Two things to note about Rural Funds Group’s acquisition of three cattle properties

Rural Funds Group (ASX: RFF) is a real estate investment trust (REIT) and Australia’s diversified agricultural property trust to be listed on the Australian Security Exchange (ASX). The company is managed by Rural Funds Management (RFM) and owns a diversified portfolio of high quality agricultural assets in Australia that comprise vineyards, tree nut orchards, poultry infrastructure and cattle assets. These are in turn leased to agricultural tenants with appropriate knowledge in the respective field and revenue for investors comprises the long- term lease rentals spread across these categories. It is also a source for investors looking to benefit from investing in farmlands, with prospects of increasing capital growth due to the steady growth in global population. The portfolio of RFF includes 34 properties around Australia with a weighted average lease expiry (WALE) of more than 15 years and the total adjusted value of the assets are pegged at $469 million as at June 30, 2016.
 

Investments in different climatic zones and assets (Source: Company Reports)
 
According to the recent release, the company disclosed that it has exercised the option to acquire a cattle property in Rewan, Central Queensland and another two (Oakland Park and Mutton Hole) in North Queensland. The acquisition cost is about $41.7m for the properties. Two things that investors need to know about the RFF acquisition entail:
 
Industry Asset Expansion: First, the company has contracted two properties with a combined area of 225,000 hectares in Oakland Park and Mutton Hole in North Queensland and it plans to purchase about 11,000 breeding cattle as part of a plan to expand the firm’s cattle industry assets in Northern Australia.
 
Venturing into cattle breeding and operations together, for the first time: Secondly, the two properties at Oakland Park and Mutton Hole in North Queensland will be used for breeding and the one in Rewan, which covers 17,500 hectares will be used for finishing operations. The three properties represent that RFF, for the first time, has ventured into a combined cattle breeding and finishing process. The acquired livestock and properties will be leased to a wholly owned subsidiary of RFM (Cattle JV Pty Ltd) for a period of 10 years. The acquisitions were funded by proceeds of an underwritten equity raising and increase in debt facilities. The acquisitions are expected to raise the value of the company’s assets by about $50 million.

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