Release Date: August 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue from property leasing increased by 8% compared to FY23, driven by additional rent from macadamia orchards and market rent reviews on cattle properties.
- The group achieved earnings of $117 million, or $0.30 per unit, on a full-year basis.
- Independent valuations resulted in a $97 million uplift, particularly in cattle and macadamia assets.
- Total assets increased by 13%, largely due to property valuations and capital expenditure on macadamia developments.
- RFF's core syndicate debt facility was refinanced, increasing the limit and extending the tenor, with 70% of debt fixed at a weighted average hedge rate of 2.8% for FY25.
Negative Points
- Cash earnings or adjusted funds from operations (AFFO) of $0.11 per unit were slightly lower than the guidance of $0.112 per unit due to weather-related CapEx delays and lower cattle prices.
- The smallest sector within the portfolio, vineyards, received a valuation decrement due to challenging industry conditions.
- Gearing increased by 2% to 37%, despite significant capital deployment for macadamia developments.
- Distributions remained flat at $0.1173 per unit, with no expected increase until the payout ratio is below 100%.
- Exposure to commodity price volatility, particularly in macadamia and cattle prices, poses a risk to future earnings.
Q & A Highlights
Q: First question on slide 13, where you're talking about the TRG macadamia lease and the expectation it's going to contribute 18% of FY25 revenue. Is that 18% of property revenue or total revenue including direct farming operations?
A: It's Daniel Yap here. So it is relating to forecast revenue including AFFO contributions from the farming operations.
Q: Within that, is there any expected timing, differentials or nuances in relation to TRG lease revenue in FY25, a little bit like what we saw in FY24?
A: It's Tim Sheridan speaking, James. We can still see some minor movements because there is still CapEx to be rolled out this financial year, but the movements this year, you would expect would be less than last year because there's more trees planted to date. So I think the variability will be minor this year.
Q: On the distribution, what are the triggers or perhaps the hurdles that you're looking at or the Board's looking at for a return to growth in the distribution?
A: It's David speaking. We wouldn't go back to increasing distributions until we know that we're below 100% payout ratio. So I think for the next year as well, it's most likely that distributions will remain flat.
Q: What are the big drivers we should be thinking about for guidance this year?
A: In terms of drivers, the key areas of sensitivity would be interest rates and macadamia prices. The macadamia price is recovering quite strongly. We've assumed $3.70 in our forecasting to provide that AFFO guidance. Regrettably, there's some exposure to that commodity price along with interest rates.
Q: What do you assume for the cost of debt this year?
A: We've assumed rates stay flat at $4.35.
Q: What's driving the volatility in the cattle price?
A: There was a dry season in Southern Australia, leading to a lot of cattle being sold, which drove prices down. However, widespread rain has since led farmers to hold onto their cattle longer, causing prices to recover.
Q: Do you expect the interest cover ratio (ICR) to change significantly this year?
A: If interest rates stay flat, the ICR should stay around the same level. We'll be generating more revenue, so we expect it to track similarly.
Q: How do you plan to get gearing back in line with your targets over the medium term?
A: Our main job is to grow our income and AFFO through the completion of macadamia orchards and better utilization of farms. The full utilization of our development pipeline and indexation clauses in our leases will gradually increase our income.
Q: Are there any plans for further asset sales over FY25?
A: Yes, we are working on selling some unutilized assets and exploring asset sales to drive the development of our unutilized water entitlements. We have approximately $70 million worth of assets listed for sale at the moment.
Q: Could you talk a bit about your investment in Inform Ag and how its technology will be used to improve the performance of your macadamia orchards?
A: Inform Ag installs a Wi-Fi mesh network across orchards, providing data on environmental conditions, soil, and tree health. This allows us to monitor and forecast irrigation and fertilizer requirements, improving orchard performance. We have no current plans to invest in other ag tech businesses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
