This REIT boasts a 7.83% yield and could be 32% undervalued

Real estate investment trusts (REITs) offer a strong income source for investors. This is due to the way the businesses are set up and geared around paying out rental income from the properties managed to shareholders via dividends.

One’s just caught my eye for being both an income idea and a potential value pick.

More than a name change

I’m talking about the Living REIT (LSE:LIVE). Even though this might not be familiar to some, it’s just a name change for the Social Housing REIT. However, the latest change coincides with a significant shift in strategy.

Following the proposed acquisition of Residential Secure Income’s senior living portfolio, the company broadened its investment mandate beyond specialised supported housing to include senior living and care homes. Management said the Living REIT name better reflects this broader focus.

Over the past year, the stock’s up 5%, with a dividend yield of 7.82%. I think part of the stock move was triggered by improved sentiment from the company’s transformation. Yet adding to the new portfolio is also a big plus for the dividend.

Management’s targeting total distributions of 5.79p per share for 2026. I think that’s only going to increase next year and beyond. The enlarged portfolio generates 100% inflation-aligned income. That means inflation won’t erode the dividend’s purchasing power.

Further, the company’s weighted average cost of debt is around 3.15%. With the base rate at 3.75%, that’s impressive and suggests it shouldn’t come under pressure from higher interest costs anytime soon.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Potential value attraction

The share price should (in theory) trade close to the company’s net asset value (NAV). Yet on the latest valuation, it’s a 32% discount. Of course, this can persist for a while. But over time, the stock should recover some of this large gap to ensure it’s more comparable.

Some would flag the large NAV discount as a sign investors have concerns about the business and simply don’t want to buy the stock. It’s true there are risks with the REIT.

For example, these include housing providers, regulation, and tenants’ financial health. Property valuations could fall if interest rates remain elevated, while the new strategy introduces execution risk. The senior living acquisition needs to deliver the benefits management expects.

Weighing it up

I wouldn’t buy Living REIT simply because the yield looks attractive. Yet with an enlarged portfolio, inflation-linked rents and an income-focused strategy, I think that’s what makes it look appealing. The discount to NAV makes it undervalued, in my book.

However, I acknowledge this discount could persist (even for years), so I wouldn’t use it as my primary conviction to buy the REIT. When I put it all together, I’m seriously thinking about buying the stock for income. Investors who agree with me could consider doing the same.

Should you invest £5,000 in Living REIT Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Living REIT Plc made the list?

Jon Smith has no positions in the shares mentioned.