No surprises here in the report, but with such long term plans...

No surprises here in the report, but with such long term plans in place, that's what you would expect.

RFF is investing heavily into macadamias. As noted on the results call, it takes around 10 years for macadamia crops to be cash flow positive which acts as a barrier to entry/moat for RFF. However RFF gets rent based on CAPEX spending not cash flows of the crop, but it still takes time to invest and set up. We are seeing that at the moment for example, with AFFO reduced to 6.6c per unit and DPS up to 5.64c (84% payout ratio) - so there is a little but not a lot of headroom. Bare in mind, that they are hoping for macadamias to increase from 2% to 25% of revenues (5000ha within 10 years), but could be substantially quicker if demand by leasees is there and in discussions with institutions. Macadamia investments are able to achieve high yields (rental yields of 6-9% ex-valuations, well above the 4-5% DPS yield). A good platform for future growth.

Key points from the report (again no surprises here):

• RFF has maintained it’s policy of increasing dividends by c.4% p/a, now up to 5.64c per unit for 1H20.
• This is funded through AFFO, which is 6.6c per unit (84% payout, up from 76%), which is lower due to disposal of Mooral/Almond and Poultry assets (lost income now) and acquisitions of Maryborough/Macadamia.
• Strategic direction towards macadamia: aim is for macadamia to increase from 2% to 25% of portfolio, achieving 6-9% yield.
• Balance sheet strong with gearing at 30.2%, low end of 30-35% target. Cost of debt decreasing from 3.7% to 3.2% over six months (due in FY23, could look at locking in rates for longer term?).
• NAV increased by 4% (low end of target) to $2.01 (generally fair price around 1.1*NAV, though this has increased to 1.2).
• Outlook is confirmed with forecasts of FY21 AFFO of 11.7c, DPU of 11.28c in FY21 increasing to 11.73c in FY22.

GLTAH.