Earlier today Rural Funds Group (ASX: RFF) entered into a trading halt pending an announcement regarding a capital raising.
The Australian is reporting that Rural Funds is raising around $150 million for further acquisitions, namely cattle farms.
According to the article, the real estate investment trust (REIT) will acquire five feedlots from JBS, which is Australia's largest meat and food processing company.
The cattle farms are apparently located in New South Wales and Queensland. The underlying properties are being bought for $53 million. It will also provide a guarantee of about $75 million to fund manager Rural Funds Management which will manage the feedlots. Rural Funds Group could generate 9% of income from the guarantee.
The Australian's sources also believe that banks will be providing approximately $250 million of finance for the purchase. Clearly, it is a large deal.
UBS is going to be leading the capital raising.
Should you take part in the capital raising?
Until Rural Funds announces what the price per share is for the raising it's hard to say if it's worth taking part.
At the moment the share price is trading at a 29% premium to the adjusted NTA at 31 December 2017. This is expensive in a world of rising interest rates.
I believe Rural Funds is worth a premium, but I'm not sure it's worth a premium of around 30%. I can understand why investors are attracted to the current yield of 4.85% plus a long-term aim of a 4% increase to the distribution each year.
Depending on the discount for the capital raising, there's a good chance I will take part in the capital raising.
