The Australian real estate investment trust (REIT) sector could be a smart move for brave investors. Many ASX real estate stocks have taken a battering in recent years amid high interest rates.
But, this could be the right time to invest in the sector.
For starters, the Reserve Bank of Australia (RBA) is now seeing that Australian inflation is headed in the right direction. In its December statement, the RBA said it's "gaining some confidence that inflation is moving sustainably towards target".
If the RBA does cut rates, even once, it could give the sector a significant boost, particularly if it reduces debt costs and increases the valuation of properties.
With that in mind, I'd want to buy top ASX real estate stocks with compelling properties at a good valuation. A good distribution yield would be a bonus. That's why I like certain Australian REITs.
Australian REITs I'd buy right now
I'm going to briefly outline four ASX REITs that I think could be good investments right now. All of them are trading at an appealing discount to their stated underlying value, called the net asset value (NAV). Their properties have been independently valued.
Rural Funds Group (ASX: RFF) – This farmland landlord owns a diverse portfolio of farms across Australia, leased to high-quality blue-chip tenants. Those rental contracts have rent increases built in, which are either fixed increases or linked to inflation. The Australian REIT is regularly investing in its portfolio to boost productivity and rental potential of the farms. It offers a forward distribution yield of 6.7%.
Centuria Industrial REIT (ASX: CIP) – This business owns a portfolio of high-quality industrial properties, largely spread across Australia's largest cities. Thanks to growth trends like e-commerce and AI/data centres, there is a strong demand for industrial space. This is driving significant rental growth for its properties. It's expecting to pay a distribution of 5.7% in FY25.
Charter Hall Long WALE REIT (ASX: CLW) – This ASX real estate stock owns a diverse property portfolio across a variety of property types, including pubs and bottle shops, service stations, telecommunication exchanges, distribution centres and so on. Blue-chip tenants are signed up for long-term leases, providing stable and long-term rental income. It's expecting to pay a distribution yield of 6.7% in FY25.
Centuria Office REIT (ASX: COF) – This REIT owns office properties across a range of markets. Its properties are not concentrated in the Sydney and Melbourne CBDs. I recently covered my optimistic case for the business in depth. It's expecting to pay a distribution yield of over 9% in FY25, and it's seeing improving trends for office demand, including back-to-office mandates by large companies.
I think all four of these ASX REITs could outperform the ASX share market by the end of 2025.
