Rural Funds Group

Decent outlook for distribution: Rural Funds Group (ASX: RFF) has lately reported FY18 results in line with guidance. Managed by Rural Funds Management Limited, the group released FY18 results posting adjusted funds from operation in agreement with forecast. The consolidated net profit after tax of the Group for the year ended 30 June 2018 amounted to $36.03 million. After adjusting for the effects of fair value adjustments, depreciation, impairments and one-off transaction costs during the year, the company reported growth of 26% in adjusted funds from operations (AFFO) to $32.32 million. The comprehensive income of the company for FY18 increased by 29% to $44.0 million, driven by the contribution received from recent acquisition of Natal cattle property aggregation in addition to valuation gain on assets. With 38 properties in hand at 30 June 2018, the group recorded significant increment in the fair value of investment properties and bearer plants revaluation. In December 2017, the Group purchased three cattle properties, including Natal Downs, Longton and Narellan near Charters Towers in north Queensland, collectively called Natal aggregation. In FY18, the agricultural properties and equipment lessor posted distribution of 10.03 cents per unit, in line with guidance at the back of 12.7 cents of AFFO per unit. In the outlook for FY19, RFF forecasts adjusted funds from operations (AFFO) to increase 13.2 cents per unit, to record the growth of 4% on FY18 while distribution per unit is expected to increase 4% on FY18 to 10.43 cents. RFF stock traded at $2.070 and is a “Hold” at the current price and dividend yield of 4.94%.
 

Aventus Retail Property Fund

Decent Performance in FY 18 and Internalisation: Aventus Retail Property Fund’s (ASX: AVN) stock has risen 2.31% in three months as on August 16, 2018 as the company for FY 18 has reported 2.3% rise in funds from operations to $89 million. The company during the period had made significant progress on refinancing the debt book, has extended the next debt maturity to October 2020 and lifted the Weighted Average Debt Expiry (WADE) to 4.4 years. AVN in FY 18 has posted 7.2% rise in the net tangible assets per unit (NTA) to $2.38 compared to the prior corresponding period. The company’s revaluation gains were 4.3% higher than June 2017 to $78 million, which brought the portfolio valuation at approximately $1.9 billion. Moreover, for FY 19, AVN expects Development spend to be over $40 million and FFO per unit of 18.2 cents per unit. Further,  if the internalisation is approved, the FY 19 guidance for FFO per unit will increase to 18.4 cents per unit. On the other hand, AVN had announced a proposal to internalise its management functions (Internalisation or the Proposal) with a target to achieve immediate benefits to earnings, governance, and create long term strategic value to the unitholders. As per the internalisation, AVN is required to pay $143 million to internalise the management of AVN (including investment management, property management and development management services) and $5 million for the acquisition of the existing net assets of APG by establishing a new stapled security structure for the Fund. This proposal is planned to be funded through a combination of AVN stapled securities, issued to the sellers at AVN’s 30 June 2018 NTA of $2.38. This is a 6% premium to AVN’s last close as at 9 August 2018, and cash from existing debt facilities. 57% or $85 million of the consideration will include AVN stapled securities. However, the Proposal is subject to a number of conditions, that includes getting the approval of AVN’s unitholders by ordinary resolutions at an Extraordinary General Meeting to be held on 25 September 2018. Based on the foregoing, we give a “Speculative Buy” recommendation on the stock at the current price of $ 2.210 with dividend yield of 7.36%.

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