AS the ink dries on the end of year accounts at Australian farm investor Rural Funds Group, it’s already gearing up for another record year.
The property trust is surfing a growing wave of appetite for farmland investment and its shareholders are enjoying the ride.
The company reaped the benefits of its popular strategy last week, completing a $78.6 million, fully underwritten, entitlement offer that will be used to pay down its recent spending spree on prime land and water assets.
In 2016-17 Rural Funds spent a record $80m on new assets.
In October it splashed $34.4m on Murrumbidgee River high security water entitlements – one of the largest private transactions ever made.
The very next month it spent $26.5m on a 5000 hectare cotton farm, Lynora Downs, at Rollerston, Queensland.
“At the moment, it might be as good as it gets in agriculture,” said Rural Funds’ managing director David Bryant, Canberra.
“The scale of our equity raisings have been getting larger each year, mainly because our transactions are getting larger. It’s clear our acquisitions are making sense for our shareholders.”
An extra $5.8m has been deployed by the fund to improve Lynora Downs. Diesel fumes are thick in the air as four scrapers, as well as compactors, graders and water trucks operate seven days a week to boost the property’s growing potential.
The works will be enjoyed by its lessee, Cotton JV (a partnership between its affiliate, Rural Funds Management, and Olam International’s Queensland Cotton Corporation).
An extra 150ha of cotton country will be prepared by September, after which works will begin to prepare another 250ha.
Meanwhile, the fund is spending up to expand its almond plantings.
While prices for the nut are coming down from all-time highs, the fund is wrapping up its project to plant 2500ha of trees at Kerarbury near Griffith. By the end of the year it will own more than 5000ha of trees.
Proceeds from its entitlement offer will also pay for a substantial cattle property which Mr Bryant is hoping to snag later this year.
“We really need to be grateful for the last year,” Mr Bryant said.
“Commodity prices were generally very good; interest rates were at their lowest and so too were fuel costs. We’re seeing land values going up as well as a a consequence.”
“It’s unrealistic to expect all of this will remain, though, and we’re already seeing quite a dry winter.”
Like many agribusinesses, one of Rural Funds Group’s lessees, Rural Fund Management Poultry, was plagued by sky-high electricity prices in 2016-17.
Last year its costs rose by 11 per cent, leaving the business $400,000 out of pocket.
Those costs, however, will be recouped next year when it receives adjustment payments from its processors.
In the meantime, the trust will go ahead with works to fit out its 17 poultry sites (13 of which are clustered near Griffith) with solar panels to curb costs.
Rural Funds Group, which is separate to its farm management wing, derives its revenues from long-term lease rentals. It owns more than $550m of farm assets spanning poultry, nuts, grapes, cotton and cattle.
About 45 per cent of its 6000 investors are institutional while half a per cent are foreign-entities.
The group’s FY17 funds from operations will be about $25m before tax.