UK shares: here’s 1 real estate investment trust to make me a passive income!

Jabran Khan is on the lookout for the best UK shares to help make him a passive income. He details a REIT that could do just that.

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I am on the lookout for UK shares to make me a passive income and I believe real estate investment trusts (REIT) are a good option for my portfolio. I recently purchased a small number of shares in Supermarket Income REIT (LSE:SUPR), but I am considering adding more.

REITs designed for dividends

As a reminder, a REIT is a property business set up so that it yields income from the rental of properties. Properties can include office buildings, warehousing space, and apartment buildings, as well as shopping malls and others.

Owning shares in a REIT offers me access to the property market without having to buy, manage, or maintain property myself. REITs are designed to pay profit as dividends to shareholders. There are many UK shares operating as REITs.

Supermarket Income REIT is dedicated to investing in supermarket-related assets and property throughout the UK. One of its aims is to provide investors secure, inflation-linked income. Over 80% of the firm’s rental income is directly linked to inflation. With inflation currently on the rise and showing no signs of slowing, Supermarket Income’s rent should increase too.

As I write, Supermarket Income shares are trading for 126p. At this time last year, the shares were trading for 107p, which is a 17% return over a 12-month period.

UK shares have risks

Firstly, any REIT is susceptible to falling occupancy rates in its properties. This means that with occupancy falling, rental income would slow down. In turn, this could affect any dividend payments and passive income I hope to receive as a shareholder.

Supermarket Income does have a fair bit of debt on its balance sheet. Currently, the figure stands close to £500m. Debt can be bad if not managed properly or if the business is being run badly. I need to keep an eye on performance to ensure that the business is growing. In addition to this, I want to see that the business is paying down debt, and that performance and shareholder returns remain consistent.

Why I’d add more shares

With inflation on the rise, Supermarket Income could be able to benefit. Rental income could increase and this would mean further dividend payments for me and my portfolio. Looking back, I can see that it has been able to increase its dividend in line with inflation each year. I do understand that the past performance is not a guarantee of the future but this record gives me confidence.

Another positive aspect I like about Supermarket Income is that it focusses on the grocery and supermarket sector. Retailers in these sectors can often pass on higher costs to customers. This tells me that tenants renting property from Supermarket Income should be able to pay rents at higher rates if inflation continues to rise.

Finally, at the beginning of March, Supermarket Income posted a positive half-year report for the six months ended 31 December. It reported that its portfolio size had increased. More importantly, annualised passing rent increased by 52% and its dividend per share increased too. It is on track to meet guidance for FY 2022 results.

I like Supermarket Income shares for my portfolio and will hold on to the ones I own currently and I would happily add more. This is one of a number of inflation-proof UK shares I am adding to my portfolio.

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.

Jabran Khan owns shares of Supermarket Income REIT PLC. 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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