The ASX dividend stock Charter Hall Retail REIT (ASX: CQR) is down more than 20%, as the chart below shows. I think this business is an undervalued opportunity for investors.
This business describes itself as a leading owner of property for convenience retailers. In other words, it owns a number of shopping centres around Australia,
It's managed by the fund manager Charter Hall Group (ASX: CHC), which has a lot of experience managing properties in various real estate sectors.
Let's take a look at the passive income potential of the ASX dividend stock and then I'll outline why I think it's a good time to buy.
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Dividend income potential
Commercial properties usually offer a larger yield than residential properties, so they're solid options for passive income. The longer-term leases that are agreed with tenants can create stable income for investors. The business said in its FY25 half-year result that its shopping centre convenience retail portfolio occupancy remained close to 99%.
The setup allows the business to pay consistent and hopefully growing in the coming years.
The ASX dividend stock provided guidance that it would pay a distribution per unit of 24.7 cents in FY25. At the current Charter Hall Retail REIT unit price, it has a FY25 distribution yield of 6.5%.
Good time to buy?
It has been a tricky period for physical retail properties – interest rates have been high, hurting consumers and the business itself because of higher interest costs.
But, the RBA has already cut the Australian cash rate twice and there are predictions there could more cuts in the next 12 months. This could help lower interest costs and also potentially push up the valuations of the properties.
While rental growth hasn't been strong, it remains positive and should help drive rental profits now that interest rates aren't climbing (and are now reducing). In the HY25 result, the business reported like-for-like net property income growth of 3%.
The business said that positive leasing spreads, high occupancy levels, inflation-linked rental growth and moving annual turnover (MAT) growth.
At 31 December 2024, it had net tangible assets (NTA) per unit of $4.57, meaning it's currently trading at a 17% discount. If the RBA does continue cutting rates, I think this ASX dividend stock could be a significant beneficiary.
