By Lynda Kiernan
Citing that “investment opportunities in natural resource intensive assets are more compelling”, ASX-listed Rural Funds Group (RFF) announced it has agreed to sell its portfolio of 17 poultry farms to ProTen Investment Management, a major developer and operator of broiler chicken farms, for A$72 million (US$49 million).
RFF also cited a wider deficit, higher operational and upkeep costs, and the approaching end of multiple long-term leases that would necessitate upgrades before renewing, as additional drivers for the sale of the assets, which it has owned since 2003.
At the same time, the REIT announced a redeployment of capital through an agreement to acquire three Western Australia cattle properties: the Petro, High Hill, and Willara stations for A$22.6 million (US$15.5 million), which will be leased by Stone Axe Pastoral Company.
The two deals follow a rough period for RFF, which recently came under attack by U.S.-based short seller Bonitas, that published a report in which it claimed that RFF’s reported profitability may be misrepresented, and its shares worthless – a claim that the group’s founder David Bryant vehemently rejects, but nonetheless resulted in RFF’s stock falling by 42 percent or $335 million in one day in August.
This was followed in September by a second account by Hong Kong-based Bucephalus Research which claimed that RFF was inflating its asset valuations. RFF has refuted both attacks, and is in the process of taking Bucephalus to court.
After consideration, RFF decided that continued investment in the poultry sector was a better fit for businesses with greater economy of scale, and reached an agreement with ProTen Investment to sell its poultry assets for a total consideration of A$72 million (US$49 million), just short of the adjusted property value released by Rural Funds Management (RFM) on June 30 of A$74.6 million (US$51 million).
All told, 17 poultry farms will be sold, including 1.43 gigaliters of water rights. Of this total, 11 of the properties have older infrastructure and leases set to expire FY2024. Together, these assets earned $10.7 million, or 16 percent of RFF’s $66.4 million of revenue posted for the year. The capital gained from the sale will be used by RFF to pay down debt, and to roll into what the company sees as more lucrative asset categories.
“Funds realized from the sale of these infrastructure assets, and associated plant and equipment, will be initially used to repay debt,” stated RFF in a release. “Subsequently, it is expected that this capital will be invested in natural resource predominant assets which have the potential for higher total returns. The first of these acquisitions is expected to be three Western Australian (WA) cattle properties.”
Where’s the Beef?
RFF said that it has observed that assets with underutilized natural resources have the potential for higher investment returns, concluding that productivity can be improved, and therefore, value raised. In addition, the company finds that higher returns are gained where assets can be developed to “higher and better use”.
With the proceeds from the sale of its poultry portfolio, RFF will be allocating A$22.6 million (US$15.5 million) to the purchase of three cattle stations north of Perth: the Petro, High Hill, and Willara, which will be leased to Stone Axe Pastoral on much the same terms as its existing cattle property leases – a 10-year term with a rent review at its mid-point. Closing of the deal in April 2020 will bring RFF’s cattle portfolio to 19 properties, in addition to its seven vineyards, two cotton farms, and eight nut operations.
Plans are in the pipeline to further invest in these properties through irrigation and grazing land development to meet operational requirements and to increase productivity, however, both transactions are subject to shareholder approval.
The company has also stated that it is contracted to acquire a property in Queensland for A$1.6 million (US$1 million) to develop into a macadamia orchard. The company will seek out independent lessees for the project, and says it will continue to explore further macadamia development opportunities.
– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.