3 UK REITs to buy for a 6%+ passive income in 2022

These UK REITs could generate a combined dividend yield of 6.7% this year, says Roland Head. He’d be happy to own all three.

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I’m looking for stocks to provide a high, sustainable income. One sector that interests me is UK Real Estate Investment Trusts (REITs). These property-owning companies receive tax benefits in return for paying out most of their income as dividends.

These three REITs have an average dividend yield of 6.7%. I’m considering buying them to boost the passive income from my share portfolio, although I always have to bear in mind that the yields aren’t guaranteed.

The best retail opportunities?

Shopping centres were struggling even before Covid hit the sector. However, out-of-town retail parks and community shops such as mini supermarkets have recovered quicker and now appear to be performing quite well. NewRiver REIT (LSE: NRR) has a £700m property portfolio that’s built around these types of location.

This business isn’t without risk. Debt levels reached uncomfortable levels last year, leading to property sales to fund repayments. NewRiver’s dividend was also cut during the pandemic.

However, I’d argue that NewRiver’s current share price is low enough to reflect these concerns. The stock currently trades at a 30% discount to its book value of 131p and offers a forecast dividend yield of 7.4%. For these reasons, this UK REIT is a stock I’m considering for a passive income.

Healthcare properties with long-term incomes

My next selection is Target Healthcare REIT (LSE: THRL). This £730m business owns a portfolio of 79 care homes across the UK. The average remaining lease on these properties is 28 years, giving Target great long-term visibility of cash flows.

This REIT is continuing to expand too. Target Healthcare spent £173m on new investments during the final quarter of last year, acquiring 18 care homes and a new-build site.

The company’s properties look pretty safe to me. They generally have long leases and inflation-linked rents. The main risk I can see is that some UK care home operators have struggled to make money in recent years. If Target Healthcare’s tenants run into problems, rental rates might fall.

On balance, I’m attracted to Target Healthcare’s long-term business model. The stock also offers a forecast dividend yield of 5.8% for the current year, making it one of the highest yielders in the property sector.

A UK REIT for industrial property

My first two choices cover retail and healthcare. The other part of the economy where I’d like to own property is the industrial sector. My final pick, AEW UK REIT (LSE: AEWU), owns a mix of UK commercial properties with a bias towards industry.

Around 55% of AEW’s portfolio is made up of industrial units in regional locations. The remainder is made up of office and retail property. Although there’s a small overlap here with NewRiver, I’d be happy to own both of these REITs to gain greater exposure to the industrial sector.

My main concern here is that AEW’s average unexpired lease length is just four years. Its strategy is to buy properties with short leases and then target higher rental rates. This has worked well in recent years, when demand has been strong. However, I think it could be tougher to raise rents during a recession.

For now, the economic outlook still seems healthy. AEW recently reported stable half-year profits and confirmed it plans to pay a dividend of 8p per year. That gives it a tempting 7.1% dividend yield at current levels.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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