The Rural Funds Group (ASX: RFF) share price is in focus as the farm owner announced a lease and partial sale.
Rural Funds is a real estate investment trust (REIT) which owns various farms including cattle, vineyards, almonds and macadamias.
Lease and partial sale
Rural Funds has entered into an agreement for the lease of two cropping properties – Mayneland and Baamba Plains – for 10 years. The business that will be leasing the property is managed by The Rohatyn Group (TRG) on behalf of a joint venture between TRG and a global institution investor.
TRG is a global asset management business that’s focused on emerging markets and real assets which manages over US$8 billion of assets on behalf of institutional investors.
The ASX share said the lease rate is in line with existing cropping leases, with triple-net lease terms, with an additional 10 years. There is CPI annual indexation (“within 1.5% to 2.5% range”), plus a profit share mechanism.
The transaction will also include the sale of a 50% interest in the properties which will deliver sale proceeds of $39 million, with a slight potential adjustment relating to water licence certifications.
Farm management services are to be provided to the lessee by a business of Rural Funds Management (the manager of Rural Funds).
Settlement is expected in early FY25, once various conditions have been satisfied, including foreign investment review board approval.
Is the Rural Funds share price a buy?
I think this is an interesting move amid the high interest rate and elevated inflation environment.
The market seems somewhat positive, with Rural Funds shares up 0.5% at the time of writing.
It’s currently trading at a significant discount to its adjusted net asset value (NAV) of above $3 per share as of 31 December 2023.
Rural Funds shares could be cheap with the potential of what may happen when interest rates start being reduced in Australia and the US. It has a distribution yield of close to 6%, which is a good starting point for income, in my view.
It’s one of the ASX dividend shares I’d want to keep an eye on.
