The S&P/ASX 200 Index (ASX: XJO) share Centuria Industrial REIT (ASX: CIP) would be my pick of the index because of its underlying value and the earnings growth prospects.
Recent tax changes announced by the Australian government appear to have made residential property less attractive. Commercial property still looks like a great buy to me and they're usually positively geared.
It looks like a great time to invest in this real estate investment trust (REIT) for a few key reasons.
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Strong rental outlook
Over the long term, I believe rising earnings (supported by income growth) will drive share prices higher.
Not many REITs have a strong rental outlook, but I believe this ASX 200 share (one of the country's leading industrial property owners) does.
In the FY26 half-year result, the business reported that its portfolio was on average 20% under-rented, providing future earnings growth potential. That's because the market rent of its properties has increased significantly since the previous rental contract was first signed.
In the FY26 third-quarter update, the REIT reported that re-leasing spreads averaged 36%, reflecting the "significant under-renting that exists within CIP's portfolio and the ongoing comparatively strong market conditions that are prevalent across Australian industrial markets." In other words, the new rental contracts are generating 36% more income than the old ones – that's a huge increase!
The HY26 result also saw the business report an overall 5.1% increase in like-for-like (LFL) net operating income (NOI). I expect the ASX 200 share can continue to benefit from strong demand for facilities focused on e-commerce (distribution and logistics), data centres and refrigerated space (for food and medicine).
The manager of the REIT, Grant Nichols, said in February:
CIP maintains significant earnings upside due to its strong, anticipated medium-term income growth resulting from material under-renting across the portfolio, expected improved portfolio occupancy, prudent completed capital management and the expected market rental growth stemming from Australia's favourable industrial market conditions. Improving tenant demand and constrained supply is expected to drive the national vacancy to less than 2.0% by 2030, providing a pathway to continued strong market rental growth.
Compelling valuation
Despite this strong outlook for the business, it's trading at a sizeable discount to its net asset value (NAV).
I love investing in assets for less than they're worth and this REIT is definitely trading at a cheap price.
It reported in the HY26 result that the net tangible assets (NTA) came to $3.95, so it's trading at a discount of 25% at the time of writing.
There is a large discount despite the REIT's track record of selling assets at a significant premium to the book value. Since FY23, it has sold almost $460 million of assets at an average premium to book value of 12%. This gives me confidence the NTA could actually be conservative, or at the very least fair.
As a bonus, it offers a distribution yield of 5.7%, at the time of writing.
