I invested $2,000 in this beaten-up ASX share which had dropped 60%!

I'm aiming to build my wealth with this stock.

| More on:
A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The last few weeks have been a busy time for investing in my share portfolio. I'm pleased with the latest investment I made with $2,000. I chose a beaten-up share which had declined by 60% from its peak in September 2021.

The company I'm talking about is ASX property share Centuria Capital Group (ASX: CNI).

For readers who don't know this business, it's a fund manager that manages listed and unlisted real estate funds, as well as a relatively small amount of investment bonds.

At the end of September 2023, it had assets under management (AUM) of $21.1 billion, which included $14.1 billion of unlisted real estate, $6.2 billion of listed real estate, and $0.8 billion of investment bonds.

Why I invested in this ASX share

It's completely understandable that investors are feeling pessimistic about the company following the run of interest rate rises. Not only are interest rate rises meant to hurt asset prices, but higher interest rates also increase the cost of debt.

But I thought the sell-off of Centuria was overdone, which is why I invested at an average share price of $1.22.

I believe the ASX property share's AUM will hold up better than some investors may be thinking, partly because of the strength of its industrial properties.

For example, the real estate investment trust (REIT) Centuria Industrial REIT (ASX: CIP) achieved re-leasing spreads of 48% in the FY24 first quarter. This is a huge jump in rental income for those renewed leases.

Centuria owns a substantial amount of Centuria Industrial REIT units on its balance sheet, which helps support its share price and good distributions.

It's also worth pointing out that Centuria Office REIT (ASX: COF) has an occupancy rate of 96.7% and a 4.1-year weighted average lease expiry (WALE), with successful ongoing leasing and an appealing distribution yield. Centuria also owns some units of this real estate investment trust (REIT) as well.

Centuria is still generating pleasing management fees from its portfolio of assets. Ignoring the effect of debt on the financials for just a moment, if the value of those properties falls by, for example, 5%, then Centuria can still get 95% of the former management fee.

What about withdrawals?

Of course, there's a danger that some investors may want to pull all their money from the fund manager amid the interest rate difficulties. I don't know what's going to happen on that front.

However, I think there are a few points of safety against that.

Firstly, the company is winning new mandates, such as a recently announced $500 million one from a US private investment firm looking to acquire assets within the supply-constrained infill industrial markets in Australia.

Second, a significant portion of its AUM is in close-ended funds. In other words, investors will usually need to sell their holdings to other investors if they want to pull out, rather than withdraw them from Centuria.

Thirdly, investors may accept the economic environment and leave their money with Centuria. After all, they invested for property exposure and may continue to want that.

It's possible I may be wrong with my contrarian positivity about this ASX property share, but I think the Centuria share price had fallen to an incredibly attractive price of $1.22. In early trading on Monday, it's currently at $1.445 a share.

The property business had guided that it was going to pay an annual distribution of 10 cents per security in FY24. At the price I bought, that translated into a forward distribution yield of 8.2%. At the current share price, it's a yield of around 7%.

Foolish takeaway

I think the RBA interest rate is going to stay higher for longer than many people are expecting. We recently learned Australia had the strongest annual inflation rate (to September 2023) of the top 15 countries with the biggest economies.

But, at some point, I think interest rates could go down. With investing being a multi-year endeavour, I think a decline in interest rates will help during my planned investment timeframe with my Centuria shares of three-ish years.

Motley Fool contributor Tristan Harrison has positions in Centuria Capital Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Real Estate Shares

Mini house on a laptop.
Real Estate Shares

'Clear path' to 20%+ earnings growth: The ASX 200 stock doing all the right things

Cutting costs while adding customer volumes could prove to be an excellent catalyst for these shares.

Read more »

a woman struggles to hold a large pile of folders and documents with only her eyes appearing over the top of the pile.
Share Market News

Here's how the ASX 200 market sectors stacked up this week

The ASX 200 gained 1.16% amid one key piece of economic news that drove strong gains in the top two…

Read more »

Two businessmen look out at the city from the top of a tall building.
Real Estate Shares

Is now the time to buy this high-yielding ASX dividend share?

We consider the prospects of this real estate investment trust.

Read more »

Three smiling corporate people examine a model of a new building complex.
Real Estate Shares

Broker names 5 ASX REITS to buy and one to sell

Bell Potter has just initiated coverage on a host of REITs. Which does it like?

Read more »

A businessman sits on a chair looking at a pile of chairs stacked up to the ceiling of a white empty room.
Share Market News

Here's how the ASX 200 market sectors stacked up this week

The ASX 200 rose 3.18% this week and the real estate sector reversed its fortunes.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Real Estate Shares

Why is this ASX All Ords stock crashing 14% today?

This company is paying someone to take some assets off its hands.

Read more »

Three smiling corporate people examine a model of a new building complex.
Real Estate Shares

Forget the home loan! How to invest in property with ASX shares

We also look at the capital growth delivered by real property vs. ASX property shares over the past 10 years.

Read more »

A man looking at his laptop and thinking.
Real Estate Shares

This ASX 200 share director just sold $163 million of stock!

There was a major share sale announced this week.

Read more »