Rural Funds Group (ASX:RFF) capital raising


by Jessica Amir

Rural Funds Group (ASX:RFF) Executive Manager, Funds Management, Andrea Lemmon, talks its $78.6m capital raising, FY17 year in review and outlook.

Rural Funds Management (RFM) as a manager and responsible entity of the Rural Funds Group (ASX:RFF) is undertaking a fully underwritten non-renounceable Entitlement Offer for $78.6 million. The proceeds will be used to equity fund Murrumbidgee River high security water entitlements in Lynora Downs, the Central Queensland cotton property, acquired by the Fund in December ‘16. It will also reduce gearing in the Fund, on a pro forma basis from 42.7 per cent to 29.5 per cent, and position the Fund to build its portfolio next financial year.

The first key date is the 14th of June. That’s the date the offer documentation gets sent to our retail investors and the date of the opening of the offer. It’s a two for nine-unit offer, so you’ll receive two new units for every nine units you currently hold, at a price of $1.70 per unit. You need to have your funds at the registry by the 26th of June, at the latest. This will mean your new units are allotted on the 30th of June. All new units allotted under this Entitlement Offer will be entitled to the 30th June distribution, expected to be 2.41 cents per unit. If you have any difficulties with your documentation or don’t receive your documentation, please call RFM Investor Services and we’ll be able to help you. Or logon to the Boardroom website, your investor services portal provides a copy of your documentation.

Without a doubt, the highlight for the financial year for RFF was its entry into the cattle sector. In July ’16, RFF acquired three cattle properties, two in the Gulf of Carpentaria totalling 0.25 million hectares and one in Central Queensland. The lessee breads cattle at the Gulf of Carpentaria and when they’ve achieved the desired weights, they’re trucked down for finishing at the Central Queensland property. RFF is undertaking a planned capital expenditure program at these properties, with the aim of improving their value over time. We do this by improving its carrying capacity, with additional watering holes and pasture improvements well underway.

In December ’16, RFF acquired two key assets, Lynora Downs a Central Queensland cotton operation and a large parcel of Murrumbidgee high security water entitlements. These water entitlements are sufficient to service an almond orchard of 1,000 hectares in size. And will form a cornerstone resource for RFF’s next horticultural developments. Like our cattle operations, our cotton farm is also undergoing a planned capital expenditure, with an increase in the number of hectares grown, due to better utilisation of water entitlements and the construction of a water storage facility.

From a financial perspective, the highlight has been delivering quarterly distributions of 2.41 cents per unit, with a payout ratio of 78 per cent. Backed by a WALE of 13.3 years, one of the longest in the REIT sectors. Looking forward to FY18, our distributions are forecast to increase by four per cent to 10 cents per unit.

Rural Funds Management’s role is to continue its diligent management of RFF’s agricultural assets, and examine new opportunities as they arise. We’re now past the $500 million mark of agricultural assets and our sights are firmly set on growth, but not at the expense of quality.

We’re focused on maintaining our REIT structure and attracting new quality lessees. When identifying new assets, our geographic and sector diversification strategies are important to us. Although this may slow the growth of the Fund from time to time, it protects RFF’s returns over the longer term.

This equity raise resets RFF’s balance sheet, so that we can grow the Fund again. RFM is currently undertaking due diligence on an asset within the cattle sector. If acquired, this asset will increase the Fund’s exposure to natural resource predominant assets. And also leverage off the knowledge that RFF has gained with its entry into the cattle sector last year.