Rural Funds Group (ASX: RFF) has reported its FY19 result, is the share price a buy?
Rural Funds Group is a real estate investment trust (REIT) that owns farms and leases them to tenants. Started in 1997, Rural Funds Management now manages $1.2 billion in agricultural assets across New South Wales, Queensland, South Australia and Victoria.
Rural Funds Reports Its FY19 Result
The REIT reported that its property revenue grew by 30% to $66.4 million due to the JBS transactions, acquisitions, development capital expenditure, and lease indexation.
Adjusted funds from operations (AFFO), in other words the cash net rental, rose by 33.8% to $43.25 million. But on a per share/unit basis AFFO rose by 4.7% to 13.3 cents. This was in line with the forecast.
Total comprehensive income (TCI), or in other words the bottom line net profit, fell by 25% to $33 million largely because of a $18 million revaluation decrements on interest rate swaps.
The farmland REIT revealed that its adjusted net asset value (NAV) per unit rose by 7% to $1.80 due to independent revaluations of almond orchards, vineyards and water entitlements. Gearing declined by 6.5% to 31.2%.
The weighted average lease expiry (WALE) reduced to 11.3 years, which is still a long rental timetable in the REIT world.
Rural Funds FY20 Forecast
In FY20 the REIT is predicting that AFFO per unit will increase by 5.3% to 14 cents and that the distribution will rise by 4% to 10.85 cents.
Rural Funds Short Attack
A few weeks ago Rural Funds was the subject of a short attack, accusing it of various foul play with fees and valuations. Rural Funds Management subsequently rebuked that attack and said all the attacks were wrong and that independent accounting firm Ernest & Young (which wasn’t the auditor) would provide a response.
EY has done its report and Rural Funds summarised that the investigation concluded the assertions were not substantiated and corroborated the response made by RFM. RFM has instructed Clayton Utz to commence legal action against Bonitas Research.
Is Rural Funds A Buy?
At the time of writing the Rural Funds share price is up 4.5% to $2.10, meaning the FY20 distribution yield is 5.2%. Considering how low interest rates are, I’d be happy to buy shares today for income assuming there is no further drama to be uncovered.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: Jaz owns shares of Rural Funds at the time of writing, but this could change at any time.