Retail parks have significant advantages over other forms of physical retail. And this provides real estate investment trusts (or REITs) here with terrific investment potential.
Retail warehouses are spacious and they offer consumers a wide variety of goods in one place. They are also easily accessible by car and therefore ideal destinations to exploit the Click and Collect boom.
Shopping parks are seen as a more attractive place for people to shop and hang out. And so the number of food and beverage companies setting up shop is also setting up shop here is rocketing, providing further handy boost to rents.
According to Savills there were 794 new store openings in out-of-town retail parks between January and September. And a whopping 31% of these were food and beverage operators. The table below shows how rapidly these firms are setting up shop in UK retail parks.
8.4% dividend yield
So how can UK share investors get exposure to this attractive property sector? One way is by buying shares in Ediston Property Investment Company (LSE: EPIC).
This REIT is focused solely on retail park assets predominantly across Scotland, Wales and the north of England. Some of its largest tenants by income include DIY chain B&Q, discount retailer B&M, and clothing and food retailer Marks & Spencer.
Having robust companies like these on its books provides Ediston with added protection when things get tough. The chances of missed rent payments and of its premises being vacated are much reduced.
Consumer habits are constantly changing. And during this digital age demand for retail parks could steadily decrease as e-commerce clicks through the gears.
But given Ediston’s current low share price this is a risk I’d be prepared to take. Today the REIT trades on a forward price-to-earnings growth (PEG) ratio of just 0.3. A reading below 1 suggests that a stock is undervalued by the market.
What’s more, Ediston also boasts a meaty 8.4% dividend yield at recent share prices.
Another top REIT
Investing in property stocks is a particularly good idea during today’s era of high inflation. Real estate operators can effectively lift rents in response to growing cost pressures, providing profits with an extra layer of protection.
Residential property companies can offer even more security to investors, too. Paying the rent or the mortgage is one of life’s non-negotiables even during cost of living crises.
For this reason I’m considering buying shares in The PRS REIT (LSE: PRSR) for my portfolio. This UK share recorded an impressive 99% of rent collection in the year to June 2022.
Its actually my belief that earnings here might actually soar as rent levels in the UK balloon. Average rents in the UK increased 11% year on year in the third quarter, according to Rightmove.
Rising building costs threaten the profits for businesses like The PRS REIT. But the prospect of robust and prolonged rental income growth still makes this an attractive stock to buy. Demand for rental homes is rising sharply as supply is dwindling.
The company trades on a forward PEG ratio of just 0.7 at current prices. And its corresponding dividend yield sits at a healthy 4.7%.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and Rightmove. 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.
Motley Fool UK 2022