There are plenty of S&P/ASX 200 Index (ASX: XJO) companies that are trading at historically high price/earnings (P/E) ratios. So, it could be wise for us to be more selective about which ASX shares we might buy.
While a higher P/E ratio doesn't mean that business can't deliver good returns, I think there are some businesses that seem too cheap to ignore at the moment.
The two businesses I'll highlight are both real estate investment trusts (REITs). One of the positives that could help both of them is RBA rate cuts. There have already been two rate cuts this year by the RBA and there are expectations of further rate cuts in the coming years.
Further rate cuts could help the REITs by lowering interest costs and boosting rental profits, which may then boost the distribution.
Rate cuts may also help by increasing the value of the properties thanks to the tailwind that lower rates can provide to asset prices. Let's get into those two ideas and why their valuations are appealing today.
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HomeCo Daily Needs REIT (ASX: HDN)
The ASX 200 share invests in a portfolio of convenience-based assets across neighbourhood retail, large format retail and health and services. It also aims to provide investors with consistent and growing distributions.
Falling interest rates could mean more money in household budgets and enable consumers to spend more at the tenants of the REIT, which I think would be a positive trend.
The business recently reported that as of 30 June 2025, its portfolio value increased $80 million, as well as a $63 million of capital expenditure largely related to development. An increasing portfolio value is good news for unitholders.
At the current HomeCo Daily Needs REIT share price is trading with a FY25 distribution yield of around 7%.
It's trading at a 15% discount to its net tangible assets (NTA) as of 31 December 2024 and remember that the ASX 200 share's portfolio valuation has increased slightly since then.
Centuria Industrial REIT (ASX: CIP)
This is a pure play industrial REIT focused on Australian properties in Australia's cities.
Pleasingly, the business is benefiting from a number of tailwinds amid limited space for big warehouses in Australia's largest cities. There is growing e-commerce adoption, strong demand for data centres and more refrigerated space required for food and medicine.
The pleasing level of demand has led to a very low vacancy rate across the ASX 200 share's portfolio and also helps push the rental income higher. In the HY25 result, it reported an occupancy rate of 96.6% and like-for-like net operating income growth of 6.4%
I think industrial warehouses are more defensive and more likely to deliver rental profit growth than other property sectors such as office buildings and shopping centres.
The ASX 200 share is trading at a cheap valuation compared to its NTA of $3.89 per unit as at 31 December 2024. It's currently at a 20% discount to this value, which I think looks very appealing.
It currently has a distribution yield of 5.2% based on the FY25 distribution.
