Is the Rural Funds Group (ASX: RFF) share price a buy after the farmland property business defended itself further against the short attacks?
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’ Latest Defence
In response to investor enquiries, Rural Funds Management provided two reconciliations to the FY19 financial statements.
The REIT showed investors its adjusted funds from operations (AFFO) by agricultural sector to net profit after tax. It also showed its total adjusted property assets, which have been based on independent asset valuations, to total adjusted assets.
Rural Funds Management said it has a policy to independently value assets at least every two years and rotate valuers every three years. The firms that completed valuation reports are part of global real estate businesses.
CBRE – the world’s largest commercial real estate and investment firm – valued an almond property, most of the cattle properties, one of the cotton properties, all of the macadamia properties and Rural Funds’ water entitlements.
Colliers – one of the world’s largest global real estate companies – valued one of the cattle properties and all of the vineyard properties.
JLL – a professional services firm that specialises in real estate and investment management – valued one of the cotton properties and most of the almond properties.
Rural Funds Management said that the valuation reports are prepared in accordance with International Valuation Standards. At least one qualified valuer physically inspects each asset when preparing the valuation and a second valuer reviews the work and co-signs the completed report.
It also explained that many of the properties have ancilliary assets which are not included in the description in the provided table (such as additional land) and form part of the valuation.
Rural Funds Management apply a director valuation to poultry assets to reflect the increasing age of the infrastructure, the poultry valuations are less than the independent valuation.
Most of the water entitlement valuations are not listed separately, they are embedded in an asset and are included in the independent valuation.
Rural Funds again showed that its distribution is supported by the underlying and recurring cash earnings from its operations – represented as the ‘AFFO’.
I think the REIT is worth considering at this price. It’s priced lower than its net asset value and has a FY20 distribution yield of 6%. There aren’t many income shares trading as attractively as this, although the reliable ones in the free report below could be even better.
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Disclosure: Jaz owns shares of Rural Funds at the time of writing, but this could change at any time.
