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3 REITs offering growth and good income

Real estate investment trusts (REITs) could be the answer for investors looking for a combination of growth and a good level of income.

Commercial property is known for having a much better income yield compared to residential property. It could also achieve steady capital growth because their underlying rental income keeps growing.

Here are three REITs that be good picks:

National Storage REIT (ASX: NSR) 

National Storage is the largest self-storage provider in Australia and New Zealand.

Things are looking good for National Storage with house prices rising again. It benefits from being able to charge more for its units and higher house prices could also mean more people looking for a cheaper place to store their items.

The REIT had steadily increased its distribution until FY19 when it maintained the distribution, which is still a good result. National Storage currently has a distribution yield of 5%.

Rural Funds Group (ASX: RFF)

Rural Funds is a farmland REIT with a variety of farm types including cotton, almonds, macadamias, cattle and vineyards.

The REIT has rental increases that are linked to CPI or a fixed 2.5% rise built into its contracts. This steady income growth allows management to forecast that the distribution can grow by 4% per annum for the foreseeable future.

Increasing distributions supported by growing cash profit support long-term capital growth of the properties and share price. Rural Funds currently has a distribution yield of 5.7%.

Arena REIT No 1 (ASX: ARF) 

Arena owns a portfolio of ‘social’ property including childcare centres, healthcare buildings and specialist disability accommodation facilities.

The REIT has 100% occupancy, a weighted average lease expiry (WALE) of 14.1 years and achieved an average like for like rent increase of 3.6% in FY19. It’s that strong combination of factors which has enabled steady operating earnings and distribution growth. It also reduced its gearing to 22.8% during FY19, improving its balance sheet.

It currently has a FY20 distribution yield of 5%.

Foolish takeaway

All three of these REITs have demonstrated earnings growth over the past few years. I like Rural Funds for its higher yield, although Arena REIT has also been impressive for consistent growth.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended National Storage REIT. 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.