Rural Funds Group financials: Earnings fall but property revenue up.

A perfect storm of rising interest rates, commodity price drops and floods have caused one of Australia’s biggest landholders to cut its earnings forecast.

The Rural Funds Group has cut its full-year earnings forecast despite posting an increase in revenue from its massive portfolio of rural property holdings.

In a half-year financial statement released on Wednesday, the ASX-listed trust reported that it had revised its adjusted funds from operations forecast down by $0.6c a unit, to $10.7c for 2022-2023.

Rural Funds’ is one of Australia’s biggest landholders with 67 properties worth $1.51 billion across the cropping, cattle, grape growing, and macadamia and almond sectors.

Corporate tenants include AACo, JBS Foods, Queensland Cotton, Treasury Wine Estates, Select Harvests and Olam.

In a webinar, the diversified agricultural trust’s managing director David Bryant said the change in full-year guidance was due to a confluence of spiralling interest rates, softening macadamia wholesale prices and more than $3 million in flood mitigation debt incurred at its almond orchards in the NSW Riverina.

“Roughly speaking they account for about one-third each of the reduction in AFFO forecast,”

he said.

David Bryant, managing director of Rural Funds Management.

However, according to the half-yearly report, the trust’s property revenue increased by seven per cent overall to $37.4 million.

The revaluations were attributed mainly to capital expenditure development and increased projected revenue in the cattle and almond portfolios, with a 36 per cent revenue increase, or $31 million, and a 33 per cent increase, or $29 million, respectively.

Meanwhile, Mr Bryant said the longer term outlook is for revenue to rise due to increasing trust productivity, rising property valuations and increasing rents.

“We think that the headwinds we currently have will subside and the drivers of AFFO will come to the fore and continue to increase,” he said.

He also believes the worst of the macadamia market and interest rate cycles will have passed within two years.

However, Mr Byrant said that while cattle and cropping operators continued to be profitable, as do certain wine producers, the trust had felt the impact of the 10-year average price of macadamias recently halving to about $2.50kg.

Despite this, the trust will push on with a five-year plan to convert about 3000ha of unleased cattle and cropping properties into macadamia orchards to be managed by global asset manager The Rohatyn Group.

Macadamia assets contributed just seven per cent of Rural Funds’ 2021-22 income, but this will increase in coming years with the new plantings.

Mr Bryant also said that despite the drop in projected revenue the funds’ full-year distribution forecast will be maintained and covered by surplus funds.

The group’s 22 cattle properties, leased to producers including AACo and JBS Foods, are currently valued at $558 million.

Its three almond properties are valued at $394 million; its 20 macadamia farms, $240 million; its 16 cropping operations, $181 million; and its six vineyards are valued at $58 million.