2 leading ASX shares benefiting from booming commercial property prices

Property prices are booming in most places in Australia, including the commercial market. Some ASX shares are benefiting from this.…

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Property prices are booming in most places in Australia, including the commercial market. Some ASX shares are benefiting from this.

There are a group of real estate investment trusts (REITs) that are reporting large valuation increases in the recent financial year.

Here are two that are benefiting from that trend:

Charter Hall Long WALE REIT (ASX: CLW)

This REIT recently reported its FY21 result. Within that, the business experienced a $523 million net valuation uplift, representing a 12.1% increase for FY21.

At the end of the financial year, it had a diversified portfolio across multiple property types with an occupancy rate of 98.3%. Major tenants provide reliability, tenants include government entities, Telstra Corporation Ltd (ASX: TLS), David Jones, Coles Group Ltd (ASX: COL) and Endeavour Group Ltd (ASX: EDV).

The portfolio is worth $5.6 billion across 468 properties with a long weighted average lease expiry (WALE) of 13.2 years. Management say this provides long-term income security.

Not only is the valuation increasing, but its operating earnings per security (EPS) is also rising. It grew 3.2% to 29.2 cents per unit in FY21, with expectations of an increase of at least 4.5% in FY22. The business has a distribution payout ratio of 100%, so investors receive all of the net rental profit each year.

Management say the REIT’s characteristics provide investors with a growing income stream and capital growth, whilst also providing the REIT ASX share with significant insulation from market shocks.

Charter Hall Long WALE REIT is currently rated as a buy by the broker Citi. The broker thinks Charter Hall Long WALE REIT has a FY22 distribution yield of 6.1%. The Citi price target is $5.68 over the next 12 months.

Centuria Industrial REIT (ASX: CIP)

Centuria Industrial REIT is another business that is experiencing sizeable increases in the valuation of commercial properties.

This one is Australia’s largest domestic pure play industrial REIT. In FY21 it experienced a $587 million valuation uplift, which was an increase of 25% in percentage terms. However, this actually led to a 36% rise of the net tangible assets (NTA) per unit to $3.83.

Centuria Industrial REIT said that valuations were being driven by heightened competition and investment demand for industrial and logistics assets with elevated transaction volumes setting new benchmarks for major asset and portfolio sales.

At the end of FY21, the ASX share had 62 properties worth almost $3 billion with an occupancy rate of around 97%. Its weighted average lease expiry is 9.6 years and the weighted average capitalisation (rental) rate was 4.54%.

In FY21 the REIT generated 17.6 cents per unit of funds from operations (FFO) and paid a distribution per unit of 17 cents.

In FY22 it’s expecting to generate FFO per unit of 18.1 cents and pay a distribution of 17.3 cents. At the current Centuria Industrial REIT share price, it has a forward distribution yield of 4.5%.

Centuria Industrial REIT fund manager Jesse Curtis said:

With rising e-commerce, there’s a shift in consumer expectations for rapid delivery times. This creates strong demand from occupiers for assets located in urban infill markets to help manufacture, fulfil or distribute orders quickly, and these markets are a focus for CIP. CIP’s focus centres on building critical mass in key urban infill markets and, through acquisitions, leasing and value-add projects, the REIT aims to deliver long-term sustainable income streams and capital growth to unitholders.

The REIT ASX share is currently rated as a buy by the broker Macquarie Group Ltd (ASX: MQG) with a price target of $4.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET, Macquarie Group Limited, and Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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