Why I just bought 238 shares of this FTSE 250 REIT

I think the FTSE 250 is a great place to look for stocks to buy. Some of the companies it contains aren’t as well known as their FTSE 100 counterparts, but that just means there’s a better chance of finding a bargain.

Earlier this week, I bought 238 shares in a real estate investment trust (REIT) that’s listed on the FTSE 250. I think the market is overlooking a really good opportunity and I’m happy to try and take advantage.

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The stock

The stock is Supermarket Income REIT (LSE:SUPR). I’ve been looking at this business for a while and the more I see, the more impressed I find myself.

As the name suggests, the company makes money by leasing retail space to supermarkets. It has a portfolio of 55 properties, with an estimated total value of £1.73bn scattered across the UK.

There are only so many supermarket operators in the UK, which means the firm has a little bit of concentration risk with its tenant base. Between them, Tesco and Sainsbury’s account for just over 75% of the total rent roll.

I think this is a limited risk, though. Having a lot of its rent come from good tenants (Supermarket Income REIT collected 100% of the rent it was due on its fully occupied portfolio last year) is no bad thing, in my view.

Disposals

I also really like the sector the company is positioned in. In terms of operators, the grocery sector involves Tesco and Sainsbury’s trying to compete with discount retailers like Aldi and Lidl.

In order to do this, supermarkets are attempting to own their buildings outright. That allows them to avoid rent costs and pass the savings on to customers in the form of lower prices.

This means Supermarket Income REIT might have another opportunity available. With motivated buyers in place, the company could benefit from being able to dispose of units at favourable prices to retailers who want to own their outlets.

Equally, though, the firm isn’t under pressure to sell any of its buildings in the near future. With the average lease still having 13 years remaining, the company can sit and collect rent for some time to come just by maintaining its current portfolio.

A stock I’m buying

I see Supermarket Income REIT as a stock that has an attractive dividend at today’s prices and can provide durable passive income going forward. Despite this, the stock has fallen by 26% over the last 12 months. 

As a result, the dividend yield has increased to over 7.5%, which I view as too good to miss.

I’m fully expecting to continue buying from here. Stabilising interest rates might help the share price to recover, but — while the price stays near its current levels — I’m looking to buy more.