2 REITs to help me build an additional income stream

This Fool explains why real estate investment trusts (REITs) are a great way to earn dividends, and details two picks she likes.

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I own a few real estate investment trusts (REITs) purely for passive income. REITs are income-producing property stocks that must return 90% of profits to shareholders.

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.

With that in mind, two more I’m looking to snap up when I can are Empiric Student Property (LSE: ESP) and Supermarket Income (LSE: SUPR).

Here’s why I’ve taken a liking to both stocks!

Student accommodation

Similar to the UK housing market, demand for student beds across the UK is outstripping supply. This could be good news for Empiric, and its shareholders. Performance and returns could grow in the future.

The pandemic hurt Empiric, as many students retreated home, and then deferred studies. Since then, the business has rebounded, in my view. This is perfectly signified by today’s preliminary results for the year ended 31 December 2023.

Revenue and earnings per share jumped by 10% and 17% compared to the same period last year. Gross margin levels have increased too and 99% revenue occupancy was achieved for 2023/24. The dividend has been hiked by a mammoth 27%. A yield of 3.8% is in line with the FTSE 100 average. However, I’m conscious dividends are never guaranteed.

One issue I’ll keep an eye on moving forward is the foreign student visa demand. These students often take up a big chunk of student beds, which is good news for Empiric. However, a recent government investigation found fraudulent visas were being applied for and obtained. If these numbers were to drop due to any new rules, Empiric’s performance and returns could drop.

Supermarket Income

As the name suggests, the business provides supermarket-related properties and facilities for our favourite stores to operate smoothly. I reckon there’s a sense of defensive ability for Supermarket Income. This is because groceries are essential for day-to-day living.

I must admit I’m buoyed by Supermarket’s impressive client list to date. At present, major players including Aldi, Tesco, Morrisons, and Sainsbury’s all rent property from it. Ties with the biggest players in the market that all possess a sprawling presence can only boost performance and returns. If it can leverage these relationships into further rentals and contracts, there could be good times ahead.

In addition to this, as the population increases and more infrastructure and facilities are needed, Supermarket Income could find more of its properties rented by grocery businesses to keep up with rising demand.

A dividend yield of just under 8% is very enticing, and the main reason the shares caught my eye.

From a bearish view, a difficult property market driven by higher interest rates and inflation could make growth trickier. New assets could be costly, or Supermarket Income could overpay for any new properties. This could hurt performance levels, and returns in the future. I’ll keep an eye on this issue.

I reckon Supermarket Income is one of a number of REITs that should flourish when turbulence subsides.

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.

Sumayya Mansoor 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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