, squeezing the company’s margins. Additionally, while government-backed leases offer security, funding cuts to healthcare could impact future rental growth.
Anybody watching the stock will know it has faced price weakness over the past two years, reflecting investor concerns about how inflation impacts the property sector.
Despite all this, I think PHP makes a solid defensive investment, offering exposure to an essential sector with stable, inflation-linked income. For investors seeking long-term dividends with lower volatility, its an appealing option to consider.
