Opportunities in Small AREITs, Particularly if Bond Yields Are Close to a Peak

After a selloff in recent months caused by rising bond yields, most AREITs look cheap. Two such trusts are Waypoint REIT and Hotel Property Investments, which are 4-star-rated and trade at 17% discounts to their unchanged fair value estimates of AUD 2.80 and AUD 3.30, respectively. The narrow-moat-rated and conservatively geared BWP Trust also appeals though it is less undervalued, trading at just a 6% discount to its AUD 3.60 fair value estimate. All offer solid forecast distribution yields of between 5.3% and 7.3%, albeit with limited distribution growth potential in the medium term as higher debt costs offset rental growth. No-moat-rated Centuria Industrial REIT's security price is down 30% from the late 2021 peak and the trust is well-placed to benefit from strong leasing conditions in industrial markets, but we have some reservations about its financial health and consider it fairly valued.