2 best ASX 200 REITs to watch in March 2023
Charter Hall Long WALE REIT and GPT Group’s results could represent buying opportunities for investors with a long-term timeframe in mind.
ASX 200 real estate stocks, including A-REITs, are a very popular investment as they allow investors the opportunity to profit from the property sector while enjoying the liquidity of the stock market.
But CPI inflation is now at 7.8%, the fastest pace of inflation since the 1990s recession. And Reserve Bank Governor Philip Lowe has already warned that Australia’s labour market is ‘still very tight’ amid stronger than predicted price pressures.
With the cash rate now at 3.35%, the markets are pricing in an increase to circa 4.1% by mid-2023. But Lowe has argued that ‘given there is a significant demand element to inflation, we need to respond to that with further monetary policy...we need to make that clear to the community that we were not done yet.’
Worryingly, the Governor remains uncertain where the peak cash rate may be, only noting that he expects inflation to return to within the 2-3% target range as far away as 2025. This does leave room for rate rises above the present market expectations — despite the potential damage to the property sector.
Rising rates are of course not good news for ASX 200 REITS, as rising rates are typically followed by falling property prices. But with much of the bad news priced in after a poor 2022, now could be the time to invest.
For context, the ASX 200 A-REIT index is now up 7.8% year-to-date to 1,428.5 points. But investors could beat this recovering index with two specific REITs, both of which reported results today.
2 best ASX 200 REITs
1. Charter Hall Long WALE REIT (ASX: CLW)
Charter Hall is a popular A-REIT with a focus on offices, retail, and industrial property. The WALE aspect stands for ‘weighted average lease expiry,’ which allows for a more secure income with long-term leases linked to inflation. CLW has an average WALE of 11.8 years, with half of its rental income inflation linked. This makes the company very attractive to risk-averse investors seeking to combat rising inflation.
In today’s half-year results, the A-REIT saw operating earnings of $101.2 million, net tangible assets of $6.23 per share, and a $65 million net property valuation uplift, a 0.95% increase over former book values.
Fund Manager Avi Anger thinks that ‘CLW has been well placed to benefit from a higher inflationary environment and manage the impact of higher interest rates...portfolio valuation increased as a result of...our inflation-linked leases which drove rental growth and offset cap rate expansion across the portfolio.’
2. GPT Group (ASX: GPT)
GPT Group is another widely held ASX 200 REIT, with a $26.9 billion vertically integrated portfolio of office, logistics, and retail assets.
Today’s 2022 full-year results saw funds from operations rise by 11.9% to $620.6 million, while free cash flow also increased, by 6.7% to $499 million. However, statutory net profit after tax fell from $1.42 billion to $469.3 million, as a result of ‘negative revaluation movements.’ More specifically, outgoing CEO Bob Johnston notes that ‘rising bond yields have led to a softening of valuation metrics for real estate assets...primarily driven by lower valuations for the Office assets.’
Despite this, the A-REIT raised its final distribution by 7.8% to 25 cents per unit.
With GPT shares still down significantly compared to their pre-pandemic price point and a pullback to office work ongoing, the company has recently commenced management of both the $2.8 billion UniSuper direct real estate mandate and the $2.7 billion Australian Core Retail Trust. This could represent a solid entry point for long term investors.
In addition, GPT ranks top of the S&P Global 2022 Corporate Sustainability Assessment for real estate. Johnston notes that ‘GPT’s high quality Retail portfolio is well positioned with high occupancy and strong sales productivity... ongoing structural tailwinds in the sector continues to drive tenant demand, low vacancy rates and strong market rental growth.’
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