I believe ASX-listed real estate investment trusts (REITs) are attractive investments because of both the passive income and value on offer.
A lot of investors may look at residential property as the preferred option to buy into real estate. But I believe that ASX commercial property investments – which are called REITs – look more attractive today.
Higher interest rates are a headwind for REITs because they increase the cost of debt (interest costs) and weigh on property valuations. But now that the REIT unit prices have dropped, I think it's a great time to invest and be patient until rates start coming down again.
Let me tell you about two of my preferred ideas in the sector.
Compelling options in the REIT sector
Charter Hall Long WALE REIT (ASX: CLW) owns a diversified portfolio of properties across a variety of subsectors, including service stations, hotels, government-tenanted buildings (such as Geoscience Australia), healthcare, distribution centres, telecommunication exchanges, data centres, and plenty more.
I like the diversified nature of the portfolio because it lowers the risk of being too exposed to one sector and it helps it search across real estate sectors for the best opportunities.
Centuria Industrial REIT (ASX: CIP) owns a portfolio of industrial properties across Australian cities.
Industrial property is exposed to a number of demand factors such as growing e-commerce adoption, rising refrigerated space requirements (for food and medicine), data centres, the onshoring of supply chains, and so on. These are good drivers for rental income.
In-built rental growth
I believe certain ASX REITs have compelling potential for rental income growth in the coming years, which can help drive property valuations higher and help fund larger distributions.
Charter Hall Long WALE REIT's rental agreements either have fixed annual increases or inflation-tracking rental increases. That's a pleasing, steady drumbeat of rental growth each year. Its weighted average lease expiry (WALE) is now around nine years, which provides long-term income security.
Centuria Industrial REIT's rental potential has increased significantly over the last few years thanks to the growth in demand and very low vacancy rates. In the FY27 first-quarterly update, Centuria Industrial REIT said that its portfolio was 17% under-rented, so there's a significant runway for future earnings growth as those contracts come up for renewal.
Centuria Industrial REIT's WALE is close to seven years, which is also a long time and provides rental security.
Large asset discounts
Each of these ASX REITs is trading at large discounts, making them seem very appealing to me.
Charter Hall Long WALE REIT reported in August that its June 2026 net tangible assets (NTA) per unit was $4.71. At the time of writing, the unit price of $3.38 is trading at a 28% discount to that NTA.
The Centuria Industrial REIT reported in August that its June 2026 NTA was $4.01 per unit. At the time of writing, the unit price of $2.86 is trading at a 29% discount to that NTA.
Large distribution yields
The final positive piece of the puzzle I want to highlight is the large distribution yields, partly thanks to the significant discounts they trade at.
Charter Hall Long WALE REIT plans to maintain the distribution in FY27 at 25.5 cents per security, the same as FY26, which represents 100% of its operating earnings, which is sustainable. That translates into a forward distribution yield of 7.5%.
Centuria Industrial REIT expects to grow its annual distribution by 3% to 17.3 cents, which is less than 100% of its operating earnings, making it sustainable. That translates into a forward distribution yield of 6%.
Overall, there's a lot to like about these two ASX REITs, and I'm thinking about investing in both of them in the coming months.
The post 2 ASX REITs I'd buy for hefty income appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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