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Rural Funds share price higher following asset sale and acquisition

The Rural Funds Group (ASX: RFF) share price has edged higher on Monday after announcing the sale of some assets.

At the time of writing the agriculture-focused property group’s shares are up 1.5% to $1.81.

Asset sales.

This morning the company advised that Rural Funds Management has entered into agreements for the sale of its poultry assets to ProTen Investment Management for $72 million.

Rural Funds owns 17 broiler chicken farms, 11 of which have an average age of 30 years with grower agreements and leases expiring in FY 2024.

Rural Funds Management has decided that continued investment in this sector is better suited to businesses with greater economies of scale.

ProTen is a specialist developer and operator of broiler chicken farms with significant industry presence. This include in the Griffith region of New South Wales, where the majority of these poultry assets are based.

The transaction requires agreement from the lessee to the early termination of the leases and approval by the unitholders of RFM Poultry.

Management advised that the funds realised from the sale of these assets will be initially used to repay debt. After which, it is expected to be invested in natural resource predominant assets which have potential for higher total returns.

Acquisitions.

The first of these acquisitions is expected to be three Western Australian cattle properties.

The release explains that Rural Funds Management has entered into options to acquire three cattle properties: Petro, High Hill and Willara. A purchase price of $22.6 million has been agreed, inclusive of estimated transaction costs. The properties are located between 200km and 280km north of Perth.

These properties will be leased to Stone Axe Pastoral, allowing it to expand and further diversify its Wagyu beef operations.

The leases will be on largely the same terms as existing cattle property leases, including a 10-year term with a rent review in year 5. Settlement is expected to occur April 2020.

Guidance.

Management advised that its current FY 2020 forecast distributions totalling 10.85 cents per unit remain unchanged. Whereas its FY 2020 forecast AFFO, assuming the completion of these transactions, will be 13.4 cents per unit.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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