Rural Funds Management - 'Potential for the watchlist'

Australian Agriculture Real Estate Investment Trust Rural Fund

RFM, or Rural Funds Management, (RFF. ASX)  handles about $2.3 billion in agricultural assets for both retail and institutional investors. With 27 years of experience in owning, developing, and operating Australian farmland and agricultural infrastructure, they have a strong track record. Their expertise covers a wide range of sectors, including almonds, poultry, macadamias, cattle, cropping, viticulture, and water. RFM's assets are spread across New South Wales, Queensland, South Australia, Western Australia, and Victoria.

Now, let's talk about the farmland real estate investment trust (REIT) that's making waves on the ASX. Unlike many agricultural companies whose profits can be pretty volatile, Rural Funds offers more stability. That's because their earnings are based on consistent rental income, not the fluctuating prices of commodities.

As of December 31, 2023, Rural Funds reported an adjusted NAV of $3.07 per unit, up about 5% from June 30, 2023, thanks to asset revaluations. Right now, Rural Funds shares are trading at a 33% discount to this NAV, which looks like a pretty good deal to me.

Figuring out exactly how much the farms owned by ASX dividend stocks are worth can be tricky without a sales process, but one good indicator is the distribution yield. Currently, Rural Funds pays an annual distribution of 11.73 cents per unit, which gives a yield of 5.8%. That's a solid starting point if you're looking for passive income.

What's really interesting about Rural Funds is how they build rental growth into their contracts. Some contracts are linked to CPI inflation, while others have a fixed annual increase. This setup helps boost rental income over time, offsetting the higher cost of debt and hopefully leading to larger distributions in the future.

What sets this business apart from others is its REIT structure. They own and lease out valuable land, and they also hold significant water rights, which isn't always reflected in share prices or NAV.

From my experience with this company, they're truly innovative. They adopt best-in-class technology and are very well managed, both on the ground and in the head office.

In short, Rural Funds seems to offer a unique and stable investment opportunity in the agricultural sector, especially compared to the more volatile performance of other agri-companies

 Disclaimer Author owns shares in this 

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