The Rural Funds Group (ASX: RFF) share price fell almost 12% on Thursday after being hit by another negative report.

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’ New Attacker

Hong Kong-based Bucephalus Research Partnership is the second foreign outfit to accuse Rural Funds of wrongdoing and creative accounting for Rural Funds Management to charge more fees.

It wasn’t long ago that Bonitas Research was accusing Rural Funds of the same sort of things. However, Rural Funds defended itself against those allegations and is now taking legal action against Bonitas.

Bucephalus said that Rural Funds has been inflating asset values through financial engineering to charge more fees by capitalising asset expenses as asset improvements.

According to Bucephalus’ report, it thinks Rural Funds Group is worth between $1.20 (or $0.80 in a tweet) to $0 per share.

The Sydney Morning Herald quoted Rural Funds’ Managing Director David Bryant as saying: “We see nothing new in it. It’s just a regurgitation of previous, poorly reasoned allegations.

Indeed, on Wednesday, Rural Funds said that it had become aware of the new critical document and said it had been selectively released.

The farmland business then said: “In RFM’s opinion, the document’s criticisms are substantially similar to those made in the recent documents selectively released by short seller Bonitas.

For this reason, RFM recommends investors refer to, and rely on, previous ASX announcements, particularly three announcements released on 27 August 2019.”

Rural Funds is referring to the FY19 full year report, investor presentation and the Ernest & Young report looking into the allegations.

In the accounting world there are times when it is appropriate for an asset expense to be capitalised (and depreciated over time) and add to the asset value rather than expensed, and hopefully generate more rental income. For example, think if you added new expensive air conditioning to a rental property – that would earn more rent and also the rental manager would probably earn a little more if they’re paid on a percentage basis.

Anyway, it has caused the share price to fall again, so for brave investors it may be another buying opportunity, unless Bonitas and Bucephalus are right.

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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 Group at the time of writing, but this could change at any time.