Property is a large and diverse asset class. Residential property has made a killing in recent years but sustainable growth from these levels seems questionable and the thought of income is laughable – it is called negative gearing for a reason.
However, I can understand why investors may want a piece of the Australian real estate pie. Perhaps commercial property may be the best way to get property exposure and income.
Here are three of my favourite real estate investment trusts (REITs) on the ASX:
National Storage REIT (ASX: NSR)
National Storage is the largest self-storage provider in Australia and New Zealand with a portfolio of 110 centres spread across the two countries.
Real estate has become very expensive for Australians, which makes storing items a costly use of space if you're paying for an extra bedroom just to store items. Smart storage solutions will only get the property owner so far.
National Storage offers a much cheaper solution and it's proving to be very popular. In its latest report to 31 December 2016 it reported that occupancy rates increased to 79.2% and gearing decreased to 34.6% from 38%.
National Storage is currently trading with a trailing distribution yield of 5.98%.
Cromwell Group (ASX: CMW)
Cromwell Group is a property owner and fund manager. It owns property in many countries, including Australia, New Zealand, the UK, France and Germany.
It has a high payout ratio of 93% of its operating earnings per security, but has increased its distribution every year since 2011.
One of the key reasons for the consistent performance is that a large percentage of Cromwell's tenants are government. Some of Cromwell's biggest tenants (by revenue) are the Australia Federal Government, the New South Wales State Government and the Queensland State Government.
Cromwell is currently trading with a trailing distribution yield of 8.16%.
Arena is one of the largest REITs in Australia that focuses on owning childcare properties.
In its results to 31 December 2016 it revealed an 11% growth in its operating earnings per security and a 9% growth of its distribution per security.
It has an impressive weighted average lease expiry of 10.6 years, which is one of the highest out of all the REITs on the ASX.
Arena currently has a trailing distribution yield of 5.17%.
Foolish takeaway
Out of all the REITs on the ASX, I quite like these three REITs. The REIT industry could face headwinds in the next few years as interest rates rise, so ones with less gearing should do a little better. At the current prices, I like National Storage and Arena.
