Rural Funds Group on acquisition trail after posting improved property revenues

Managing director David Bryant flags future acquisitions in the cattle and macadamia sectors after property revenues grew by 22%.

Rural Funds Group has posted a set of “positive” results and is on the lookout for further acquisitions in the cattle and macadamia sectors, the firm said in its financial statement for the half-year ended 31 December 2019 (HY20).

The group’s revenue from properties increased by 22 percent to A$37.6 million ($24.6 million; €22.1 million) in the second half of the year; a period marred by an attack from US-based short-seller Bonitas Research.

The firm generates income by leasing out the properties it owns, with the majority (78 percent) leased to corporate or listed entities, some of which are backed by private equity investors.

Rural Funds Group highlighted its signing of contracts during HY20 to acquire six cattle properties and two other properties to be converted to macadamia orchards, as well as the sale of its 17 poultry farms and associated plant and equipment to First State Super.

The fund now owns 38 properties across the cattle, vineyards, cotton, macadamias and almonds sectors, with a weighted average lease expiry of 11.5 years.

David Bryant, managing director of Rural Funds Management, the responsible entity for Rural Funds Group, said in a presentation to investors that the results would act as the firm’s latest response to Bonitas Research after the Supreme Court of New South Wales ruled against the short-seller last month.

On the next steps with Bonitas and the level of damages it was likely to face as a result of the court judgement, Bryant said: “They’ll find out in due course.”

He said that Rural Funds Management was on the hunt for new acquisitions after undertaking to deploy the cash it had raised from the sale of its poultry assets.

“I really think our next acquisitions will be in the cattle and macadamia sectors,” Bryant said. We really are excited by the opportunities for [converting properties to] higher and better use in the macadamia industry, and we continue to see lots of properties where the constrained access to capital of previous private owners, have not enabled the full utilization of the natural resource endowment that many of these properties have,” he said.

The sheep industry was also “very attractive”, Bryant said, with the potential to integrate sheep farming operations into some of the assets it acquires.

Rural Funds Group also owns a portfolio of water entitlements, most of which are committed to leases.

“I would expect that water values will probably plateau from here, because they’re at levels where if you’ve got owners of water that are simply renting them out, such as some of the foreign investors that have bought water entitlements without farms, they’re paying such eye-watering prices for those entitlements that the rent they must need to get on them is diminishing as a return on equity,” Bryant said.

“So, I think the propensity of foreign pension funds and other traders of water to bid up entitlements is limited.

“The outlook for RFF’s water entitlements is good – most of those are committed and encumbered by leases, but we have a very large parcel of high-security entitlements that we sell into the open market from year to year, and that’s been a very, very lucrative investment.”

Bryant added that the firm was “biding our time” on the wine sector, having investigated adding new vineyard plantings to its portfolio.

“If we can get the right counter party to plant new vineyards in ultra-premium areas then we would pursue that. We’ve got our sights on blocks of land that would be suitable for it. [But] I wouldn’t foresee that’s going to occur in the next 12 months,” he said.