Accessing the property market is easier than ever, if you ask me. I’ve done this by adding FTSE real estate investment trust (REIT) stocks to my holdings such as Primary Health Properties (LSE: PHP) and Warehouse REIT (LSE: WHR).
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The reason I’m a fan of REITs is because they must return 90% of profits to shareholders. For me, this is a great way to achieve my aim of attempting to create a second income.
Let me explain why I picked these two REITs specifically out of a long list of options!
Excellent industries for growth
I reckon the two industries these firms operate in are only set for growth in the long term. This is key, as it could provide improved performance as well as consistent and growing returns.
Primary Health Properties rents out core healthcare properties, including GP’s surgeries as well as other healthcare related provisions, primarily to the NHS. The population in the UK is increasing and ageing. Both of these aspects provide Primary the opportunity to perform well in the current climate as well as provide growth opportunities as well. In addition to this, rental income is subsidized by the government as they are usually NHS facilities. This means the income is stable and tenancies are usually on a long-term lease.
Warehouse REIT – as you may have guessed – makes rental income from warehouses and other industrial properties. These types of properties are rising in demand and this is directly linked to the e-commerce boom. As shopping habits change, businesses need storage and warehouse assets to build their presence and store stock and inventory.
Risks to note
From a bearish perspective, it’s worth noting that macroeconomic volatility has hampered the property market. This isn’t great news for Primary or Warehouse as it could hinder their short-term growth plans. Borrowing costs are much higher too.
Speaking of debt, Primary has a fair bit of debt on its balance sheet, which is risky. This is because of the high interest rates at present, which make the debt costlier to service and pay down.
For Warehouse, this particular industry is rife with competition. Plus, the barriers of entry are low, meaning another firm could come along to prise away market share and hurt its investment viability.
Returns and final thoughts
Although dividends are never guaranteed, Warehouse and Primary’s dividend yields of 7.3% and 6.7% are excellent. In fact, the FTSE 100 average is 3.9%, so both firms’ levels of return surpasses this.
I also hold positions in other REITs in other industries as well. This is another aspect of my investment mantra, which is to diversify my interests.
To conclude, I’m letting someone else buy, manage, and deal with the hassle that comes with the property side of things, and take my slice of the pie through dividends.
