2 real estate investment trusts for long-term dividend investors
The UK property market is going through uncertain times. From Brexit to slowing growth, there are mounting concerns that the property market is cooling off after many years of growth. British Land and Land Securities, two large listed real estate investment trusts (REITs) which are seen as bellwethers for the market, have reported declines in their portfolio valuations and rising vacancy rates for the first time in many years.
But for long-term investors, there could also a buying opportunity on offer. Not all REITs are reporting falling valuations, with many still continuing to report positive valuations gains and rising rents.
Defensive portfolio
Secure Income REIT(LSE: SIR) is one such sector operator. Over the first six months of the year, the trust's net asset value (NAV) per share gained 9.9% to 355.5p, as its portfolio valuation rose by 4.8% to £1.72bn since 31 December 2016. Rents increased 2.7% over six months to 30 June, while the vacancy rate remained at 0%.
These results show that although there are parts of the UK property market beginning to slow, there's growing divergence between different property sectors. Unlike the bellwether REITs, which are mainly invested in retail and office space, Secure Income instead focuses on healthcare, leisure and hotel assets.
And as the group has a weighted average unexpired lease term of 22.7 years with no break options, Secure Income's portfolio is also more defensive than a typical REIT. As such, I expect its portfolio to hold up well amid uncertainty in the broader market.
Looking ahead, City analysts expect dividends this year will rise to 13.9p per share, giving investors a prospective yield of 3.9%. And although the REIT currently trades at a 1% premium to its NAV, I believe this reflects the high level of investor demand for safe income-generating assets.
Irish property
Another REIT showing resilient growth is Irish property investment company Green REIT(LSE: GRN). The group owns and manages a EUR1.38bn commercial property portfolio centred primarily around Dublin.
Tenant demand and occupancy rates for Dublin office space have held up well in comparison to London, thanks to favourable fundamentals. The Irish market is set to benefit from a rise in take-up of new office space over the next few years, as financial institutions look to set up offices in other EU member states, post Brexit.
For the year to 30 June, Green REIT's NAV per share rose 9% to EUR1.66, following revaluation gains of EUR97m over the past year. Prime headline rents in Dublin city centre have remained static in the last 6 months, but its vacancy rate fell slightly to 1.5%. What's more, its balance sheet remains strong, with a loan-to-value ratio of 20.2%.
Based on today's stock price, the proposed 5 cent per share dividend payout works out as an uninspiring yield of around 3.3%. However, valuations are more tempting, with Green REIT now trading at 9% discount to its NAV.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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