The ASX dividend stock Centuria Industrial REIT (ASX: CIP) looks like a very good buy to me right now, it's still down 24% from its 2021 peak.
I'm bullish overall about the real estate investment trust (REIT) sector, but this business in particular looks like one of the top ideas this month.
There are a variety of REITs that we can choose on the ASX, such as ones focused on office buildings, shopping centres, storage units and farmland. Industrial properties could be a particularly good area currently because of the ongoing tenant demand.
As the name suggests, this business provides exposure to industrial properties from across Australia, though mainly focused on major metropolitan areas.
There are a number of reasons why I think the ASX dividend stock is a great buy right now, so let's get into it.
Image source: Getty Images
Big asset discount
Every REIT regularly tells investors what its underlying value is with the net asset value (NAV) or net tangible assets (NTA) metric.
Those businesses get their assets independently valued by experts, so we can have a fairly high level of confidence that the NTA or NAV is reasonably accurate.
The ASX dividend stock reported that its NTA was $3.89 at 31 December 2024, so the business is currently trading at a discount of more than 18%. This seems like a very attractive discount to me considering the longer-term growth for the sector.
The discount also helps provide a good distribution yield. At the current Centuria Industrial REIT unit price, the FY25 distribution translates into a distribution yield of 5.1%.
Strong demand for industrial properties
The REIT said that certain industrial sub-markets continue to "show limited vacancy, limited forward supply, and strong annual rental growth" and these "compelling fundamentals bode well" for its portfolio of properties and for investors. It's benefiting from e-commerce growth as well as other areas of industrial property demand.
In the REIT's FY25 third quarter, the ASX dividend stock reported that it had achieved positive re-leasing spreads of 41% in FY25 to date. That means it's generating 41% higher rental income for the same properties on a new lease compared to the old lease, which is a strong tailwind for rental profit growth.
Centuria Industrial REIT said this rental boost reflects the "robust rental growth across Australia's urban infill industrial markets and the significant under-renting that exists" within the portfolio. In other words, some of the properties are not (yet) generating rent at market rates, so when new leases come up, it should help deliver noticeably stronger rental profits.
RBA rate cuts
I think the Reserve Bank of Australia (RBA) could play a key part in the success of the ASX dividend stock in the medium-term.
The elevated interest rate was a headwind for the business and I think this can turn into a tailwind as the RBA reduces the cash rate.
It can be a tailwind for a couple of key reasons. The interest costs should reduce, boosting rental profit and also fund larger distributions.
Additionally, the rate cuts should boost asset values, such as industrial properties. A rise in the value of properties may be the biggest help in sending the Centuria Industrial REIT unit price higher.
