Forget buy-to-let. Here are 3 property stocks I’d buy instead

These niche property firms should continue to blossom as buy-to-let flounders, says Rupert Hargreaves.

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This morning, Primary Health Properties (LSE: PHP) announced it has funded the development and eventual acquisition of a healthcare centre in Ireland for €11.4m. According to the business, 80% of the rental income from this property will come from government agencies on 30-year leases. 

These are highly attractive economics, which just aren’t available to the average buy-to-let property investor. And that’s why I’m recommending PHP, as well as some of its close peers, as a replacement for traditional buy-to-let. 

Higher returns 

Returns from buy-to-let investing have been falling for years. Recent government regulation, coupled with changes to the tax regime, which directly affect landlords, has only accelerated the slide. These changes have severely dented the appeal of buy-to-let investing, in my opinion. 

Luckily, there are plenty of stocks out there with similar qualities to buy-to-let without all the hassle. PHP is a great example. The company manages a portfolio of healthcare facilities around the UK and Ireland. Similar to the deal outlined above, most of these properties are rented out to government agencies, with multi-decade agreements.

At the end of December 2018, PHP’s property portfolio was worth 105p per share, up around 5% year-on-year. The annualised contracted rent roll increased 9.8% during the year and occupancy hit 99.8%, which I think highlights the quality of the group’s property portfolio. The stock currently yields 4.8% and should rise steadily over the long term as rental income grows with inflation.

Development pipeline 

Assura Group (LSE: AGR) is another strong healthcare real estate investment trust (REIT). Last year, this company invested £175m in new healthcare facilities through the acquisition of 45 medical centres and completion of two developments. The weighted average unexpired lease length of this portfolio is 14.6 years. In total, the company now owns 553 medical centres across the UK with a total rent roll of £100m.

More investments and developments are planned. The group is currently considering around £170m of opportunities to add to its portfolio. At the same time, management is divesting properties that don’t meet its returns criteria. This active portfolio management gives me confidence that Assura can both grow its dividend and net asset value in the years ahead. The stock currently supports a yield of 4.8% and has a net asset value of 52.7p per share.

Government support 

Another part of the property market that interests me is in student property and it looks as if demand here won’t slow down anytime soon. But investing directly can be costly, and management levels are intensive. That’s why I like the look of Empiric Student Property (LSE: ESP), one of the largest public-traded  groups in the UK sector. The company does all the work of managing the properties for investors and all they have to do is pick up their regular dividend cheques. 

City analysts have Empiric paying out 5p per share for 2018, rising to 5.03p for 2019. At the current share price, these figures give a dividend yield of 5.1% for the next two years which, in my opinion, is a much more attractive rate of return than investing in buy-to-let, especially when you don’t have to lift a finger to manage these properties. At the end of June 2018, the company’s net asset value per share was 105.5p so, right now, the stock is trading at a discount to its asset value. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Primary Health Properties. 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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