Rural Funds set huge target for macadamia growth

“We anticipate or aspire to get macadamia orchards to 25 per cent of our portfolio. It’s an industry where Australia is a world leader and where the economics remain very attractive,” said RFM managing director David Bryant.

Presenting December half-year results where RFF re-affirming its full-year earnings and distribution guidance, Mr Bryant said the first tranche of macadamia plantings was an “exciting stage” for RFF.

“The rationale here is that macadamias have been a very good investment for RFF, but make up only 2 per cent of our current portfolio,” Mr Bryant said.

He forecast the trust’s macadamia investments to generate cash yields of between 6 and 9 per cent.

He explained that by investing in macadamias, the trust would also further diversify its portfolio whilst diluting its exposure to cattle and almonds, which are forecast to account for 82 per cent of its revenue this financial year.

“It’s also consistent with RFF investing in sectors where Australia has a comparative advantage and which sell into global markets,” Mr Bryant said.

Global production of macadamia nuts has doubled in the past decade from less than 30,000 tonnes to almost 60,000 tonnes. However, due to global demand, the Australian macadamia price has tripled to $6 per kilogram over that time.

“Macadamia prices are quite high and are expected to come off a bit but they are nevertheless priced more highly than any other nuts,” Mr Bryant said.

RFF’s macadamia project is a long term and patient play for the trust – macadamia trees take 10 years to reach full maturity and require large amounts of water. But once fully developed, RFF’s orchards could yield 10,000 tonnes of macadamia kernels annually.

RFM has relocated staff to Central Queensland to oversee the initial plantings on former sugarcane farms acquired by the trust in Bundaberg, Rockhampton and Maryborough. It’s also in negotiations with potential tenants.

Mr Bryant said RFF had sufficient land on its books to plant 5000 hectares of macadamia orchards and enough water entitlements to irrigate them.

Funding for its macadamia orchard developments will include capital generated from recent asset sales including the $71.4 million sale of RFF’s poultry sheds in December 2019 and the December 2020 sale of its 806-hectare Mooral almond orchard for $93.3 million at a 21 per cent premium to book value.

The sale of the almond orchard almost doubled RFF’s earnings to $58.4 million or 17.3¢ per unit.

However, adjusted funds from operations – the key operating metric for real estate investment trusts – fell 6.2 per cent to $22.2 million due to lower property revenue from the sale of the poultry assets.

RFF collected full rent from its tenants, which include beef giants JBS, AACo and Stone Axe Pastoral and almond producers like Olam and Select Harvests.

‘There were no concerns raised by our lessees during the pandemic. They sailed through the pandemic pretty well,” Mr Bryant said.

RFF’s portfolio (including the fair value of its water entitlements) had a book value of $1.06 billion as of December 30, up from $1.01 billion as of June 30.

On Thursday, RFF units traded down 1.6 per cent at $2.40 following the release of interim results, but are still trading at a significant premium to net asset value of $2.01 per unit.