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The UK real estate investment trust (REIT) sector has been under sustained pressure in 2023 as interest rates have risen. Rising borrowing costs and a decline in net asset values (NAVs) have sharply lowered the share prices of even the safest property stocks.
I already own several of these real estate stocks in my portfolio. The requirement that they distribute at least 90% of their annual rental profits as dividends makes them attractive ways to generate passive income.
Following this year’s stock price collapse, I’m considering purchasing these two REITs for my portfolio as well. This is why.
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Sure
Britain’s elderly population is expected to increase enormously in the coming decades. According to the Office for National Statistics, the number of people aged 75 and over is expected to almost double between now and 2039, to 10 million.
This growth will subsequently drive demand for healthcare. and real estate business Sure (LSE:AGR) is a company that is well placed to take advantage of this opportunity. It operates primary health care facilities such as GP surgeries and diagnostic centres, whose footfall is increasing as the government diverts patients from overcrowded hospitals.
Companies like this are especially attractive in difficult economic periods like this. Not only are the rents they receive basically guaranteed by government agencies. These companies also have their tenants locked into long-term contracts (Assura’s weighted average lease term (or WAULT) stood at 11.2 years in March).
Primary health properties It is a REIT that I bought to profit from this sector. And I think the size of Assura’s dividend yield makes it another attractive buy right now. Its profitability for the current year (until March 2024) stands at 7.4%. This is exactly double FTSE 250 average of 3.7%.
Changes to NHS policy could hurt the company’s earnings (and therefore dividend growth). But right now the business outlook looks extremely favorable.
Supermarket Income REIT
Thanks to its focus on the stable food retail market, Supermarket Income REIT (LSE:SUPR) could be another top stock to own in these uncertain times.
Importantly, the company rents its more than 50 properties to some of the biggest players in the industry, including tesco and Sainsbury’s. In fact, these food giants account for more than three-quarters of the group’s rental income, giving profits and dividends an extra layer of protection.
A growing population in the UK means that demand for supermarket space will constantly grow. Meanwhile, Supermarket Income’s focus on omnichannel properties (combining in-store shopping and online fulfillment) gives it better exposure to the fastest-growing segment of the market.
I am also encouraged by the company’s sale of its stake in Sainsbury’s Reversion Portfolio earlier this year. A gross consideration of £430.9m for the sale of 26 stores has given it the muscle to pay down debt and explore new acquisitions.
Of course, acquisitions always involve some degree of risk. But overall, I think the rewards of owning this real estate stock make it too good to miss. One last thing: its dividend yield for this year stands at a gigantic 8.2%.
