Bank of England actions have also driven up debt-servicing costs, increasing their day-to-day expenses and hampering their growth plans by limiting investment opportunities.

Fears of higher interest rates enduring mean many REITs continue to trade below value. This provides an excellent opportunity for long-term investors to nip in and grab some bargains.

Under sector rules, at least 90% of annual rental earnings must be paid out in dividends. Here are two I think are worth considering for a cheap way to target a passive income.

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.

Home run

Full disclosure: while Grainger (LSE:GRI) isn’t a REIT just yet, it’s scheduled to transition into one by October. This makes it worthy of consideration for those building a shopping list of possible shares to buy.

The company’s the UK’s largest landlord in the residential sector. This has two significant advantages: occupancy is high throughout the economic cycle (this was 96% as of March, latest financials show). And rents are rising sharply as Britain’s chronic homes shortage endures.

Like-for-like revenues were up 4.4% in the six months to March. To capitalise on this favourable backdrop, Grainger has a development pipeline of 4,565 homes scheduled for completion over the next few years.

I don’t believe this opportunity is reflected in the cheapness of the trust’ shares. Today, the build-to-rent (BTR) specialist trades at a 32% discount to its NAV per share of 294p, as stated at the end of March.

On the dividend front, Grainger offers a robust 4.2% forward yield for the current financial year (to September).

I think it’s a top upcoming REIT to consider for passive income growth. It hiked the interim dividend 12% for the current fiscal period.

Be mindful however, that government plans to supercharge housebuilding over the next several years could impact rental growth.

Space to grow

Warehouse REIT‘s (LSE:WHR) another cheap property stock that’s grabbed my attention. Today, its shares change hands at a 10.8% discount to today’s estimated NAV per share of 128.7p.

As its name suggests, the company lets out spaces for businesses to store and distribute goods. As a consequence, it’s well-placed to capitalise on multiple growth trends including:

• The steady growth of online shopping
• Increasing demand for ‘last mile’ logistics
• Changes to global supply chains, including the rise of ‘just in time’ inventory management
• The spike in ‘nearshoring,’ where companies bring their operations closer to home

With high exposure to cyclical sectors, rents can be less predictable than those of Grainger’s. But its focus on multi-let warehouses helps reduce (if not totally eliminate) this threat. In total, it has 409 different tenants spread across 60 sites. This provides considerable strength through diversification.

Dividends at Warehouse REIT are tipped to remain stable through to the end of the next financial year (to March 2027). And on the plus side, this means yields sit at a robust 5.7% for the period.

The post 2 cheap REITs to consider for a long-term passive income appeared first on The Motley Fool UK.

In the last couple of months, we’ve seen massive takeover deals being signed and rejected within this space. That includes Care REIT, which agreed to a £450m takeover, Urban Logistics REIT, which has accepted a £674m deal, and Assura at a whopping £1.6bn buyout.

But not everyone is giving in to tempting takeover bids. Warehouse REIT (LSE:WHR) is one such business that rejected the recent attempt to take over its operations. This move sent its shares flying. Yet despite sitting close to its 52-week high, the shares are still trading at a 15% discount to net asset value, paying a tasty 5.9% dividend yield.

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.

What’s behind the discounts

Since REITs have to pay the vast majority of their net rental income out as dividends, most are reliant on debt financing to expand their real estate portfolios. That was fine in the pre-pandemic days. But in 2025, with interest rates still elevated, debt is now far more expensive. And a lot of firms are struggling to cope.

Pairing this with lower property prices, if businesses can’t keep up with debt servicing costs, they might be forced to start gutting their real estate portfolios. In other words, the discounted valuations are a reflection of the risk of investing in debt-heavy businesses right now.

However, investors haven’t really been differentiating between the weak REITs and the strong. Given Warehouse REIT’s firm rejection of the recent takeover attempt, it seems this stock, along with several others, belongs in the second category.

High-yielding opportunity

At a near 6% yield, the passive income offered by Warehouse REIT in 2025 firmly beats the FTSE 100‘s 3.5%. And with the Bank of England steadily cutting interest rates, the group’s financial performance has been slowly improving.

In its last trading update, management confirmed another 25 new, renewed, or renegotiated leases with tenants totalling just shy of £3.5m in annualised contracted rent. That brings the total across the nine months leading to December 2024 to 71 customer transactions and £9m of annual rent – up 22.1% versus previous tenancy agreements.

Needless to say, higher income is great news for income investors since that means there’s more money to support the dividend. But it’s important to highlight that the firm, like many other REITs has a significant pile of debt to deal with.

As of September 2024, there’s about £294m of loans & equivalents on its balance sheet, incurring around £22m in annual interest expenses. And it was this debt burden that caused institutional investors to downgrade the stock in 2024, on fears that management wouldn’t be able to keep up with both interest and dividends.

Despite these fears, the firm continues to pay both. To be fair, some sacrifices had to be made in its property portfolio. But the end result is its debts being refinanced and hedged to a more manageable position. And with property prices now back on the rise and interest rates falling, this strong position is set to improve throughout 2025 and beyond. That’s why I’ve already added Warehouse REIT shares to my passive income portfolio.

The post Why now is the perfect time to unlock passive income from UK real estate appeared first on The Motley Fool UK.

Here are a handful owned across the Fool.co.uk contract writing team!

Primary Health Properties

What it does: Primary Health Properties specialises in purchasing and renting primary healthcare facilities within the United Kingdom and Ireland.

By Mark Hartley. Primary Health Properties (LSE: PHP) is a real estate investment trust (REIT) that benefits from stable revenue through long-term leases backed by the NHS and Irish government. This makes it a good candidate for passive income, as it’s low-risk and provides consistent dividend payouts

It has a long track record of dividend growth and has seen moderate price appreciation during strong economic periods. Dividends have increased consistently for over 20 years at a compound annual growth rate of 3.24%.

However, the price has suffered during periods of high interest rates, ramping up borrowing costs and impacting profitability. Recent concerns about the wider property sector and potential government healthcare policy change risk hurting the share price.

Despite a slight decline in performance over the past three years, revenue and earnings have typically been within 1% of expectations. This makes it attractive to income investors looking for stable and reliable performance.

Mark Hartley owns shares in Primary Health Properties.

Primary Health Properties

What it does: Primary Health Properties owns and lets out medical facilities like GP surgeries in the UK and Ireland.

By Royston Wild. Primary Health Properties offers investors the dream blend of long-term dividend growth and market-beating dividend yields.

Cash rewards here have grown every year since the mid-1990s. And City analysts expect this trend to continue until at least 2026, representing 30th consecutive years of rises.

As a result, the yields on Primary Health Properties for this year and next stand at 7.6% and 7.7% respectively. To put that into perspective, the current forward average for FTSE 250 stocks sits way below these levels, at 3.4%.

This REIT’s dividend durability reflects its focus on the ultra-defensive healthcare market, providing profits stability across the economic cycle. It’s also because the lion’s share of rental income is directly or indirectly guaranteed by a government body.

Looking ahead, future dividends could be hurt by NHS policy changes that impact earnings. But with successive governments working to strengthen the role of primary care in Britain, the outlook here for the short-to-medium term at least looks pretty solid. 

Royston Wild owns shares in Primary Health Properties.

Supermarket Income REIT

What it does: Supermarket Income owns a £1.8bn portfolio of 74 stores, with the majority leased to Tesco and Sainsbury’s.

By Roland Head. Big UK supermarkets have regained their status as desirable retail properties since the pandemic. I added Supermarket Income REIT (LSE: SUPR) to my portfolio in July 2024, tempted by the 8%+ dividend yield and near-20% discount to book value.

Admittedly, there’s a risk that higher interest rates will put pressure on the dividend. But my sums suggest that this REIT will be able to refinance while maintaining its dividend.

Recent changes should deliver a sharp drop in management costs. This REIT also benefits from long leases and very reliable tenants. Occupancy is 100% and so is rent payment.

Property valuations also seem realistic – another area of possible concern. During the second half of 2024, Supermarket Income sold Tesco’s Newmarket store back to the retailer at a price 7.4% above its latest book value.

With a forecast yield of 8.3%, I’m quite happy to sit back and collect my quarterly dividends.

Roland Head owns shares in Supermarket Income REIT.

Warehouse REIT

What it does: Warehouse REIT owns and leases a portfolio of well-positioned warehouses across the UK catering primarily to the e-commerce industry.

By Zaven Boyrazian. In a world where e-commerce continues to slowly take market share from brick-and-mortar retail, demand for well-positioned warehouses is growing. This is a trend that Warehouse REIT (LSE:WHR) has been busy capitalising on since its IPO in 2017.

However, with interest rates rising rapidly in 2022, real estate investment trusts have had to endure much higher financial pressures. In the case of Warehouse, that ultimately culminated in property disposals to keep debt in check.

Despite this, dividends have kept flowing. And while elevated interest rates are still a cause for concern, the sell-off by investors seemed a bit overblown. It seems the private equity markets have also come to the same conclusion since acquisition offers began flying in February 2025. So far, they’ve all been rejected.

Even after the recent rise in stock price, the shares continue to offer an attractive 6.5% dividend yield. And with demand for warehouses unlikely to slow down in the long run, the passive income potential for Warehouse REIT continues to look rock solid, in my opinion.

Zaven Boyrazian owns shares in Warehouse REIT.

The post 4 REITs Fools own for passive income appeared first on The Motley Fool UK.

What unfairly gets less attention is the index’s ability to provide a decent passive income. To illustrate the point, the FTSE 250’s forward dividend yield of 3.5% matches that on offer from the Footsie.

Today I’m looking for the best ‘all rounders’ for UK share investors to consider buying today. Here are two from the FTSE 250 I think are attractive growth and dividend stocks, and especially so at current prices.

Warehouse REIT

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.

Real estate investment trusts (REITs) like Warehouse REIT (LSE:WHR) typically don’t have the potential to deliver stratospheric dividend growth. But they compensate for this by providing a reliable stream of passive income regardless of economic conditions.

This is thanks in large part to REIT dividend rules. Each year, at least 90% of annual rental profits must be distributed by way of dividends.

However, this alone isn’t enough to guarantee steady dividends, given their relationship to profits delivery. Yet earnings at companies such as this are usually immune to volatility thanks to the long contracts that tenants are tied down with.

In the case of Warehouse REIT, the weighted average unexpired lease term (WAULT) as of September was 4.7 years.

City analysts expect annual dividends to be locked for this financial year (to March 2025) and next year. However, investors can still enjoy a tasty 6.2% dividend yield.

I expect rising demand for logistics properties to underpin strong long-term dividends here. I think it’s worth considering despite interest rate risks to its profits (e.g., the potential for higher borrowing costs and reduced asset values).

Indeed, City analysts expect earnings to rise 23% in financial 2025 and 7% in financial 2026. With a forward price-to-earnings-to-growth (PEG) ratio of 0.8 for this year, that represents decent value for money.

Any reading below one suggests that a share is undervalued.

Bakkavor

Bakkavor (LSE:BAKK) is another FTSE 250 share offering an attractive blend of growth, dividends, and value.

Forecasters think earnings here will leap 26% year on year in 2025. This leaves it dealing on a forward PEG multiple of 0.6. Meanwhile, expectations of another dividend increase leaves the dividend yield at a meaty 4.9%.

Bakkavor makes freshly prepared food like bread, salads, pizzas, and desserts. This has two distinct advantages for investors.

Firstly, food industry earnings tend to remain stable regardless of economic conditions. We all need to eat, don’t we?

Secondly, the company is tapping into a fast-growing segment: people are becoming more inclined to healthier, fresher meals, but an increasingly large number of us don’t have the time to prepare them. Bakkavor solves this problem.

With operations across the UK, US, and China, Bakkavor provides exposure to rock-solid markets alongside fast-growing ones. Bear in mind, though, that its geographic footprint leaves it vulnerable to foreign currency risk.

Bakkavor has also been experiencing earnings issues in Asia recently, though the success of recent restructuring initiatives is an encouraging omen.

The post 2 dirt-cheap FTSE 250 shares to consider for growth and dividends! appeared first on The Motley Fool UK.

The rise of e-commerce has created strong demand for warehouses, especially in the best locations. But, while I think this is here to stay, the overall situation is a bit more complicated.

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.

Challenges

A high yield can be a warning sign – and there are risks with Warehouse REIT. Most obviously, the company is paying out 6.4p per share in dividends while making 5.4p in adjusted profits. 

Over the long term, that’s not sustainable and the firm has been making moves to rectify this. Part of this has involved divesting non-core assets, raising £74.4m over the last nine months.

It has also abandoned the development of a building project in Crewe after its pre-let tenant pulled out. And it’s in the process of selling this, with a view to bringing down its debt levels.

Strengthening its balance sheet should bring down the firm’s borrowing costs, boosting profits in the process. But in terms of growth, it isn’t particularly positive. 

Rent increases

Growth is often a challenge for real estate investment trusts REITs. They don’t have a choice about distributing their rental income to shareholders and this can make it hard to fund new investments. 

In its most recent update, however, Warehouse REIT outlined some pretty strong growth figures. The firm reported 25 deals, with rents up 32.5% on average.

By any standard, I think that’s very impressive. And it reinforces the point that demand is still strong for industrial properties in the best locations. 

This is Warehouse REIT’s biggest natural advantage – space in the best locations is limited and it can be hard to build new facilities. That makes assets in these locations extremely valuable.

Share count

One of the ways REITs finance their growth is by issuing stock. But shareholders need to look carefully at what kind of return the company is getting on its investment. 

Warehouse REIT is a complicated one in this regard. The number of shares in issue has increased from 166m in 2019, to 426m at the end of its last financial year.

That’s a 157% increase and during that time rental income has only grown by 57%. That’s not particularly impressive, but there’s more to the story than this. 

The company’s share count has been stable since 2022 and rental income has continued to rise. As a result, investors might think the equation is more attractive than it has been previously. 

Should I buy the stock?

With Warehouse REIT, the big risk is the lack of dividend cover. But the company is making moves to address this and the core of its portfolio appears to be doing well.

The threat of a rising share count is real, but things have been very stable recently. I might well buy the stock, but the risks mean I’m unlikely to make it a big part of my portfolio.

The post 8% yield! Is this FTSE 250 REIT my ticket to a huge second income? appeared first on The Motley Fool UK.

Begbies Traynor

These are tough times for British business as costs rise and consumer spending slumps. In this climate, Begbies Traynor (LSE:BEG) could experience strong and sustained demand for its services, driving its share price higher.

This AIM company provides insolvency services and other support for troubled companies. Its latest research released on Friday (24 January) showed “[an] historic jump in the number of firms in critical financial distress“.

According to Begbies, the number of UK firms in ‘critical’ financial distress leapt 50.2% between quarters three and four, to 46,853.

The £146m cap firm has proved itself adept at capturing business in difficult climates like this. Half-year financials released last month showed revenues up 16% year on year between April and September, at £76.3m, and pre-tax profit 57% higher at £4.7m.

I don’t currently think this reflected in the company’s valuation, which leaves scope for substantial share price gains in my view. It trades on a forward price-to-earnings (P/E) ratio of just 8.8 times.

Begbies’ share price could head in the opposite direction if Britain’s economy perks up. But on balance, I think the profits outlook here is pretty robust, helped by the company’s ongoing commitment to acquisitions.

Warehouse REIT

Property stocks like Warehouse REIT (LSE:WHR) have slumped in this era of higher-than-normal interest rates. There’s a danger, too, that this may persist into 2025 and beyond if inflationary pressures remain stubborn.

Greater interest rates are problematic by raising firms’ borrowing costs and depressing their net asset values (NAVs).

Yet I believe this threat is more than baked into the ultra-low valuations of many of these stocks. In the case of Warehouse REIT, the trust’s share price, at 78.2p, sits at a near-40% discount to a NAV per share of 127.6p.

Besides, the prospect of multiple interest rate reductions in the current economic and inflationary landscape remains a very realistic one. On Friday, Lloyds Bank chief executive Charlie Nunn told Sky News he expects as many as three Bank of England rate cuts this year.

There are about 50 real estate investment trusts (REITs) listed in the UK. I like Warehouse REIT because it has multiple growth opportunities to exploit, like the steady rise of e-commerce, increasing onshoring, and the evolution of supply chain management.

With around 450 tenants on its books, its rental income should remain robust too even if one or two companies struggle in the current climate. This means shareholders can look forward to more market-beating dividends.

REIT rules state that at least 90% of annual rental profits must be distributed through dividends. As a result, the forward dividend yield at Warehouse REIT is a robust 8.1%.

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.

The post Looking for stocks to buy? Here are 2 that I think could surge in 2025! appeared first on The Motley Fool UK.

iShares Euro Dividend ETF

My first selection is an exchange-traded fund (ETF), an effective instrument that might help investors diversify their portfolios. The one in question — the iShares Euro Dividend ETF (LSE:IDVY) — offers a 5.7% trailing dividend yield.

At £15.04 per share, it also offers excellent value in terms of earnings. Its corresponding price-to-earnings (P/E) ratio sits at just 8.5 times.

I like the fact the fund’s portfolio is well diversified across different eurozone nations. Around 70% is locked in stocks listed from (in descending order) the Netherlands, France, Germany and Italy. In total, it holds shares in 30 businesses including ABN Amro, ING Group and Bankinter.

On the downside, its sector diversification is narrow, with nine of its 10 largest holdings being financial services companies. This means returns may disappoint in the event of any banking sector (or broader economic) shocks, compared with funds that span more industries.

In total, almost 60% of its the fund is tied up in cyclical financial stocks.

However, this vulnerability may be reflected in the fund’s ultra-low valuation. And investing here exposes me to less risk than putting all my eggs in basket with one or two cheap individual banking shares like Lloyds or Barclays.

Warehouse REIT

Warehouse REIT (LSE:WHR) may be a better choice for more risk-averse investors to consider. As the name suggests, this real estate investment trust (REIT) lets out storage hubs and distribution facilities to businesses.

The advantage here is that the trust’s tenants are tied into long-term contracts, providing a constant stream of income it can distribute to shareholders in the form of dividends.

REITs like this are in fact designed to provide shareholders with a steady stream of passive income. In exchange for certain tax perks, sector rules stipulate they pay at least 90% of annual rental profits through cash rewards.

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.

Such property funds aren’t immune to downturns, however. If a shock is severe enough and revenues dry up, tenants may default on their rents, while occupancy can also drop. And Warehouse REIT has significant exposure to economically-sensitive industries like retail and logistics.

That said, many of the trust’s tenants are financially stable, blue-chip companies like Amazon, John Lewis and Argos, which reduces this danger. It also has hundreds of unique clients which, if one or two encounter difficulties, won’t create waves at group level.

Encouragingly, Warehouse REIT collected an impressive 99.3% of rents it was owed in the 12 months to June, latest financials showed. And its occupancy was a solid 96.4%.

As for the dividend yield, on a 12-month trailing basis this comes in at 7.5%. That’s more than double the FTSE 100 average, which sits way back at around 3.5%.

The post A high-yield dividend ETF and an investment trust to consider this November! appeared first on The Motley Fool UK.

However, while navigating volatile markets can be frustrating, it also can create some exciting opportunities. And if executed correctly, investors can use these price fluctuations to supercharge their long-term returns.

Capitalise, diversify, defend

In the short term, stock markets can be pretty erratic. Investors panicking to protect their wealth often send stocks into the gutter, including the good ones. We’ve seen this countless times where something goes wrong, and terrific companies that are unaffected still get sold off en masse.

It’s hardly a pleasant experience to endure, especially when these top-notch stocks are in my portfolio. However, taking a more ‘glass-half-full’ approach, these situations also create buying opportunities. After all, if the underlying business is still chugging along nicely, a falling stock price is like seeing a discounted special offer in the supermarket.

Being diversified is also quite prudent. By spreading capital across high-quality enterprises in different industries, the overall portfolio impact of one sector being the target of a sell off is minimised. That can make enduring volatile stock markets a bit easier while simultaneously protecting against prolonged cyclical downturns.

The last tactic is to hold firm. Despite the urge to take action when things go wrong, the best move is often to do nothing. Short-term challenges and threats come and go like the wind. However, a hallmark of a high-quality stock is being able to stand through such headwinds and continue to thrive in the long run.

So providing the underlying business doesn’t become compromised, holding through the storm may be the best move to protect wealth.

Looking at an example

Over the last couple of years, plenty of my stocks have been plagued with volatility. And a perfect example of this would be Warehouse REIT (LSE:WHR). The last-mile logistics landlord was thriving for years, piggybacking the tailwinds of e-commerce demand for order fulfilment. But since interest rates went through the roof, trouble landed in paradise.

Since the start of 2022, the stock price has tumbled almost 50% on the back of higher debt costs as well as falling property values. The group’s balance sheet looked healthy when interest rates were near zero. However, since they were aggressively hiked, Warehouse REIT’s leverage shot up, and management was forced to start selling properties to reduce its debt exposure.

That’s obviously problematic. And it’s not surprising for these shares to be hit hard, especially given the loss of love for the real estate sector in general.

However, despite the headaches, management’s handling of the situation appears to have worked. Only non-core assets were disposed of, raising £169.3m while fixing the cracks in the balance sheet. In the meantime, tenants have continued to pay rent with little delay, supplying the cash needed to maintain dividends.

With Warehouse REIT now back in property acquisition mode and the latest contract renewals delivering a 15.1% boost in rental income, the worst appears to be over, despite shares still trading at a massive discount. So personally, I’ll be capitalising on this volatility once I have more capital at hand.

The post 3 key tips to help investors beat volatile stock markets appeared first on The Motley Fool UK.

However, there are plenty of REITs caught in the panic-selling crossfire whose rental cash flows remained resilient, maintaining and even boosting dividends. So much so that I couldn’t help but capitalise on the situation and snap up some terrific bargains and tasty dividend yields.

Jump ahead to today, and these businesses continue to chug along nicely despite what their continued depressed valuations would suggest. And now that the BoE has started cutting interest rates, REITs could be primed to surge in the coming years.

So which stocks did I buy? And should I buy even more today?

Becoming a passive landlord

REITs are a marvellous vehicle for investing in real estate. While a direct investment can provide more control, using this indirect method provides a far more passive approach to generating extra income.

They also open the door to owning some more lucrative commercial real estate rather than being stuck in the more fickle residential sector. And it’s an advantage I fully capitalised on when I bought shares in Londonmetric Property (LSE:LMP), Safestore Holdings (LSE:SAFE), and Warehouse REIT (LSE:WHR).

Across these three stocks, there’s not much variation in the business model. Each owns a portfolio of real estate assets that are leased to businesses or individuals, and the rent is used to service debt and pay dividends. But the companies specialise in different areas of the market.

Londonmetric is predominantly focused on large-scale distribution centres used by retailers and e-commerce giants like Amazon and Tesco. Warehouse REIT caters more to last-mile delivery urban warehouses. And Safestore specialises in self-storage facilities across the UK and Europe.

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.

Debt vs dividends

Buying and developing new properties isn’t cheap, especially in the commercial sector, where the costs venture into the millions. And since their REIT status requires that 90% of net profits must be paid out as dividends, these firms, along with almost every other REIT, are reliant on external financing.

In other words, they’ve each got their own chunky pile of debt to contend with. And that’s created some fairly understandable concern in recent years. Each has seen their interest expenses rise considerably, ramping up the pressure. And Warehouse REIT, in particular, has even had to sell off some properties to shore up its balance sheet.

Yet, despite the wobbles, dividends have remained intact across the board. In fact, both Londonmetric and Safestore have continued to hike shareholder payouts. And when paired with a falling share price, it’s translated into a far more impressive rising dividend yield. That’s why I’m still tempted to add more shares to my portfolio today while they continue to trade at a discount.

The post I bought these 3 REITs for BIG passive income appeared first on The Motley Fool UK.

But looking at the latest results, the firm’s share price may also be on the verge of making a comeback. In other words, today’s juicy yield could be a fleeting opportunity for income investors in 2024. Let’s take a closer look.

Investors vs real estate

Real estate has long had a reputation for being a ‘safe’ investment. Yet the recent shake-up in the economy and stock market was an abrupt reminder that this common belief is wildly untrue. With interest rates rising, property values have tumbled, especially in the commercial sector.

In particular, Warehouse REIT’s portfolio of urban logistical warehouses was hit hard. More expensive mortgages paired with lower demand on the back of weak economic conditions saw its asset portfolio shrink in value. Subsequently, fearful investors send the stock plummeting even further.

Yet this downward trajectory appears to have abated. The Bank of England introduced the first interest rate cut last month, reducing pressure on Warehouse REIT’s balance sheet. Meanwhile, management has completed its property disposal programme, which helped refocus the portfolio while simultaneously pouring in some cash to sort out now-expensive loans.

In other words, the firm is in a much stronger financial position than a year ago. And continued on-time rental payments from tenants have enabled dividends to keep flowing despite all the disruption. Obviously, that’s good news, yet the shares still trade at a near-30% discount to net asset value, indicating a buying opportunity that I’m capitalising on.

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.

A change of strategy?

Weak investor sentiment in the real estate sector can easily explain the high level of pessimism. But it’s not the only factor at play. With the balance sheet back in a sturdy position, Warehouse’s management has begun putting growth back in its crosshairs.

It’s recently executed a £38.6m acquisition of the Ventura Retail Park in Tamworth. It seems the group is capitalising on weak market prices and has locked in a yield of 7.4%. That’s pretty high for such a property. And since it exceeds the group’s cost of debt, it will likely translate into new shareholder value creation as well as higher dividends in the long run.

However, a retail park is a pretty different beast compared to logistical warehouses. This may just be a one-time purchase capitalising on a buying opportunity within the real estate sector. However, suppose management starts buying other non-core properties? In that case, it signals an unannounced and risky change in strategy that would require careful scrutiny.

The bottom line

As interest rates continue to fall, the pressure on Warehouse REIT’s financials, profits, and dividends will steadily alleviate. That will organically provide more flexibility to pursue new growth opportunities, with the proceeds channelling into dividends.

Obviously, there are no guarantees, and until growth is back on track, I’m doubtful that dividends will be hiked further. Nevertheless, the worst appears to be over. And with the shares trading so cheaply, the risk is worth me taking, I believe.

The post 7.4% yield and oversold! Here’s why I’m buying Warehouse REIT shares appeared first on The Motley Fool UK.