The Rural Funds Group (ASX: RFF) share price is down after the farming REIT released its FY21 result.
Rural Funds FY21 result
Rural Funds reported that it generated 36.6 of earnings per unit, representing an increase of 98% year on year. That includes rental profit, $47.7 million of valuation changes and the sale of the Mooral almond orchard at a 21% premium to the adjusted book value.
It generated adjusted funds from operations (AFFO) of 11.9 cents, which was in line with the forecast. This represents the cash net rental profit. Rental income decreased 12% because of the disposal of poultry assets and the Mooral almond orchard.
Rural Funds experienced valuation change increases across its farms, hence the growth of statutory profit. This led to the pro forma adjusted net asset value (NAV) increasing 13% to $2.20 per unit. That’s the underlying value of Rural Funds shares.
The real estate investment trust (REIT) ended the financial year with pro forma gearing (its debt level) of 25%, which was below the target range of between 30% to 35%. It recently did a capital raising.
Distributions
Rural Funds reported that it paid distributions per unit of 11.28 cents per unit, which was an increase of 4%.
Increasing the distribution by 4% per year is one of the business’ key goals for investors.
It’s expecting to increase the distribution by another 4% in FY22 to 11.73 cents per unit.
Growth plans
Rural Funds says that it continues to focus on two strategies within the portfolio which aim to increase earnings for investors. One strategy is the conversion of assets to higher and better use, with an initial 1,000 hectares of macadamia orchards which are expected to be developed in central Queensland by June 2022.
The second strategy is improving the productivity of natural resource assets. This is being deployed on existing cattle and cropping assets within the portfolio.
It’s also looking to buy more cattle and cropping properties which have development potential.
Summary thoughts about the Rural Funds share price
The Rural Funds share price is at a 19% premium to the adjusted NAV. Certainly not cheap, but Rural Funds has a lot of attractive features such as quality tenants, a long average lease expiry of 9.3 years, rental growth and distribution growth.
It has growth plans and it’s one of the ASX dividend shares on my watchlist. However, I’m waiting for a better entry point before investing.
