The Australian real estate investment trust (REIT), Rural Funds Group, is increasing its exposure to almonds through a deal that will develop two new almond orchards totaling 1,500 hectares in New South Wales and will be backed by a long-term lease to Singapore-based Olam International.

 

The ongoing drought in California, the world’s top almond producing region, has given a market advantage to Australian almond growers. In 2014/15, almonds became Australia’s highest valued horticultural export with annual export sales of $422 million – 14% higher than export sales of the previous year. According to the Almond Board of Australia, the export volume for the year reached 50,000 tons and the domestic sales volume reached 20,000 tons.

 

The threat to supply posed by the drought, combined with an increase in demand, has also driven up prices, with 2014 almond prices reaching above $8.50 per kilogram, compared with $5 per kilogram in 2011, while orchard prices soared from $25,000 per hectare to $47,000 per hectare, according to data from Colliers International.

 

Rural Funds Group, which has $262 million in assets under management, owns poultry farms, almond groves, and vineyards, and supplies companies including Select Harvests, Treasury Wine Estates, and Baiada, has acquired two cropping and grazing properties in New South Wales for $19.25 million. With an investment of $109 million, the two properties will be developed into new almond orchards, which will then be leased to Olam, Australia’s largest almond grower, for a period of 22 years and nine months.

 

Currently, poultry is Rural Funds Group’s top revenue provider, however, almonds, which account for 42% of the REIT’s portfolio by value, could soon become its top earning segment, according to Rural Funds Group managing director, David Bryant.

 

Under the terms of the deal, Rural Funds Group will provide eight megaliters of water per hectare before planting, and more water as the orchards mature. Olam will pay rent on capital expenditure over the initial four years of development, in addition to leasing the property for the remaining 19 years of the lease. The leasing deal established between Rural Funds Group and Olam will be subject to approval from Australia’s Foreign Investment Review Board.

 

The purchase of the property will be funded through a combination of equity, debt, and retained earnings, and once the transaction is complete, development of the site will commence.