Is the Rural Funds Group share price a buy?

Is the Rural Funds Group (ASX:RFF) share price a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the Rural Funds Group (ASX: RFF) share price a buy after its latest acquisition?

Rural Funds Group is a real estate investment trust (REIT), it's the largest agricultural landlord listed on the ASX. It owns a number of farms in different sectors including cattle, poultry, cotton, almonds, macadamias and vineyards.

After the market had closed yesterday it announced it is contracted to acquire 'Cobungra', a 6,486 hectare cattle property in Victoria.

The REIT announced that Stone Axe Pastoral Company, a Wagyu producer that leases two other properties from Rural Funds, has entered into a ten-year lease with a rent review in year five. Management said the lease rate is consistent with existing cattle property leases.

Pleasingly, the property has the potential for productivity enhancements with development capital expenditure attracting additional rent.

The purchase price, excluding stamp duty, is $35 million and will be funded by Rural Funds' debt facility. The property is expected to settle in March 2019.

Is it time to buy Rural Funds?

I believe that Rural Funds is the best REIT on the ASX. Farms don't really deteriorate or need updating in the same way that shopping centres, warehouses or office buildings. Farmland has been useful for hundreds of years and it's easy to see Rural Funds' assets being useful for at least decades ahead.

I like that the tenant takes on all of the operational risk, although Rural Funds owns plenty of water entitlements for tenants to use.

A key attraction about Rural Funds is that it has rental indexation increases built into all of its contracts that are linked either to CPI inflation or a fixed 2.5% increase. This allows Rural Funds to forecast an annual increase of 4% to the distribution, which it has achieved since it listed.

It currently has a distribution yield of 4.7% for FY19 and is trading at a sizeable premium to the underlying assets. I think Rural Funds is a great income choice, but the premium means it may not be great for total returns for now – although it remains to be seen what the new adjusted NTA is in the upcoming half year report.

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »