ASX dividend stock Centuria Industrial REIT (ASX: CIP) is a leading real estate investment trust (REIT), in my opinion.
It's not the largest REIT in the sector, but it is exposed to some of the biggest trends.
According to Centuria, it's the largest domestic pure-play industrial REIT, with a portfolio of high-quality industrial assets located in key metropolitan locations throughout Australia with a quality and diverse tenant base.
Its goal is to provide investors with income and an opportunity for capital growth. That sounds like a good mixture of returns, in my opinion.
As an ASX dividend stock, there are three reasons why I think it's a great pick right now.
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Demand tailwinds driving rental income
More than 83% of its property portfolio is weighted to Australia's urban infill industrial markets. In other words, most of its properties are located in important city locations. It also has high-quality tenants, with 93% of rental income coming from listed, national and multinational entities.
The REIT is exposed to factors like rising e-commerce adoption, a growing population and a trend towards onshoring supply chains after global supply chain uncertainty.
Future growth looked promising, Grant Nichols, fund manager and Centuria head of listed funds, said:
Looking ahead, strong sector tailwinds such as ecommerce adoption, onshoring of production and assembly, data centre growth and increased demand for cold storage will continue to benefit Australian industrial markets, particularly infill industrial markets where these tailwinds are generating the greatest tenant demand.
For a portfolio with existing critical mass in Australian urban infill industrial markets, CIP is positioned to benefit from these tailwinds given the limited potential for additional supply within these markets.
These demand trends and the limited supply are helping drive revenue. In FY24, the business reported 43% positive re-leasing spreads across 39 transactions. This means the ASX dividend stock is generating 43% more revenue on the new rental contract compared to the old one, which is an excellent increase.
I also like the portfolio stats advising that occupancy was 97.1% in FY24, and its weighted average lease expiry (WALE) was 7.6 years. This suggests good rental stability.
Good distributions
The CIP REIT sends most, but not all, of its rental profit each year to investors, which unlocks a good distribution yield.
In FY24, it generated 17.2 cents per unit of funds from operations (FFO) (net rental profit) and paid a distribution of 16 cents – a payout ratio of 93%. Retaining some of that cash means it can improve its balance sheet and invest for future growth.
In FY25, the business expects to grow its FFO per unit by 1.7% to 17.5 cents despite the higher interest rate headwinds. The distribution is guided to grow by 1.8% to 16.3 cents, translating into a forward distribution yield of 5.2%.
Valuation discount
REITs such as this ASX dividend stock tell us the underlying value of the property portfolio (and other assets and liabilities) with a net tangible assets (NTA) value figure. If everything in the business were sold, that figure is how much each unit should be worth.
In June 2024, Centuria Industrial REIT's NTA was reported as $3.87, which means the current share price is at a 20% discount to this figure. I think that's very attractive and suggests that it could be a bargain in the ASX dividend stock space.
