The Rural Funds Group (ASX: RFF) share price is trading 2.27% higher following the release of its FY20 results.
The group is a real estate investment trust (REIT) that owns a diversified portfolio of Australian agricultural assets.
What were the FY20 results?
The group has 61 properties across five agricultural sectors including almonds, cattle, cropping, vineyards and macadamias. The weighted average lease expiry (WALE) is 10.9 years. 78% of revenue comes from corporate or listed tenants.
Property revenue increased 8% to $72 million and earnings (total comprehensive income) per unit lifted 82% to 18.4 cents. This was an increase of 80% on the prior corresponding period (pcp).
Adjusted net asset value (NAV) per unit increased 8% to $1.94 per unit.
Adjusted funds from operations (AFFO) per unit of 13.5 cents was in line with forecast.
Distributions per unit (DPU) of 10.85 cents was also in line with forecast and a 4% increase on the pcp. As a result, it’s in line with the 4% growth target for distributions.
Rural Funds Group gearing is at the lower end of the 30-35% target range.
Independent valuations for almond orchards, macadamia orchards, cattle properties and water entitlements have helped boost the group’s earnings.
Outlook for Rural Funds share price
Rural Funds Group has a commitment to buy central Queensland properties that are suitable to the conversion of 5,000 macadamia orchards. As a result, its expected earnings growth will continue in future years.
To fund the acquisitions, the group is divesting poultry and almond assets. However, the divestment is conditional on completion of due diligence and Foreign Investment Review Board (FIRB) approval.
In addition, while planting of macadamia trees on new properties is expected to start late FY21, lessee discussions are ongoing. The group has advised the developments are expected to take several years.
Furthermore, forecast distributions for FY21 of 11.28 cents and within the 4% growth target has been reaffirmed as a result of the reconfiguration of the portfolio.
AFFO is expected to decrease in FY21 as funds are reinvested to macadamia orchard developments. The company advised they would produce higher income when leased. As a result, AFFO is expected to be 11.7 cents per unit.
Pleasingly, Rural Funds confirmed no lessees had required rent relief.
Currently, the Rural Funds share price is trading at $2.25, a 2.27% increase. The group is just shy of its 52-week high of $2.27.
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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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