There are many real estate investment trusts (REITs) on the ASX. Some focus on shopping centres, some focus on office buildings and others focus on specialised areas.
Rural Funds Group (ASX: RFF) is the only ASX-listed REIT focusing purely on agricultural property and leasing it to tenants. Here are three reasons why I think it's the best REIT:
Diverse property portfolio
Rural Funds has a diverse mixture of properties. Its farm types include almonds, macadamias, cattle, poultry, vineyards and cotton.
These farms are spread across several Australian states and climatic conditions.
Having this diverse portfolio is great for reducing risk and allows management to find the best opportunity to buy next.
Strong rental contracts
Rural Funds has a strong list of tenants. Quite a few of the tenants are listed on a stock exchange such as Select Harvests Limited (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE).
Rural Funds has rental increase indexation built into all of its contracts, so the rent will increase by 2.5% or consumer price index inflation each year. This means management can easily predict what the rental income will be for the upcoming year.
Growing distribution income
REITs often have appealing income and Rural Funds is no different. It currently has a trailing distribution yield of 4.68%.
Management have already revealed they have pencilled in a 10c distribution per unit for FY18, meaning the forward distribution yield is 4.85%.
This is particularly impressive considering the distribution payout ratio is only 80%, leaving plenty of room for re-investing and growth.
Foolish takeaway
The Rural Funds share price has grown a lot over the last year, up by 25%. I don't think the current price is a strong buy, but I'd be happy to add a little to my portfolio. However, if the price were to drop into the $1.70s again I would be very interested.
