3 REITs to buy for an income-focused portfolio

Here are 3 REITs that you could buy for an income-focused portfolio.

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I think real estate investment trusts (REITs) could be a good way for investors to get exposure to property, receive a good level of income and perhaps deal with less share price volatility.

Despite residential property falls, I think Australian houses just aren't appropriate as an idea for income (or growth for that matter).

I think the below three commercial property REITs could be good ideas:

Rural Funds Group (ASX: RFF)

Rural Funds is a landlord that leases out various farmland including cotton, almonds, macadamias, cattle, poultry and vineyards.

It has high-quality tenants which are leasing the farms for the long-term and are steadily paying more with most of the rental contracts linked to either inflation or a fixed 2.5% increase.

It currently offers a distribution yield of 4.6% and aims to grow the distribution by 4% every year.

Vitalharvest Freehold Trust (ASX: VTH)

Vitalharvest is another farmland REIT, it currently leases its farms to Costa Group Holdings Ltd (ASX: CGC). The farms that it owns largely grow citrus fruit and berries, but it is quite likely to diversify its farm types in the future with acquisitions.

With a profit share agreement with Costa's farms, Vitalharvest currently offers a distribution yield of just over 8% and it could be one to watch in the coming years if it goes on to acquire more attractive.

Arena REIT No 1 (ASX: ARF)

Arena REIT owns a large portfolio of social properties that are leased to long-term tenants with useful demand drivers like population growth and increasing female workforce participation. Most of its property portfolio is childcare centres, but it also owns some healthcare properties and will soon own three specialist disability accommodation properties.

Arena's earnings and distributions are steadily growing each year thanks to regular rental increases and the REIT just gave FY20 distribution guidance of 14.3 cents per share, which translates to a yield of 5.2%.

Foolish takeaway

Each of these REITs have their positives and potential downsides. Both Arena and Rural Funds are trading at high premiums compared to their underlying net assets, so I would pick Vitalharvest at today's prices.

Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and 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.

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