Rural Funds moves out of poultry with sale to First State Super’s ProTen

The listed asset manager, which has been under fire from short-sellers in recent months, has sold the assets in NSW and Victoria because they are ‘better suited to business with greater economies of scale’ like ProTen.

Australian chicken broiler business ProTen has acquired a string of poultry assets from Rural Funds Group for A$72 million ($49 million; €44 million).

The deal will see ProTen, which is owned by First State Super, acquire 17 broiler chicken farms – 11 of which have an average age of 30 years – from Rural Funds Group.

Rural Funds Group’s poultry assets were valued at A$74.6 million by the business in its June annual report, which means the sale has been made at a 3.5 percent reduction to its book value. Of the properties, 13 are close to Griffith, New South Wales, where ProTen already has a significant presence. The four remaining farms are near Lethbridge, Victoria.

The properties have leases in place with RFM Poultry, an entity managed by Rural Funds Management (RFM) and listed on the National Stock Exchange of Australia. The transaction requires the early termination of these leases in 2024.

RFM Poultry is currently contracted to operate the farms and produce broiler chickens for Baiada Poultry and Turi Foods. ProTen has existing long-term supply agreements in place with Baiada for its own properties.

RFM, which is also the responsible entity for ASX-listed Rural Funds Group, said in a statement that it was making the sale because continued investment in the poultry sector was “better suited to businesses with greater economies of scale,” such as ProTen.

The deal will see Rural Funds Group’s adjusted funds from operation fall from A$0.14 ($0.10; €0.09) per unit to A$13.4 in FY20. The firm was forecast to bring in A$10.9 million in rent in FY20 from the poultry properties.

First State Super acquired ProTen in 2018 for approximately A$350 million through a special purpose vehicle called FSS Agriculture, which it wholly owns and which is managed by Sydney private equity firm Roc Partners.

ProTen operated 20 broiler farms prior to this transaction, with the capacity to produce up to 72 million broiler chickens per year. This represented around 11 percent of Australia’s annual broiler chicken production.

Agri Investor understands that the business plan for ProTen has always been to make bolt-on acquisitions to grow the company. Although this first transaction has come earlier than expected in that strategy, the deal made sense for both buyer and seller.

Rural Funds Management did not respond to a request for comment. First State Super referred Agri Investor to the ASX announcement made by RFM.

RFM said in the statement that funds from the sale would be used to repay debt before being invested in other assets with “potential for higher returns.”

The firm has entered into options to acquire three cattle properties in Western Australia as a result – Petro, High Hill and Wellara – for an estimated cost of A$22.6 million. All three properties are located 124-174 miles (200-280km) north of Perth.

All the properties will be leased to Wagyu beef producer Stone Axe Pastoral Company, which is majority-owned by Roc Partners and has already signed leases for properties owned by Rural Funds Group.

First State Super also owns a stake in Stone Axe after investing A$7.7 million in the company in 2018. These leases would be on 10-year terms with rent reviews in year five, which Rural Funds Group said was consistent with others it had signed.

Rural Funds Group has come under fire in recent months after attacks from overseas analysts, with both Bucephalus Research Partnership and Bonitas Research accusing management of inflating asset values and financial performance.

RFM has denied all the allegations made against it and launched legal proceedings against Bonitas in the NSW Supreme Court.