3 reasons why this top ASX 200 REIT is a buy

The S&P/ASX 200 Index (ASX: XJO) real estate investment trust (REIT) Charter Hall Long WALE REIT (ASX: CLW) looks to me like one of the best buys in the property sector. It may be one of the best overall picks in the ASX 200 as well.

As the above chart shows, it's down 18% over the past year. It has declined around 35% since April 2022.

The last five years has seen elevated inflation and a significant rise in central bank interest rates to deal with that inflation. In this economic environment, with a hefty fall of the Charter Hall Long WALE REIT unit price in the last five years, I think it's the right time to invest for three reasons.

Looks very undervalued

One of the easiest ways to value an ASX 200 REIT is by looking at its net asset value (NAV) or net tangible assets (NTA).

The NAV or NTA reflects the underlying value of the business if you combine the value of all the properties, the loans, the cash, and other assets and liabilities.

I think it's a useful measure of how much the business is actually worth, as long as there are regular independent valuations of the properties.

Every REIT should tell investors about its NTA or NAV at the half-year and full-year result. If the unit price (share price) is trading significantly under the NTA, then I'd say it's a clear bargain.

In August, it reported its FY26 results for the 12 months to 30 June 2026. It reported a NTA of $4.71 as of June 2026. At the time of writing and at a unit price of $3.52, it's trading at a 25% discount to its latest NTA.

I believe that discount could noticeably close once interest rates start coming down. I'd guess that could happen in late 2027 or 2028, but time will tell. Hopefully it's sooner rather than later.

Large distribution yield

One of the most pleasing things about the business is its 100% distribution payout ratio. That means it pays out all of its rental profit each year to investors.

Charter Hall Long WALE REIT provides investors with a significant distribution yield because of how generous it is.

It expects to maintain its distribution per security at 25.5 cents in FY27, the same as FY26.

At the time of writing, that translates into a forward distribution yield of 7.2%. That means investors can get a 7.2% cash return in FY27 and own an undervalued business.

Strong rental performance

The final thing I want to highlight is the strong rental characteristics of the business.

Its name relates to the fact that it has a long weighted average lease expiry (WALE) of around nine years. That means the business has locked in almost a decade on rent, on average, from its tenant base.

The tenant base itself is high quality. In the FY26 result, the ASX 200 REIT said it has an occupancy rate of 99% and 99% of its tenants are blue chips (government, national, or international), meaning that it's maximising the rental potential of its property portfolio.

Its real estate is from a number of sectors like service stations, hotels, healthcare, Bunnings properties, grocery and distribution centres, food manufacturing, and plenty more. It's a very diversified portfolio.

Despite having a diverse portfolio, the business is able to regularly reveal rental growth. Its rental income is growing in line with inflation or with fixed annual increases. In FY26, it achieved average annual net property income growth of 3.1%, which is solid as it comes amid year after year of compounding organic rental growth.

I think the ASX 200 REIT is a great buy today and looks undervalued.

The post 3 reasons why this top ASX 200 REIT is a buy appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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