The Rural Funds Group (ASX:RFF) released its results for the financial year ended 2022 on 31 August. As part of the results announcement, RFM released a number of key activities that occurred within the fund during the year. These included leasing four cattle properties. In addition to that, RFF acquired a number of new cattle properties, which will have further productivity improvements developed on them prior to seeking lessees.
Over the past several years, RFM has been deploying two strategies which seek to improve values and income generation of assets within the Rural Funds Group. Those strategies are converting assets to a higher and better use, or improving the productivity of farms. The productivity improvement strategy is reflected most commonly in the cattle and cropping sectors, and RFF has continued to buy assets which are currently within the portfolio, for which we believe there is further improvement through development to occur. In terms of the higher and better use strategy, a good example is the macadamia developments which are occurring, and that is converting cattle and sugar cane country to a higher-value commodity, being macadamia production.
Shortly after the release of the financial results, RFF announced that it had entered into a lease for up to 3,000 hectares of macadamia orchards, which are under development for a period of 40 years. The lease remains subject to Foreign Investment Review Board approval, and the structure of the lease is such that income is earned by RFF as capital is deployed on the macadamia developments.
Other key highlights of the financial results was an increase in earnings, mainly driven by improved valuations on cattle properties within the portfolio. Not only did this increase earnings, but also it improved our adjusted net asset value to $2.69 per unit. Gearing entered 30 per cent at the end of the period, which is at the lower end of our target gearing range of 30-35 per cent. Forecast distributions have been maintained — that is, a cash distribution of 11.73 cents per unit and a franking credit of 0.47 cents per unit in FY23.
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