Real estate investment trust (REIT) farm landlord Rural Funds Group (ASX: RFF) has announced another acquisition to the market this morning.
It's going to acquire a 1,728 hectare cattle property called Dyamberin located in the New England region of New South Wales.
Rural Funds Management outlined that the acquisition will have a purchase price of $13.4 million and is expected to settle by the end of October 2018 next month.
A tenant has already been decided. Stone Axe Pastoral Company is a Wagyu producer that already operates two other properties in the region. It has entered into a 10-year lease, with a similar lease rate as Rural Funds' other existing cattle properties. A security deposit of six months' rent will be provided.
A key reason for the acquisition is that there is potential for productivity developments, which should attract additional rent over time.
However, despite the acquisition Rural Funds is still projecting that FY19 forecast adjusted funds from operations (AFFO), essentially the cash net rental, will be 13.2 cents per unit and the total distribution will be 10.43 cents per unit.
I am pleased to see that Rural Funds is quickly putting its recently-raised capital to work. It's also good to see that the overall revenue is being diversified further. Most of the recent acquisitions have been cattle related. I do wonder if it would be an idea to expand into additional sectors such as fruit or vegetables for further diversification.
Foolish takeaway
Rural Funds is currently trading with a distribution yield of just under 4.8%. This is quite attractive considering the long-term rental contracts and management's prediction of 4% distribution growth for the foreseeable future.
I'd be happy to buy a small parcel at today's price, but I'd rather buy with a forecast yield of above 5%. Rising interest rates could harm the value of property shares over the next year or two.
