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The Charter Hall Long WALE REIT (ASX: CLW) share price is down 34% from April 2022, as shown on the chart below. The ASX dividend stock may be able to provide a high level of passive income.
This real estate investment trust (REIT) is one of the larger businesses in the property sector.
It has a portfolio across a range of different property sectors, including office leases with the government, pubs and bottle shops, telecommunication exchanges, service stations, quality retail, grocery and distribution, food manufacturing, waste and recycling management, Bunnings warehouse properties and other sectors.
I’m not suggesting the ASX dividend stock just because it’s fallen. It also has a number of appealing factors that make it a compelling long-term buy.
Appealing rental factors
As the name of the REIT suggests, it has a long weighted average lease expiry (WALE) of 10.8 years. In other words, the business has signed its tenants on long-term rental contracts, which provides a lot of rental visibility for investors and locks in a lot of future income for the business.
At 31 December 2023, Charter Hall Long WALE REIT had an occupancy rate of 99.9%, so its portfolio is generating almost as much rental income as it can. Nearly all of its tenants are government, ASX-listed, multinational or national tenants.
The business is benefiting from a pleasing level of rental income growth, with around half of the portfolio exposed to CPI-linked reviews. The ASX dividend stock reported a weighted average rental review (WARR) of 4.3% in the FY24 first half, which I think is a solid level of rental growth for a diversified REIT.
Large valuation discount?
Every reporting period, the business tells the market what its net tangible assets (NTA) are. This is the business’ best estimate of the underlying value of its assets and liabilities.
At 31 December 2023, the ASX dividend stock had NTA of $5.14 per security, so the Charter Hall Long WALE REIT share price is at a 31% discount to this.
It’s hard to say precisely what the property portfolio is worth without going through a sales process, but another way to look at the business is based on how much passive income it’s producing.
ASX dividend stock’s passive income yield
The business pays out 100% of its operating (rental) profit each year, which is a generous distribution payout ratio.
However, that choice can still lead to success for shareholders because the rental income is steadily growing, and over time, the properties will hopefully increase in value (thanks to the growing rental potential).
The estimate on Commsec suggests the business could pay a distribution per unit of 27 cents, which is a distribution yield of 7.6%. I think that’s a solid yield and could grow in future years with rental growth, though what happens with interest rates could have a sizeable impact on its net rental profits in the coming years.