Forget buy-to-let! I’d buy this UK property investment

This UK property investment has returned 20% this year so far, smashing the returns from buy-to-let.

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The outlook for buy-to-let property remains uncertain. Not only are house prices across the UK stalling – adding risk to the investment case – but the government is continuing to crack down on the asset class and introducing new regulations that make life difficult for landlords. Overall, buy-to-let property appears to have lost a lot of its investment appeal in recent years.

That said, there are some areas of the UK property market that do offer investment appeal right now, in my view. Here’s a look at one property investment I would be happy to put my money in at present.

Healthcare property

Primary Health Properties (LSE: PHP) is a niche property company that owns and leases a large portfolio of modern, purpose-built healthcare facilities to government healthcare providers and GP practices. Much of its property portfolio is let to NHS organisations which is a real plus for investors, as the ultimate rent guarantor is the UK government.

A Real Estate Investment Trust (REIT), the company is listed on the London Stock Exchange and is a member of the FTSE 250 index.

20% gain in six months

So far this year, Primary Health Properties has been a brilliant investment, as the stock has risen over 20% (smashing the returns from buy-to-let). However, looking at the company’s interim results today, I think there could be plenty more growth to come. With net rental income for the six months to the end of June surging 43.9% on the same period last year, and adjusted EPRA earnings per share increasing by 12%, PHP appears to have significant momentum at the moment.

Dividend appeal

One of the things I like about PHP is its dividend. Not only is the yield very healthy at 4.2% (that’s higher than a lot of buy-to-let rental yields) but the company also has a good track record of increasing its payout, having now notched up eight consecutive full-year dividend increases. Analysts are expecting the dividend to continue growing in the near term too, meaning the stock could be a cash cow for long-term investors.

Brexit protection

Additionally, I like the fact that the company is well placed to benefit from the UK’s ageing population (as people age, their demand for healthcare services increases) and that it shouldn’t be impacted by Brexit at all. In today’s results, the group advised: “The final outcome and consequences of Brexit for the UK are unlikely to have a direct impact on the primary health centres we invest in, which perform a vital role in the provision of healthcare across the UK and Ireland.”

Valuation

PHP is not the cheapest stock around. With analysts forecasting earnings per share of 5.7p for FY2019, the forward-looking P/E ratio is 23.6, which is relatively high. However, to my mind, that valuation is not a deal-breaker. For a company that has strong momentum, is well placed to prosper in the years ahead due to powerful demographic trends, and offers a 4%+ dividend, I think that’s a reasonable price to pay. Overall, I see the stock as a far more attractive investment than buy-to-let property right now. 

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 assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares 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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