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Did you miss the Rural Funds (ASX:RFF) 94% profit growth in HY21?

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Rural Funds Group (ASX: RFF) reported its FY21 half-year result yesterday, which included a large increase in its statutory profit.

What happened with Rural Funds?

The agricultural real estate investment trust (REIT) announced that its earnings (total comprehensive income) per unit increased by 94% to 17.3 cents.

Rural Funds also reported that its adjusted net asset value (NAV) per unit – which includes water entitlements at market value – increased by 4% to $2.01.

The increase in earnings and adjusted net assets are largely driven by the sale of the Mooral almond orchard at a 21% premium to the book value. This money will be used for re-investing in other farms.

In terms of the adjusted funds from operations (AFFO), it decreased by approximately 7% to 6.6 cents per unit. However, it’s on track to meet its forecast of 11.7 cents per unit. Rural Funds said that AFFO would increase after the completion of its development plans.

There was an increase of the guarantee associated with the JBS-operated feedlots from $82.5 million to $99.9 million, providing increased revenue.

No rent relief was required by lessees during the period due to COVID-19.

Rural Funds disclosed that its gearing ratio was 30.2%, which is at the lower end of its 30% to 35% target.

It had a weighted average lease expiry (WALE) of 11.1 years at the end of December 2020, which is one of the longest in the Australian listed REIT sector.

Macadamia plans

The REIT acquired 22 sugar cane farms for $56.4 million and another three for $18.3 million during the period. These are being leased as cropping properties, with a plan to convert them to macadamia orchards.

Rural Funds is planning to develop 500 hectares of macadamia orchards in the 2021 calendar year. Some Rural Funds management horticultural staff have relocated to central Queensland to oversee the macadamia developments.

It also acquired two cattle properties for $13.1 million for near-term development to macadamia orchards.

The farmland landlord said that it has existing earnings and balance sheet capacity to enable the commencement of the developments while continuing to fund distributions.

Rural Funds Management said that it is currently in the process of securing lessees to further increase revenue generation.

Rural Funds distribution guidance

The FY21 half-year distributions amounting to 5.64 cents per unit is on track with the full-year forecast. The AFFO payout ratio for the six-month period was 85%.

Rural Funds also announced that the forecast FY22 distribution per unit is 11.73 cents, which is in-line with its annual 4% growth target.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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