When it comes to generating secure hands-free income, you can’t go wrong with property, and that’s why Secure Income REIT (LSE: SIR) was founded. The business is built on the concept of generating a steady income and capital growth for shareholders from property assets that are exceptionally safe and on long leases. At the end of June 2017, the real estate investment trust’s portfolio of property had a weighted average unexpired lease term of 22.7 years with no break options.
As well as this guaranteed income stream, the company has increased its net asset value by over 100% since its IPO in June 2014 by reinvesting earnings and borrowing additional funds to invest.
Unfortunately, the one downside of this strategy is that Secure Income’s net loan-to-value ratio was 51% at the end of June. Although considering the stability of the group’s earnings stream, as well as the fact that interest repayments are covered twice by rental income, I do not believe that investors should be concerned about this high level of leverage.
Slow and steady wins the race
Secure Income has a record of generating steady returns for investors, and it looks as if this is set to continue with the company’s tenants in place for the next two decades. At the time of writing the shares support a dividend yield of 4.1% and the net asset value per share at the end of June was 355p, so the stock is trading at a modest price of just one times book value.
Overall, if you are looking to invest your first £1,000 in a reliable, defensive, income-paying stock, Secure Income should not be overlooked.
Another real estate investment trust that could be a great starter income investment for your portfolio is Green REIT (LSE: GRN).
Like Secure Income, this Ireland-based investment trust has a record of generating value for shareholders. Over the past four years, book value per share has increased by around 50%, and since its IPO at the beginning of 2013, the stock has returned 37% for investors, excluding dividends. At the time of writing the shares support a dividend yield of 3.9%.
According to Green REIT’s figures for the six months to the end of December, which were published this morning, the company produced a total return of 13.6% for investors, following a return of 13.5% for 2016. Unlike Secure Income, the firm has been able to accomplish this growth with a relatively low level of debt. Its loan-to-value ratio was just 22.1% at the end of December with an all-in cost of debt of 1.8%.
At the end of the period, Green REIT’s net asset value per share was €1.68, indicating that at the time of writing the shares are trading at a 7.7% discount to the value of the underlying property. With this being the case, this stock could be a better buy for income investors seeking to gain exposure to a secure income stream from property at a discounted valuation. The one downside is that this REIT’s dividend yield is below 4%, although the unleveraged balance sheet (leaving plenty of room for further asset growth) and discounted valuation more than make up for this lack of income in my opinion.
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Rupert Hargreaves owns no share 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.