Investment properties are at very high earnings multiples across Australia. Most people buying at today's price aren't doing it for the rental income, I'd suggest it's speculating that the price will go up. Speculation isn't a great long-term investment strategy.
However, property is a large asset class that shouldn't be totally ignored. Real estate investment trusts (REITs) are a great way to have exposure to property while receiving income and capital growth.
Here are three of the best REITs in my opinion:
Generation Healthcare REIT (ASX: GHC)
Generation Healthcare is Australia's only listed REIT which is a pure play on healthcare buildings. It has a market capitalisation of $439 million and I think this will steadily grow over the years to come.
It owns a variety of different types of healthcare buildings including hospitals, aged care centres and medical clinics.
In its latest results for the six months to 31st December 2016 it reported a 3% increase to its underlying net operating income and a 1.5% increase to its distribution per unit. Healthcare is a low volatility, yet growing sector which makes it the perfect focus for a REIT.
Generation Healthcare's share price has grown by 121% over the last five years and it currently has a trailing dividend yield of 4.48%.
Arena REIT No 1 (ASX: ARF)
Arena is a REIT that focuses mainly on childcare buildings but it also has a few healthcare buildings as well. It currently has a market capitalisation of $492 million which I think will grow nicely over the years ahead.
In its report to the 31st December 2016 it reported that its net operating profit increased by 13% and its distribution per unit increased by 9%. Childcare is a growing sector and being the landlord makes the proposition a much lower risk for shareholders.
Arena is currently trading with a trailing dividend yield of 5.57%.
National Storage REIT (ASX: NSR)
National Storage is the largest self-storage provider in Australia & New Zealand with a market capitalisation of $725 million. Pleasingly, the number of storage centres in its portfolio has now reached 110.
As a society, we are accumulating more and more things and intelligent storage solutions will only help for so long. That's where National Storage can help people for a reasonable fee to store items in one of its units.
In its report to 31st December 2016 it disclosed a 46% growth of operating profit and the distribution grew by 6.98%. It currently has a trailing dividend yield of 6.29%.
Foolish takeaway
I like all three of these REITs, my order of preference would be Generation Healthcare, then Arena and finally National Storage. I think all three of these will handily beat the returns of investment properties over the next five to ten years.
