Why AREIT investors shouldn’t wait for the starter’s gun - Part 2

This is part 2 of a two-part series. Read part one here.

Ultimately, investing is about putting your money where your mouth is. Opinions without action hold little value. As active managers of the Dexus AREIT Fund, this principle underpins our strategy.

We conduct in-depth research on sector trends, assess management teams and financial statements, and establish stock valuations to ensure we buy wisely, generating reliable income and attractive capital gains for our investors.

This perspective is especially pertinent right now. In part 1 , we argued that 2025 would be the year of the AREIT. Valuations were low, and the sector’s prolonged neglect by investors was poised to change once the Reserve Bank (RBA) signalled imminent interest rate cuts. This, we believe, should trigger an AREIT recovery.

That moment is approaching. On January 29, inflation data for the December 2024 quarter was released, showing inflation at a three-year low of 3.2%, down from 3.5% in the previous quarter. With inflation nearing the RBA’s target range, there is now room for a potential rate cut.

Additionally, economic growth slowed in the September quarter, suggesting that the RBA has the flexibility to adjust rates.

As we said in part 1 , “Wise investors don’t wait for the ‘bang.’ By the time the starter’s gun goes off, much of the opportunity has already passed.” If and when rate reductions are announced, the attractive valuations and reliable yields in the AREIT sector may disappear. Now is the time for action—an approach we are well-prepared for as active investors.

Here are three stocks held in the Dexus AREIT Fund that we believe offer exceptional value and reliable, attractive yields for income investors.

Vicinity Centres (ASX:VCX)

A familiar name for investors and shoppers alike, Vicinity Centres is a retail landlord with a diversified portfolio, including a 50% stake in Chadstone—the southern hemisphere’s largest shopping centre—alongside Direct Factory Outlets (DFOs) and smaller convenience-oriented centres.

While the post-pandemic era has proven that shopping centres remain valuable assets—evident in the foot traffic at Chadstone or any DFO—discretionary retail spending is under pressure due to the rising cost of living. Nevertheless, as highlighted in the last reporting season, many retailers are expanding their physical store presence as omnichannel retailing becomes the norm.

This is particularly relevant for Vicinity, which owns higher-quality, better-performing retail assets than the broader AREIT sector. The company offers a 5.7% distribution yield and trades at a 12.7% discount to net asset value (NAV).

Stockland (ASX:SGP)

As Australia’s largest diversified AREIT and owner of the country’s most extensive residential landbank, Stockland has a dominant presence across major property sectors, including retail, industrial, office, and residential development. However, its primary focus is on master-planned and land lease communities, generating stable rental income streams.

Stockland trades at a 22.3% premium to net tangible assets (NTA), justified by its highly profitable residential development business—the largest in Australia. It currently trades at a 10% discount to NAV and offers a 4.7% distribution yield.

Growthpoint Properties Australia (ASX:GOZ)

Less well-known than the previous two, Growthpoint is significantly undervalued and offers an even higher distribution yield. This may stem from its historical focus on suburban office assets in southeast Queensland and industrial commercial properties.

However, with the recent appointment of CEO and Managing Director Ross Lees—formerly of Centuria Capital, Dexus, and Stockland—Growthpoint is shifting toward expanding its funds management business. The company trades at a 33% discount to NTA and a 38% discount to NAV while offering an 8% distribution yield. If its funds management division grows as expected, Growthpoint appears undervalued, as reflected in its current price-to-earnings ratio (PER).

The table below compares these three stocks against other listed AREITs and the sector overall.

As at 4 February 2025

This comparison highlights two key points. First, all three stocks provide above-average distribution yields, with two maintaining a history of attractive distribution growth. Second, each stock trades at a significant margin of safety.

Margin of safety represents the gap between an asset’s intrinsic value and its market price. It is a concept used to identify and rank undervalued stocks. A higher margin of safety reduces downside risk while enhancing the potential for long-term gains.

As managers of the Dexus AREIT Fund, this is our focus. With the starter’s gun yet to fire and confidence in our strategy, research led approach and valuation methods, we anticipate strong performance from these three AREITs.