Trawl for yield -- high-income REITs

Sector Discussions
#1

A trawl on SharePad for high-income shares showed many candidates falling to four distinct sectors — fund managers/financials, insurers, miners and REITs.

Thought I would look at REITs, as this sector has been generally thumped by the pandemic — and try and pick out a number of likely survivors that could sustain the decent yields. My main focus was rent collection, and to try to avoid REITs such as Hammerson that own mainly retail assets and where collections have come c60% below contracted levels.

REITS yield
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Here are five names that caught my eye:

1) Impact Healthcare (IHR). Owns c100 care homes and confirmed in October that 100% of contracted rent for 2020 had been received. Target FY 2020 dividend is 6.29p per share and supports a 5.9% income at 106p. Weighted average unexpired lease term (WAULT) is a very comforting 20 years.

2) Supermarket Income (SUPR). Owns (or part-owns) 48 sites let to leading supermarkets, and confirmed in October 100% of contracted rent for 2020 had been received. Target FY 2021 dividend is 5.86p per share and supports a 5.6% income at 105p. WAULT is good at 16 years for the direct portfolio.

3) PRS (PRSR). Owns c2,600 private rented family homes and confirmed in October that 100% of Q1 rent had been collected. Target FY 2021 dividend is a “minimum” 4p and supports a 5.3% income at 75p. No WAULT for family renters.

4) Civitas Social Housing (CSH). Owns c600 care homes and confirmed this month that “over 98%” of quarterly rents had been received. Target FY 2021 dividend is 5.4p and supports a 5.2% income at 104p. WAULT is a lovely 24 years.

5) Urban Logistics (SHED). Owns 60 or so warehouses and parcel depots and confirmed this week more than 99% of rent had been collected for 2020. No target dividend, but doubling up the 3.25p interim gives 6.5p and supports a 4.5% income at 146p. WAULT is just 5.5 years though.

These five REITs seem to offer a good mix of stable tenants and long leases, with SHED’s distribution facilities in particular enjoying a pandemic e-commerce boost. I make the average dividend yield of the group to be 5.3%, which is not bad. I have not looked at NAVs, management talent or debt levels, and I dare say the dividends may not advance significantly over time. But the rent collection levels at (or very close to) 100% provide a reassuring starting point for further research.

Maynard

1 Like
#2

Hi

I understand that at heart you are a value investor and this sector is out of fashion, however why is the search for dividend yield is a good investment concept in the first place? Is total return not a better investment premise to live by?

Regards,
Ben

20 Years Of ‘Hands-Off’ Dividend Investing
#3

Hi Ben

Dividend yield is one measure of ‘value’ and can be used to unearth out-of-favour ideas. Some names may be interesting, most probably not. That’s it really. Although some investors do live off dividend income and prefer that way of investing. Ultimately total return is what counts for most people, but a useful starting yield can help with that. I looked at high yields because an income investor I know has a rough year this year, and I wondered what the current opportunities were like. I just thought the REITs were interesting.

Maynard

#4

REITS are interesting at the moment, you are right.

I can’t believe retail property reits used to be a safe bet not so long ago!!!

Looking at the reits mentioned, maybe b2b (warehouses etc) may be ‘safer’ than domestic rental reits?

#5

Hi Maynard - Many thanks for your thoroughly interesting submission .Ive looked at the NAVs of your possible suggestions.All are trading at or around NAV. To me this makes our investment in mtvw look exceeding good value relatively . I await with interest their figures due this week. Many thanks again & All the best,
Giles.

#6

Hi Giles,

Thanks for double-checking those NAVs, and the matching valuations probably make sense. With MTVW, the true ‘market’ NAV is based on guesswork as the formal NAV is calculated at cost. And the shares have traded well below ‘market’ NAV for years. But yes, the business should be well placed to pick up any auction-room bargains and I am optimistic of resilient progress. Hopefully the chairman’s statement might be a bit longer than the few lines we usually get at the half year, too.

Maynard