Tuesday, November 29, 2022

Rural Funds goes nuts, raising $100m to buy macadamia orchards

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Rural Funds Group (ASX: RFF) has launched an equity raising, as the group bets on macadamias, cattle and water in central Queensland.

Rural Funds Group is looking to raise $100 million, at an issue price of $2.47, through a fully underwritten 1-for-8.4 accelerated non-renounceable entitlement offer.

The funds will be used in part to develop 1,000-hectares of macadamia orchards, to be leased and eventually provide material long term AFFO accretion.

As of February, the trust had 67 properties across the almonds, cattle, cropping, vineyards and macadamia sectors, at the time confirming plans to convert cattle stations and sugar cane land into further macadamia opportunities.

Over the 2020 and 2021 financial year the group acquired $104 million worth of land and water across Rockhampton, Bundaberg and Maryborough, in order to develop 5,000-hectares of macadamia orchards.

At the Maryborough site, planting is currently underway, with 500-hectares of orchards expected to be planted by November this year, with a further 500 to be completed at June 2022.

While the remaining land has not yet been developed, as lessees are yet to be identified, with RFF waiting to lease the orchards at a time where the best returns will be achieved.

As the assets are currently undeveloped and as such achieving low rates of return, RFF is arranging to generate income through cropping, primarily sugar cane and through cattle properties.

$85 million in capital is needed to develop 1,000-hectares or macadamia orchards, with $100 million of pro forma balance sheet capacity for cattle and cropping acquisitions, being  provided by the equity raising net of these commitments.

The group intends to acquire additional cattle properties with several corporate lessees and has currently identified cropping sites with development potential.

RFF is also looking at acquiring water entitlements, as it believes that the demand for secure water will only increase as plantings like almond orchards continue.

The group forecasts a FY22 AFFO of 11.6 cpu, upon finalising the lease arrangement of the macadamia orchards and the acquisitions. RFF’s pro forma gearing is at 23.9%, which below their target range of 30-35%.

RFF’s FY22 forecast distribution has been confirmed at 11.73 cpu, reflecting growth of 4% over FY21.

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