In my view, the ASX property stock Centuria Industrial REIT (ASX: CIP) is a top retirement investment option as an alternative to owning physical real estate.
While owning property is a popular option for retirement investments, the ASX share market can be a useful place to find opportunities. We don't need to invest in commercial property privately to gain access. And residential property doesn't always offer much of a yield, but real estate investment trusts (REITs) can be compelling.
Centuria Industrial REIT is a large business that owns a portfolio of high-quality industrial properties across Australia's key metropolitan locations. It offers strong diversification rather than being focused on one building.
If I were a retiree looking at property stocks, I'd want to see a good (and growing) yield, rising rental income and statistics that suggest there would be stability during a bear market.
Here's why I think this ASX property stock ticks each of those boxes.
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Good and growing yield
In my opinion, the Centuria Industrial REIT distribution yield is more attractive than what bank term deposits offer.
When the business announced its FY24 result, it gave guidance for the 2025 financial year.
It's guiding that it will pay a distribution of 16.3 cents per unit, which currently translates into a future distribution yield of around 5%. I think that's a good yield for retirement.
The FY25 guided payout represents a forecast annual increase of around 2%. Considering the significant headwinds of higher interest rates, I think delivering distribution growth in the current environment is a sign of the quality of the underlying business and the strength of its rental potential.
Rising rental income
There is reportedly strong demand for well-located industrial properties thanks to the tailwinds of growing e-commerce, the onshoring of supply chains after COVID-19 impacts, and a rising population.
Considering there is only so much space in our major cities — which are also crying out for more housing — there is limited industrial space on offer for prospective tenants. This is driving up the market rent for these types of properties.
In FY24, the ASX property stock experienced positive re-leasing spreads of 43% across 39 transactions. That means those new rental contracts are seeing the relevant properties generate 43% stronger rental income than on the old contract. That's a big increase in my book and bodes well for the next few years as more rental contracts come up for renewal.
I think this growing rental income can help fund larger distributions in the coming years.
Stability
Centuria Industrial REIT has a number of positive portfolio metrics that are worthy of highlighting, showing why it could be far more stable than a typical unlisted commercial property.
First, it had an occupancy rate of 97% in FY24, so its properties are highly utilised.
Secondly, approximately 93% of its income comes from blue-chip tenants, which are listed, multinational or national tenant customers such as Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Arnott's.
Third, its tenants are signed on for long-term leases, so the rental income is very visible and secure. For FY24, the weighted average lease expiry (WALE) was 7.6 years.
I think this ASX property stock can deliver good returns in the coming years, particularly once Australian interest rates start reducing.
