The Motley Fool

2 real estate investment trusts to help you retire with a million

The UK property sector is facing a highly uncertain future. Brexit has caused confidence among investors, businesses and consumers to decline to at least some degree. This has the potential to cause lower demand not only for properties themselves, but also reduced rental growth if economic activity levels decline.

But for long-term investors, there could be a buying opportunity on offer. A number of property-related companies including real estate investment trusts (REITs) now offer wide margins of safety. As such, they could be worth buying for the long run even though they face an uncertain future.

Low valuation

Reporting on Tuesday was student accommodation specialist Empiric Student Property (LSE: ESP). It recorded a rise in revenue of 27.3% in the first half of the financial year, with its portfolio valuation 13.4% higher than it was at the end of 2016. It remains well-positioned to benefit from firm demand for student properties, with it having 90 assets in 30 prime university cities and towns. With pressure on housing being high, its offering is likely to become more popular over the long run.

Certainly, Brexit is a risk for the company as 23% of students in the UK are international students. However, with many of them being postgraduates who stay for one year, they are unlikely to be affected by new immigration controls in a post-Brexit world. And with the government being keen to continue the success of the UK’s higher education sector, the company’s long-term outlook remains positive.

With dividends maintained at 3.05p per share for the six-month period, Empiric Student Property has a dividend yield of 5.6%. It trades at a share price of 109p versus a net asset value (NAV) of 105p, which suggests that it offers a wide margin of safety. Therefore, for investors focused on long-term income and value opportunities, it could be a shrewd buy.

Growth potential

Also offering an impressive investment opportunity is Segro (LSE: SGRO). The developer and manager of warehouse properties is performing well, with the company reporting a low vacancy rate and strong like-for-like (LFL) revenue growth in its most recent results. It also recently announced a successful £557m rights issue which will be used to fund future growth opportunities. This could be a sound move if the company is able to buy high quality assets at relatively low prices.

With the company trading on a price-to-book (P/B) ratio of just 1.1, it seems to offer a wide margin of safety. This suggests there could be upside potential on offer, while its dividend yield of 3% is covered 1.2 times by profit. With its earnings due to rise by 9% next year, it looks set to offer an inflation-beating rise in shareholder payouts over the medium term. As such, Segro could prove to be a strong performer in an already attractive REIT sector.

Brexit woes

In the short run, fear and indecision could hurt share prices due to worries about Brexit. That's why the analysts at The Motley Fool have written a free and without obligation guide called Brexit: Your 5-Step Investor's Survival Guide.

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Peter Stephens has no position in any 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.