This post takes another look at the progress of one of this years IPOs. It seeks to inform readers of relevant information, and is not professional investment afvice. The writer has a small share-holding in his retirement fund portfolio.
Floated February 14 2014 as Australia’s first agricultural REIT, opening at 85 cents and closing at 75 cents. Reached a high of $1 May 28, before easing back to support at 90.cents.
The retracement in June was initiated it would seem by traders, reflected in the decline and convergence of the short-term moving averages, crossing into the longer-term averages, but rebounding in the first three trading days of July. This could be an opportune time for buyers with an investment perspective to enter.
Potential advantages of investing in Rural Funds Management
Existing non-listed agricultural funds have been wrapped into the new listed entity to provide a significant immediately profitable merged enterprise, comprising poultry, and almond properties, and vineyards.
It has a conservative loan:security ratio of 41%.
Assets include not only land but some structural assets, and water.
There has recently been a sell-off of $2.7 million of non-income generating plant and equipment to a subsidiary, enabling reduction of some debt. Since Rural Funds Management now only holds income producing assets, and profit is distributed to share-holders, it is no longer required to meet tax-deferred obligations. Distributions however are taxable in the hands of the shareholders. As a result the Net Asset Valuation has increased to $1.17. The current price of 90 cents is a significant discount to this asset backing.
Although rental yield is only about 5%, as a provider of investment principally for rural land, it enjoys a huge cost advantage over other REITs in not having to meet the costs for maintenance, replacement and refurbishment. A further important consideration is that the occupancy rate is 100%, and the average lease expiry is 13 years.
Buildings depreciate with the passage of time whereas land tends to be a steadily appreciating asset. In addition it has the capacity to divest land surplus to requirements and to trade in non land assets it owns Predicted yield for 2015 is 8.55%.
Most farms are family enterprises. The cost of capital and the unreliability of income are significant problems in generating consistent returns. As a result there is an unmet need for rural finance, and a huge potential market for future investment.