Farmland real estate investment trust (REIT) Rural Funds Group (ASX: RFF) reported its result to the market today after last week's delay.
I thought it was a solid, promising report after all of the drama that has happened over the last six months
The Rural Funds HY20 numbers
Property revenue increased by 22% to $37.6 million, adjusted funds from operations (AFFO) per unit – the net cash rental profit – rose by 11% to 7.1 cents and total comprehensive income earnings per unit rose by 16% to 8.9 cents.
The REIT said that the positive results were largely due to the JBS transactions, cattle acquisitions, development capital expenditure and lease indexation. Rural Funds also said that it benefited from positive revaluations on its macadamia orchards and cattle properties. The cattle properties were helped by productivity improvements.
It finished December 2019 with a long weighted average lease expiry (WALE) of 11.5 years and capacity for acquisitions with gearing of 26.4% against a target of 30% to 35%.
Distribution and guidance
Rural Funds grew its distribution by 4% and has guided for a FY21 distribution increase of another 4% to 11.28 cents.
FY20 AFFO guidance was increased to 13.5 cents assuming unitholders agree to increase the J&F guarantee after increased lot fed cattle demand from JBS Australia.
Other highlights
Rural Funds has sold its 17 poultry farms to provide funds to reinvest for higher potential growth.
It revealed it has contracts to acquire six cattle properties, including two feedlots, and two other properties to be converted into macadamia orchards.
Rural Funds Management continue to look at acquisition opportunities, particularly ones which have the potential for productivity improvements or ones that can be converted to higher and better use.
Why I think it's still a good income buy
The predictable increase of the distribution means that the FY21 yield is now 5.8% based on a share price of $1.94.
Even if the RBA doesn't cut interest rates, investors don't really have any other option except shares for reliable income.
The REIT is building an attractive record, with a good yield and increasing AFFO. I'd be happy to buy a parcel of shares today for the distribution.
