Dividend investors could stand to benefit from the inclusion of these REITs in their portfolios. Not only do these real estate investments offer attractive yields, but dividends are set to grow robustly over the next few years.
European exposure
Hansteen Holdings (LSE: HSTN) pays a very respectable dividend, with the industrial property focused REIT currently yielding 4.6%. What’s more, city analysts expect its prospective dividend yield will rise to 5.0% this year and to 5.2% by 2017, given forecasts of dividend growth of 4.7% and 5.8%, respectively, over the next two years.
The REIT’s property portfolio was valued at £1.67bn at the end of June this year, with around 40% of its portfolio value located in the UK, 37% in Germany and the remaining 23% located in the Netherlands, Belgium and France. Its large European exposure means investors stand to benefit from the recent fall in the value of the pound against the euro.
Hansteen currently trades at a 12% discount to its June net asset value (NAV), but given the fall in the value of the pound since its last valuation, its discount to NAV has probably widened to around 17%.
Clearly, there are some concerns surrounding slowing economic growth in Europe and the potential impact that has on vacancy rates for industrial property. But Hansteen’s dividends are well covered, with EPRA earnings more than 2.5 times its dividends in 2015. Instead, the fall in the value of the pound should make it more likely that the company will return more cash to shareholders through special dividends.
Student property
Purpose-built student property is one of the hottest new asset classes out there. Because students are willing to pay significantly more money for purpose-built student accommodation compared to local residential homes, investor demand for student property developments remain high.
This should benefit Unite Group (LSE: UTG), the largest purpose-built student property developer. Unite is expected to grow its adjusted earnings per share by 13% this year, with a further increase of 16% for 2017.
With such an attractive outlook on earnings growth, and dividend cover in excess of 1.5x, Unite is in a strong position to deliver robust dividend growth. Shares in Unite currently yield 2.5%, but city analysts expect this yield to rise to 2.9% this year and 3.6% next year.
Moreover, Unite trades at a 4% discount to its NAV of 620p per share. Although Unite’s valuations are not as cheap as many REITs, they have come down significantly on Brexit jitters — its shares traded at a premium of 15% back in May this year.
Brand leader
Shares in Big Yellow Group (LSE: BYG) have been hard hit by the 23 June vote to leave the European Union. The self-storage company’s share price is down 13.6% year-to-date, which compares less favourably to Hansteen and UNITE group, which fell by 3.8% and 8.7%, respectively.
That’s probably due to the fact that storage REITs tend to be more cyclical and because Big Yellow trades at a pricey premium to its NAV. Shares in Big Yellow still currently trade at a 32% premium to NAV, but this ignores the brand value of the company, which as the UK’s market leader, allows it to generate a significantly higher return on investment.
Big Yellow currently yields 3.6%, but analysts expect this will rise to 3.9% this year and 4.3% in 2017.