Rural Funds Group (ASX: RFF) is Australia's leading ASX-listed real estate investment trust (REIT) farm landlord. It's my favourite REIT.
Its strategy is to acquire farms, invest capital into productivity improvements and receive increasing rental income over the long-term.
Today, Rural Funds announced more acquisitions after its recent JBS cattle transaction. Rural Funds management didn't hang around.
Cattle property acquisition
The property, Cerberus, is an 8,280 hectare cattle breeding and backgrounding property locked near Rockhampton in Queensland. The cost is $10 million.
The tenant will be Katena Pty Ltd, trading as Bryant Beef, with a 10 year lease and a rent review in year five. The lease rate is consistent with existing cattle property leases. Interestingly, Rural Funds will also provide a $1.6 million cattle finance facility.
Rural Funds plans to spend $2.5 million to increase the carrying capacity by 28% and improve the infrastructure. This will attract additional rent.
Cotton property acquisition
The cotton property, Mayneland, is a 2,942 hectare property located near Lynora Downs – another cotton property owned by Rural Funds in central Queensland. Of the total, 531 hectares is an irrigated assets and 1,757 of dryland area. The purchase price, including plant & equipment, is for $18 million.
Included in the purchase is 11,234 ML of water entitlements, of which a significant amount is unutilised according to Rural Funds. The REIT will invest to make an additional 579 hectares of irrigated area, and a 2,500 megalitre water storage facility is planned.
Rural Funds Management (RFM), the manager of Rural Funds, will operate the property until it can find a tenant before the FY20 cotton season.
Foolish takeaway
I'm glad to see Rural Funds expand in the cotton sector, as well as increasing its diversification. I am not sure whether Rural Funds increasing its cattle financing is a good idea – I'm not saying it's bad, I just don't know. I'm sure management think it's a good way of increasing and diversifying earnings.
The FY19 forecast of adjusted funds from operations, the net rental per unit, will be 13.2 cents and distribution of 10.43 cents per unit remain unchanged. As a unitholder I'm pleasing with today's announcement.
