Two UK shares I currently hold positions in are Primary Health Properties (LSE: PHP) and Warehouse REIT (LSE: WHR).
What are REITs?
A real estate investment trust (REIT) is a business that owns, operates, or finances income-generating real estate. These businesses are traded as normal stocks and give investors like me the opportunity to purchase shares and earn dividends without having to buy or manage property myself.
There are many UK shares that are classed as REITs. The enticing fact for me is that they must pay 90% of taxable income in the form of shareholder dividends.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Healthcare properties
Primary Health Properties focuses on properties in the healthcare sector. These include doctors surgeries and other healthcare-related facilities.
I like Primary for a few reasons. Firstly, it operates in a fairly defensive industry in that healthcare is an essential requirement. In addition to this, the UK has an elderly population and demand will only increase, in my opinion.
Next, Primary’s rental income is guaranteed through government bodies, which means it is protected against current inflationary issues and can continue to perform well and pay me dividends.
Moving on, Primary’s current dividend yield stands at close to 7%. This is nearly double the FTSE 100 average of 3%-4%. I am aware that dividends could be cancelled at the discretion of the business to conserve cash.
Primary’s progress could be at the mercy of changing NHS policy and government reforms, which could impact demand for its properties and in turn performance. Based on the current geopolitical and macroeconomic picture, this does not worry me at present.
To summarise, Primary has excellent defensive traits, and pays a handsome dividend with future prospects that are also looking bright.
Storage space
Warehouse REIT owns and operates storage and warehouse-based assets. These include warehouses for industrial, retail, and manufacturing industries.
I purchased Warehouse shares for a few reasons. To start with, the dividend yield is extremely enticing at 7.5%. This is much higher than the FTSE 250 average of 1.5%. In addition to this, its yield is underpinned by an impressive performance record. I can see that revenue and profit have increased year on year for the past four years.
What I also like about Warehouse is its business model. The majority of its warehouses are used as online order fulfilment and logistics centres. This is key for me because as online shopping habits only become more prevalent, more businesses will require such spaces. This could benefit Warehouse and its business, thus driving forward performance and increasing shareholder returns.
On a bearish note, Warehouse does have a fair bit of debt on its books. My issue here is not the level of debt, but more so the servicing of the debt. As interest rates rise, as they have been recently, paying down the debt could be tougher. Furthermore, this puts pressure on profit margins and dividend payments.
In conclusion, I believe Warehouse is in a good position to continue to perform well, pay regular dividends and boost my passive income stream.
