ASX real estate investment trusts (REIT) are companies that own and operate property assets that typically produce income.
Some ASX REITs focus on commercial real estate, such as offices, hospitals, shopping centres, hotels etc. While others focus on residential property.
Interest rates are expected to continue falling, which is good news for REITs.
ASX REITs tend to perform better when interest rates fall because lower borrowing costs, more attractive relative yields, rising property valuations, and improved economic conditions all enhance their profitability and investor appeal.
Broker Macquarie Group Ltd (ASX: MQG) has identified 3 large cap REITs to target this month.
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Mirvac Group (ASX: MGR)
Mirvac Group is a diversified property group with interests across residential and master-planned communities, office and industrial, retail, and build-to-rent sectors.
Its stock price is up roughly 5% in the last year.
The team at Macquarie project further rate cuts in the near term.
The Macquarie Macro Strategy Team forecast a further 75bps of rate cuts this cycle in Australia which should benefit the earnings of multiple players in the sector.
The broker believes this is positive news for REITs such as Mirvac Group.
We remain attracted to the residential sub-sector long term including further support from monetary policy easing in CY25. However, valuation support is closing up with MGR now trading on 12mf consensus P/E of ~18x vs the LTA of ~16x, although remains below the high of ~20.5x in FY21.
Macquarie has an "outperform" rating and target price of $2.38 on the REIT stock.
Based on its current share price of $2.20, this indicates an 8.18% upside.
GPT Group (ASX: GPT)
GPT Group is one of Australia's largest listed property trusts. It owns and manages a portfolio of Australian office, logistics, and retail assets.
Its stock price has risen approximately 12% in the last year.
Macquarie is optimistic on the stock due to management's new strategy targeting 3–6% annual growth in earnings.
Management has committed to a new strategy and long-term incentive performance hurdle of 3-6% CAGR in AFFO per security. Successful execution of the strategy should lead to a higher RoCE and accelerated earnings growth driving outperformance. GPT has reallocated internal resources to win third-party capital; now the focus shifts to delivery.
The broker has an "outperform" rating and target price of $5.36. This indicates a 7.42% upside.
Dexus (ASX: DXS)
Dexus is a major Australian property investor, developer, and manager. It has a large, high-grade office portfolio and a smaller industrial portfolio in Australasia.
Its stock price is similar to this time last year.
Macquarie still likes Dexus despite slow earnings growth.
Despite risks associated with APAC, the group is trading at a 22% discount to Dec-2024 NTA per share, which we believe is an overly pessimistic view of valuation. Despite anaemic earnings growth (-1.6% AFFO CAGR FY24-27), we continue to like the stock on an expected turning point in office near term, and on valuation.
The broker has an "Outperform" rating and target price of $7.50 on this ASX REIT share. This indicates an upside from current levels of 7.60%.
