Rural Funds Group (ASX:RFF) QLD feedlot acquisition and entitlement offer

Interviews

by Jessica Amir

Rural Funds Group Limited (ASX:RFF) General Manager - Investor Relations and Marketing, James Powell, provides an update on the company's recent transaction with JBS Australia for five feedlots in Queensland and New South Wales and its fully underwritten $149.5M entitlement offer.

Finance News Network RFF is pleased to announce a transaction with JBS Australia. JBS Australia are the country’s largest beef processor and are owned by JBS SA (BVMF:JBSS3), the world’s largest protein processor, which includes other meat categories such as pork and poultry. 

The transaction, which we’ve announced contains two parts. The first is a sale and leaseback of JBS’s five feedlots. Collectively, they have a stocking capacity of 150,000 standard cattle units. And these feedlots collectively, represent the largest portfolio of feedlots in the country. The second part of the transaction is a guarantee, which RFF will provide which will be to an entity, which provides the working capital requirements. So that those feedlots can be stocked with cattle, appropriately fed and looked after.

First and foremost, the impact of the transaction on the portfolio is the introduction of a world-class counterpart in JBS, as measured by their market share and processing skills, and capabilities. In addition to that, I’m pleased to report that the diversification within RFF continues to expand. Prior to the transaction, we had just over 10 per cent of our revenue derive from the cattle sector. And this will grow to just under 25 per cent.

The Rural Funds Group has just completed a $149.5 million equity raise, to fund the previously discussed JBS transactions. Then jointly managers on the equity raise were UBS Group (SWX:UBSG), Bell Potter Securities (ASX:BFG) and Wilson HTM Investment Group (ASX:WIG). The entitlement offer was structured as a three for 10. And that means that all of our existing investors were given the opportunity to participate in the offer, on that ratio based on their existing units. I’m pleased to report that the institutional offer, as well as the retail offer were both well subscribed, with a mix of existing and new investors now on the register.

The funds that we’ve raised under that entitlement offer will be used to fund the JBS transaction, which I discussed previously. We also raised $16.6 million as part of that overall raise, to fund the acquisition of a previously disclosed cattle property in central Queensland, which is called Comanche.

And that’s more indicative of the cattle transactions, which we’ve been conducting over the past few years. RFF, as a consequence of this equity raise will have balance sheet capacity, because those transactions were entirely equity funded. Which means that we will be able to use our lower gearing to acquire more assets going forward, to compliment the earnings and diversification of the Rural Funds Group. However, the financial impact of this transaction is an increase to our adjusted funds from operations, which is the free cash flow that the Group generates of 13.2 cents per unit, for FY19.

The focus for Rural Funds Management now that the entitlement offer has completed, really hasn’t changed. Our focus continues to be on the existing assets within the portfolio, as well as working with lessees where appropriate for the role out of the developments, which we’ve arranged with those lessees. We have balance sheet capacity, which I have mentioned already and we will appropriately and prudently acquire assets, as time goes on. However, the next major event on the Rural Group Funds calendar is the reporting of the full year results, which will occur on August 16, 2018.


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