The ASX stock Charter Hall Long WALE REIT (ASX: CLW) is one of the highest-quality real estate investment trusts (REITs) in my opinion.
It owns a variety of different properties in different sectors, including distribution centres, high-quality retail locations, service stations, pubs and bottle shops, telco exchanges, agri-logistics, waste and recycling facilities, and so on.
The business is managed by the listed manager Charter Hall Group (ASX: CHC).
Since April 2022, the Charter Hall Long WALE REIT share price is down 36% (as shown on the chart below), which is a significant decline for one of the largest property businesses on the ASX.
While interest rates are higher, and causing a headwind for the business, I think there are a number of reasons to like the Charter Hall Long WALE REIT share price at this much lower level.
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Large asset discount
One of the easier ways to find potential opportunities in the REIT sector is by looking at the net tangible assets (NTA), which tells investors how much a REIT's balance sheet is worth – the property portfolio value, the debt, everything.
In this uncertain era, the NTA may not be as reliable as it normally is. For example, how much are its office buildings worth at the moment amid the increased work-from-home by employees?
At 31 December 2023, the Charter Hall Long WALE REIT had a $5.14 per security. The ASX stock is currently at a 32% discount to this value. I think the discount is large enough to offer a healthy margin of safety.
High dividend yield for ASX stock
The business typically has an appealing distribution yield because it usually pays a distribution payout ratio of 100% of its rental profit.
The ASX stock is expecting to pay a distribution per unit of 26 cents in FY24 from its expected 26 cents of operating earnings per security (EPS).
At the current Charter Hall Long WALE REIT share price, this represents an expected distribution yield for FY24 of 7.49%.
I think that's a solid starting point for passive income, and over the long term, there could be more growth to come.
Rental growth
The REIT's rent is steadily growing thanks to the contracted growth.
Some of the rental contracts have growth linked to CPI inflation, while others have fixed rental increases. In the FY24 first-half result, it reported a 4.3 average rent review, which is a solid rental growth rate.
Pleasingly, its portfolio weighted average lease expiry (WALE) was 10.8 years, giving investors good income visibility and security.
If the rental income continues to grow, this can support the ASX stock's property values and may lead to rising distributions.
