ASX real estate investment trusts (REITs) have an obvious tailwind right now given expectations of interest rate cuts in Australia and the United States.
Of course, those expectations are somewhat complicated by the potential inflationary impact of US tariffs on consumer prices worldwide.
Additionally, the Israel-Iran conflict has led to a bounce in oil prices, and they may go higher if a broader war breaks out in the Middle East.
The S&P/ASX 200 A-REIT Index (ASX: XPJ) is up 5.5% in the year to date (YTD) while the S&P/ASX 200 Index (ASX: XJO) is up 4.2%.
Over the past 12 months, ASX REITs and the ASX 200 have both risen 10.9%.
The REIT sector is somewhat fragmented at the moment, with hot and cold segments contributing to its overall performance.
Working from home has chipped away at office real estate asset valuations, while data centres have become a booming category due to the rising use of artificial intelligence (AI). Retail has been mixed, partly due to more businesses ramping up their online presence.
This week, Dylan Evans from Catapult Wealth has provided his views on two popular ASX REITs.
One is a buy and the other is a sell.
Here's why.
Image source: Getty Images
ASX REITs: Buy one, sell the other
Goodman Group (ASX: GMG)
Goodman Group is the largest ASX REIT with a market capitalisation of $69.38 billion.
It's a bit different from traditional REITs.
Goodman is a global integrated commercial and industrial property group that owns, develops, and manages real estate in Australia, Asia, Europe, and the Americas.
So, it's a REIT, property developer, and fund manager all in one, with $85 billion in assets under management.
Dylan Evans from Catapult Wealth rates this ASX REIT a buy.
Evans says (courtesy The Bull):
Goodman develops and manages a portfolio of quality industrial properties and data centres around the world.
GMG benefits from growth in online retailing, changing supply chains, a tight property supply and quality industrial locations.
In our view, the data centre business is GMG's future growth engine offering additional upside.
Data centres are capital intensive, but are valuable assets in the long term and offer investors a reliable way to access the growing digital economy and increasing data demands.
The Goodman share price closed at $34.53 on Tuesday, up 1.1%.
The ASX REIT is down 4.2% in the YTD and down 2.3% over the past 12 months.
BWP Trust (ASX: BWP)
BWP stands for Bunnings Warehouse Properties.
This ASX REIT manages 82 properties, of which 68 are Bunnings Warehouses.
Evans says the trust is "solid across most metrics".
This includes a modest gearing rate of 21% and a high occupancy rate of 98%.
Evans describes the REIT as a reliable option for income, recently offering a dividend yield of 5%.
However, the analyst currently has a selling rating on the stock.
He says:
Our concern is BWP's reliance on Wesfarmers Ltd (ASX: WES), which contributes 85 per cent of rental income via Bunnings.
Wesfarmers, the owner of Bunnings, also has an ownership stake in BWP.
This relationship provides income security, but may also challenge BWP's capability of maximising rental returns in the long term due to its concentration with Bunnings.
The BWP Trust share price closed at $3.62 on Tuesday, down 1.6%.
The ASX REIT is up 9.4% in the YTD and up 0.6% over the past year.
