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I love the long-term income appeal of commercial property. But I can’t afford an office block or a warehouse. Instead, I invest in REIT stocks.
These RIl esituation IInvestment TRust can provide me with regular income from many commercial and industrial properties.
If I wanted to invest directly in such a property, I would need millions of pounds. Using REITs, I can start with just a few hundred.
Here are three REITs I would buy to start investing in real estate today.
#1 Landsec
FTSE 100 REIT Landsec (LSE: LAND) owns a mixed portfolio of high quality London office space and large regional shopping centers and retail parks.
Landsec’s focus on quality has helped it maintain its position despite changing market conditions. Modern London offices in prime locations are still in demand, as are leisure and retail spaces in centers such as Bluewater and Westgate.
One possible risk is that the UK’s economic downturn could reverse the recovery seen during the outbreak. Landsec may be forced to cut rents to increase occupancy. That could put the stock’s 6% dividend yield at risk.
There are always risks, but in my view Landsec’s strong portfolio and low debt levels mean the outlook should be safe. I would be happy to buy this REIT stock as an income investment today.
#2 Primary health characteristics
My second choice, Primary health characteristics (LSE: PHP) owns more than 500 GP surgeries and local medical centers across the UK.
Healthcare property is known for its long leases, and PHP’s portfolio reflects this. The trust’s average remaining lease is over 11 years and 89% of rent is funded by government.
This means that PHP can provide a very reliable cash flow in the future. The main risk I see is that rising interest rates mean higher debt costs. PHP interest costs are mostly constant for the next eight years, which provides some protection. But I think this remains to be seen.
PHP shares offer a forecast dividend yield of 4.8% and trade above their book value. That’s not particularly cheap, but with 99.7% of people living, I think the stability of this business is worth it.
#3 Tritax Big Box REIT
In recent years, warehouses have been a hot investment area. It is one of the biggest players in this sector in the UK. FTSE 250 Firm Tritax Big Box REIT (LSE: BBOX)
Key tenants include AmazonMorrisons and B&Q Tritax recently reported a vacancy rate of 0%, with an average remaining lease of nearly 13 years.
The price hike during the pandemic kept me out of stock, but I think valuations are starting to look more reasonable now.
A UK recession could hit Tritax as demand for new warehouse space could slow. But the company’s modern assets seem relatively low risk to me. It also reassured me of the relatively low level of debt at the REIT.
Tritax shares now trade at a 30% discount to their book value of 240p, giving a dividend yield of 4.2%. I think this could be a good entry point for this stock.