The S&P/ASX 200 Index (ASX: XJO) stock Centuria Industrial REIT (ASX: CIP) could be a very pleasing source of passive income. It could provide $750 of monthly income with a large enough investment.
There is plenty of talk about what damage interest rates are doing to property values. Higher interest rates also mean that the interest expense for real estate investment trusts (REITs) is increasing.
But, over the past year, the Centurial Industrial REIT share price has dropped by more than 20%. This gives investors the opportunity to invest in the industrial property owner at a much cheaper price.
Industrial properties are still seeing high demand, which has led to a very high occupancy rate and faster-growing rent. The increased level of e-commerce compared to pre-COVID is helping boost the demand for logistics and distribution warehouses.
$750 of monthly income
The ASX 200 stock pays out a lot of the rental profit that it makes each year. This helps the business maintain a relatively high distribution yield.
According to Commsec, the business is projected to pay an annual distribution of 16 cents per unit in FY23. This translates into a forward distribution yield of 5.4%.
If we think of the goal of $750 of passive income per month for an annual goal of $9,000, then investors would need to own 56,250 units of the REIT.
That would be a large investment, but it reflects what's needed.
But, according to Commsec, the business is expected to increase its distribution to 16.5 cents per share in FY25.
If investors just focus on this projected amount, to receive $9,000 per year we'd need 54,545 units.
Is the ASX 200 stock a good buy for passive income?
The fund manager of the REIT, Jesse Curtis, recently said:
Despite continued macroeconomic uncertainty, robust tenant demand coupled with limited supply of industrial supply of industrial space continues to drive market rental rises nationally, accelerating re-leasing spreads…
The portfolio is well-positioned with high occupancy and strong, reliable rental streams. Though transaction volumes have moderated during 2022, industrial asset values are continuing to hold with uplift in market rental growth counteracting capitalisation rate expansion.
The REIT share price is currently trading at a 27% discount to its net tangible assets (NTA) per unit of $4.08 at 31 December 2022. While the NTA may drop, I think a current discount of 27% gives a healthy margin of safety.
After the recent share price fall, I think the ASX 200 stock can be a pleasing option for passive income.
