The Rural Funds share price has returned over 30% since February 2017 and the Industria share price has returned over 35%, NOT including dividend yields.
I like to think of REITs as a cheap way of investing in property. No required deposit, bad tenants or midnight toilet malfunctions are a bonus.
There are many noteworthy REITs listed on the ASX, such as Scentre Group (ASX: SCG), National Storage REIT (ASX: NSR) and BWP Trust (ASX: BWP). However, I think that Rural Funds and Industria offer the best business models for long-term returns.
Rural Funds Group
Rural Funds Group specialises in agricultural farmland, including cattle, cotton, chickens, macadamias and vineyards. This is a good start already, as farmland has been a lucrative investment for hundreds of years and demand for food, wine and clothes aren’t going away anytime soon.
Additionally, Rural Funds’ average lease is over 13 years, with many having inflation clauses written into their contracts. This has enabled the company to increase its dividend annually since listing in 2014. Furthermore, Rural Fund’s ‘tenants’ include Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV), two of the most successful agricultural businesses in Australia.
Industria REIT (soon to be renamed APN Industria) owns commercial real estate; more specifically, a portfolio of 24 properties worth over $687 million. This consists mainly of industrial and business park assets across Sydney, Melbourne, Brisbane and Adelaide. With commercial property, the tenant pays ongoing costs, such as electricity, rates, repairs and water, which leaves more profits for Industria and its shareholders.
Rather than your standard residential 12-month lease, Industria’s average lease is almost 7 years, with 3% annual rental increases written in. Their tenants include WesTrac, Toshiba and Australia Post, which are fairly reliable clients. Their occupancy rate is currently 96% and their portfolio has a gearing level of 30%, very conservative when compared to most residential property owners.
Both of these REITs offer attractive avenues into the property sector for investors seeking exposure to the real estate market, without the usual pitfalls of owning an investment property. With Rural Funds Group offering a 4.6% yield and Industria offering a whopping 6.05%, I believe either company would be a great way to build an income stream whilst diversifying your portfolio.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Treasury Wine Estates Limited. The Motley Fool Australia has recommended National Storage REIT and Scentre Group. 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.