The ASX dividend stock Dexus Industria REIT (ASX: DXI) offers a lot of compelling reasons to like it at this lower valuation. In the upcoming period of falling central bank interest rates, I think this could be a lower-risk choice for passive income.

This is a listed real estate investment trust (REIT) which primarily invests in high-quality industrial warehouses across major Australia cities. It aims to provide sustainable income for investors and deliver capital growth over the long-term while maintaining a gearing (debt) range of between 30% to 40%.

In recent times, elevated interest rates have harmed the rental profits and also pushed down on the valuation of commercial property. However, following a 23.50% decline from its peak in September 2021, this could be the right time to pounce.

First, let's look at the passive income potential.

Potential dividend income

Commercial property is capable of providing a much larger rental yield than residential property, which is useful for income-focused investors.

Plenty of REITs pay a significant portion of their rental profits out as a distribution each year.

The ASX dividend stock is expecting to generate 17.8 cents per security of funds from operations (FFO – rental profit) in FY25, and this could fund a distribution per security of 16.4 cents.

At the current Dexus Industria REIT share price, the guided payout translates into a forward distribution yield of close to 6%. That's better than what a term deposit offers, and it can grow from here.

Cheap valuation

Each REIT has an underlying value of the property portfolio. They also have other assets and liabilities such as cash and debt on their balance sheets. This is described as the net tangible assets (NTA), which can be stated as a per-security number.

The ASX dividend stock recently released its result for the six months to 31 December 2024 which outlined a number of things, including the NTA.

At the end of December 2024, its NTA was $3.32 per security, which represented an increase of 2.5% for the six-month period following a net valuation uplift of $34 million due to external independent valuations.

At the current Dexus Industria REIT share price, it's trading at a 16% discount to its underlying value.

Strong tailwinds

Besides the ASX dividend stock's cheap valuation, the outlook looks promising. The business says it's well-placed to generate organic income growth from an attractive mix of fixed and CPI-linked annual rental escalations. In the first half of FY25, the business achieved portfolio like-for-like income growth of 4.7%, driven by an average rent review of 3.7%.

It's benefiting from trends like strong population growth and higher rates of e-commerce. The rate of new supply of industrial properties is "moderate", which "continues to support strong operating conditions", according to Dexus. The business saw new leases across the portfolio achieve a 12.1% rise compared to the old lease rate (called a re-leasing spread) in the HY25 result.

With this underlying growth, the ASX dividend stock can continue to deliver earnings growth, which can then assist longer-term distribution growth. FFO per security is expected to grow 2.3% to 17.8 cents in FY25.