CRITERION: Do these ASX stocks have the REIT stuff for investors?

While investors maintain their faith in property, the uneven performance of the real estate investment trusts (REITs) shows that the sector is not a one-size-fits-all proposition.

Despite rising rates, the ASX200 REITs index is up 21 per cent over the past year, compared with 12 per cent for the broader ASX200 stocks.

Over the past month – a period including the share market flash crashette – REITs are off 2.2 per cent while the broader market has eked out a one per cent gain.

The REITs performance during the profit reporting jamboree shows a divergence of fortunes between the office, industrial/logistics and retail sectors.

Broker Jarden points to more realistic valuations (that is, devaluations). Asset recycling is also a big theme, with trusts willing to sell assets to improve their balance sheets, or to undertake share buybacks.

Accounting for 40 per cent of the REITs index, industrial gorilla Goodman Group (ASX:GMG) led the way with a 15 per cent underlying profit boost to $2.049 billion.

Investors were unperturbed by management’s mild warning that logistics demand has moderated “to levels consistent with those seen at pre-pandemic levels, but remains positive”.

They were more entranced by Goodman’s aggressive push into data centres, those digital repositories deemed crucial for artificial intelligence.

Charter Hall (ASX:CHC) was the biggest winner share-price wise, up 15 per cent after CEO David Harrison said investors might have been “overly negative” about the prospects for the company, which derives most of its income from management fees on well-diversified investments.

Conversely, shares in Dexus (ASX:DXS) this week took an 8 per cent bath after the REIT’s adjusted funds from operations – FFO, the sector’s fancy way of describing a profit – fell well short of expectations.

Dexus is also diversified but its problems at the office were reflected in a $1.79 billion, 15 per cent write-down resulting in a reported $1.58 billion loss.

At least Dexus’s office occupancies are holding up okay, but less so at the pure-play Centuria Office REIT (ASX:COF). Centuria’s FFO fell 12 per cent to $82.2 million – as expected – but less anticipated was guidance of a further 14 per cent decline in the current year.

Office performance also weighed down the diversified Mirvac (ASX:MGR), with operating profit down 5 per cent to $552 million.

As with Dexus, Mirvac notes that office demand is still strong for premium office digs – a market segment to which both REITs are skewed.

Fancy that!

Meanwhile, consumers still seem happy to spend on fripperies if there’s a decent discount sticker attached.

The owner of half of the Chadstone mega mall, Vicinity Centres (ASX:VCX) reported a 3 per cent FFO dip to $664.6 million.

Vicinity expects retail sales to improve in the current financial year, albeit with the heavy qualifier that the “trajectory depends on inflation, interest rates and unemployment”.

In the results wash-up, the office-exposed plays trade at a sharp discount to net tangible asset (NTA) backing. In the case of Centuria Office REIT, that’s a whopping 30 per cent, even after an 8 per cent portfolio devaluation.

Dexus and Mirvac trade on 24 per cent and 17 per cent respectively – the latter after a 13 per cent, $1.9 billion valuation bath.

The deep discounts either imply a good ol’ bargain – or that there are more NTA-sapping write-downs to overcome.

Meanwhile, Goodman Group is widely seen as fully – or over – valued, so investors need to decide whether it’s a case of ‘quality is cheap’ or whether there’s better prospects with the beaten-down office REITs.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

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