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Rural Funds Group: Diversifying is the key to Australian agri investment

November 11, 2020
Cat McLean

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Rural Funds Group: Diversifying is the key to Australian agri investment

Agriculture is a popular way for investors to diversify their portfolios. Agricultural investments in Australia, however, come with the risks of our sunburnt country.

Agriculture is a popular way for investors to diversify their portfolios. Agricultural investments in Australia, however, come with the risks of our sunburnt country.

Rural Funds Group (ASX: RFF) is an agricultural real estate investment trust (REIT) that seeks to reduce risks by leasing rather than operating assets, and diversifying climatically, rather than geographically.

“We think there’s a lot of sense in having those assets dispersed across different climatic zones so if there’s a weather event, be it a drought or flood, then it’s unlikely that that event would impact all of our assets [or lessees] at the same time,” said GM of Investor Relations, James Powell when he spoke on Reach Market’s webcast ‘The Insider’ last week.

With $1 billion in assets and an $800 million market capitalisation, RFF leases farms to three different market segments. 78% of its leases are some of the world’s largest farming bodies, including the owners of Penfolds wine label, Treasury Wine Estates.

The other two segments are private farming operations as well as farms leased by Rural Funds Management, the manager of the REIT.

According to James, the structure with Rural Funds Management is important because it ensures the manager has operational experience on the ground. 

“They’re [RFM] more aware of the risk and opportunities in the agricultural sectors,” said James.

RFF’s assets are split between farming infrastructure, which are high income generators, as well as natural-resource rich properties. According to James, the land and water are major sources of growth for the fund.

“It’s the natural resource predominant assets that have a higher growth rate. There’s a greater amount of scarce natural resources, land and water, which have historically appreciated over time,” said James.

RFF has an annual 4% distribution growth target which has been achieved through indexation as well as those improvements to productivity and resource and infrastructure developments. 

 

Last week Rural Funds Group General Manager James Powell joined us for our fortnightly webcast ‘The Insider’ . This article is a summary of the information James shared with us during the session. You can watch a full recording below, or you can click here to book into our next session where we will be joined by Antisense Therapeutics (ASX: ANP). 

‘The Insider’ is a great way to hear directly from fast growing Australian businesses. You will get valuable insights to their industries and companies future prospects.

The Insider – Event Details:

Date: 18th November
Time: 12 pm AEDT
Format: Online, 15 minute presentation

This is a free event. Click here to book your spot.

 


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