The Rural Funds Group (ASX: RFF) share price has risen as the market responds to its FY23 result and FY24 guidance.
Rural Funds is a real estate investment trust (REIT) that owns different farms such as almonds, cattle, vineyards and macadamias.
Rural Funds share price
FY23 result
Here are some of the highlights from 12 months to 30 June 2023:
- Property revenue increased 10.6% to $81.8 million
- Adjusted funds from operations (AFFO – net rental income) declined 7.2% to $41 million
- AFFO per unit declined 8.5% to 10.7 cents
- Adjusted net asset value (NAV) increased 8.9% to $2.93 per unit
- Distribution of 11.73 cents per unit
Rural Funds said that property revenue increased primarily due to rental income earned on macadamia developments.
The adjusted NAV increase suggests that the underlying net assets are worth more than last year. Rural Funds said that it benefited from externally revalued assets.
The macadamia farms saw a 14% valuation rise, or $21.9 million in dollar terms. Almond farms saw a 12% rise in value, or $47.1 million. The cattle farms saw a 10% rise in valuations, or $26.1 million. Cropping farms saw a 7% rise in the valuation, or $6.8 million. Vineyards saw a 3% rise in valuations, or $1.6 million.
Valuation increases helped the business deliver total earnings of 30.1 cents per unit.
Outlook for the Rural Funds share price
The business has provided guidance that AFFO – the net rental profit – is going to increase by 5% in FY24 to 11.2 cents per unit. This is based on expectations that developments will continue to contribute to growth.
The distribution is forecast to remain at 11.73 cents per unit, which would be the same cash payout as FY23 and FY22. But, the business said it still has a goal of increasing its distribution by 4% per year.
Rural Funds said it has sufficient facility headroom for its FY24 capital expenditure, primarily for the continuation of its macadamia development pipeline. During FY23, a 40-year lease commenced for 3,000 hectares of macadamia orchards which are currently under development. Those developments are “progressing well”.
The REIT also said that it has increased the amount of interest rate hedging and fixed debt facilities to 67%, up from 35.9% in FY23.
Is the Rural Funds share price a buy?
The Rural Funds share price could be attractive, with it seemingly trading at a large discount to what the stated asset values are.
It has a long weighted average lease expiry (WALE) of 13.9 years, and rental income continues to grow. This business offers a forward distribution yield of 6%, which is solid. Hopefully farm values don’t fall too much in the current environment, or else the gearing could look troublesome, and it would hurt the underlying value of the shares.
