As part of a diverse portfolio of stocks, I own shares in a number of real estate investment trusts (REITs). These provide me access to the property market without having to buy and manage property myself. I’m always looking to boost my holdings, so I want to see if Big Yellow Group REIT (LSE:BYG) could be one to add to my holdings. Let’s take a closer look.
Self-storage REIT
As a quick reminder, a REIT is an investment trust designed to make money from income-yielding property. As a rule, these types of investment trusts must return 90% of profits to shareholders. This is an attractive prospect for me as a passive income seeker.
As a quick introduction, Big Yellow Group is a REIT that specialises in self-storage solutions. In fact, it is now recognised as one of the largest firms of its type in the UK and has 103 locations throughout the UK.
So what’s happening with Big Yellow shares currently? Well, as I write, they’re trading for 1,413p. At this time last year, the stock was trading 5% higher, for 1,476p.
Risks to be wary of
Despite a great growth story, Big Yellow Group REIT now operates in a very intense and saturated market place. The rise of e-commerce as well demand for storage solutions in general has seen many businesses vying for the same customers and contracts from businesses. If any of its competitors could gain the edge on Big Yellow Group, its performance and returns could be negatively affected.
Next, I do note that after the stock market dip of March, Big Yellow shares are creeping closer towards all time highs once again. This is something I am always wary about due to the fact that negative news or trading could send the shares tumbling. This in turn could affect my investment if I added the shares to my portfolio.
The bull case and verdict
So let’s take a look at some positives then. I wanted to learn more about the self-storage market and demand for such services too. There are a number of self storage firms that operate as a REIT. I found The Self Storage Association UK Annual Industry Report for 2022 which made for positive reading. Some of the key headlines I gleaned were the fact that occupancy was up compared to 2021. Next, rental rates had increased too and operators had decreased discounts due to continued robust demand. Finally, industry annual turnover had increased by close to 5% which equated to nearly £1bn. Big Yellow is in a prime position to benefit from continued demand and this should boost performance and returns.
Let’s take a look at some fundamentals then. I noticed that Big Yellow shares look good value for money currently on a price-to-earnings ratio of just 4. In addition to this, the shares would boost my passive income stream offering a dividend yield of 3%. I am aware that dividends are never guaranteed, however.
Overall I like the look of Big Yellow Group REIT shares and would add them to my holdings. The current fundamentals are attractive. Furthermore, it seems the self storage market is a burgeoning one that could support future growth and returns too.
