The main purpose of investing is to find opportunities that can help us deliver returns. Despite the recent strength of the stock market, some S&P/ASX 200 Index (ASX: XJO) shares look particularly appealing to me right now.
The two ASX 200 shares I'm going to highlight today are two of my favourites in the ASX 200, which is why I've invested in them for my own portfolio.
I believe both businesses can benefit from the Reserve Bank of Australia (RBA)'s interest rate cuts, which is particularly useful because plenty of market commentators are predicting a rate cut later this month.
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Centuria Capital Group (ASX: CNI)
This ASX 200 share is a fund manager predominantly focused on real estate. It also provides exposure to tax-effective investment bonds.
It has exposure to various property subsectors, including office, industrial, real estate finance, large format retail, healthcare, daily needs retail, and agriculture. I like how the business is diversifying its earnings, while continuing to win new client mandates in its core areas.
Despite the headwind of high interest rates, the business has been able to deliver operating earnings growth for investors. In the FY25 half-year result, operating net profit rose 3.4% to $51.1 million, operating earnings per security (OEPS) grew 1.6% to 6.2 cents, and the distribution per security increased by 4% to 5.2 cents. I'm expecting further growth in the medium term.
Rate cuts could help by reducing the cost of Centuria's debt (boosting profit and the distribution), increasing the value of the properties it manages (boosting management fees), and encouraging clients to allocate more funds to Centuria to manage.
The FY25 annual distribution per security of 10.4 cents translates into a distribution yield of 5.7%.
Centuria Industrial REIT (ASX: CIP)
This is one of the real estate investment trusts (REITs) that Centuria manages.
It's focused on high-quality Australian industrial properties, diversified by geography, sub-sector, tenants, and lease expiry. Its biggest three tenants include Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW), and Arnott's.
The ASX 200 share is benefiting from a number of tailwinds, including increased e-commerce adoption, a growing national population, onshoring of supply chains, increased data centre demand, and fresh food and pharmaceutical demand (for temperature-controlled spaces).
Australia has one of the lowest vacancy rates in the Western world, and medium-term demand is expected to exceed future supply, which could help drive rental income higher.
The business is working on a development pipeline worth more than $1 billion, which can help grow rental profit and increase the value of its property portfolio.
I'm expecting RBA rate cuts will help increase rental profit (with lower interest costs) and push up the value of the properties. The REIT is currently trading at a discount of close to 20% to its net tangible assets (NTA) as at 31 December 2024, which is a very appealing discount, in my opinion.
The ASX 200 share's FY25 distribution translates into a distribution yield of 5.2%.
