Rural Funds Group Faces NAV Pressure Despite Stable Distributions
Rural Funds Group reported a solid FY25 with rising property and farming income driven by macadamia developments, while maintaining stable distributions and preparing for significant capital expenditure in FY26.
- Net property income up 9.2% to $95.1 million
- Adjusted funds from operations rose 4.5% to 11.5 cents per unit
- Distributions per unit steady at 11.73 cents, matching forecasts
- Portfolio valuation increased 1.2% with $69.7 million in divestments
- FY26 plans include $96.9 million capital expenditure funded by bank debt
Strong Income Growth Driven by Macadamia Developments
Rural Funds Group (ASX, RFF) has delivered a robust financial performance for the year ended 30 June 2025, with net property income climbing 9.2% to $95.1 million. This growth was primarily fueled by additional rental income from its expanding macadamia orchard developments, reflecting the group's strategic focus on high-value agricultural assets.
Net farming income also improved by $3.3 million to $2.3 million, benefiting from favourable commodity prices. These gains contributed to a 4.5% increase in adjusted funds from operations (AFFO), which reached 11.5 cents per unit, slightly surpassing full-year forecasts of 11.4 cents.
Stable Distributions and Portfolio Valuation
Distributions per unit were maintained at 11.73 cents, in line with guidance, underscoring the group's commitment to delivering consistent income to investors. Meanwhile, the adjusted net asset value (NAV) experienced a modest 1.9% decline to $3.08 per unit, mainly due to revaluations of interest rate swaps, a factor that introduces some valuation volatility but does not reflect underlying asset performance.
Independent valuations covering 68% of the property portfolio resulted in a 1.2% uplift, adding $15.2 million in value. The group also completed divestments totaling $69.7 million, consistent with book values, as part of ongoing portfolio management to optimise asset mix and capital allocation.
Leasing Activity and Long-Term Growth Prospects
Rural Funds Group leased eight properties valued at $119 million with a weighted average lease term of 9.7 years, reflecting strong tenant demand and lease stability. Notably, the TRG JV macadamia development phase is materially complete, with 3,000 hectares leased on 40-year terms. This joint venture is forecast to generate $20 million in revenue in FY26, more than doubling its contribution since FY23.
Looking ahead, the group plans staged development of two additional properties focused on macadamias and irrigated cropping, aiming to enhance future AFFO generation. Capital expenditure for FY26 is forecast at $96.9 million, to be funded through available bank debt facility headroom of $126.4 million, signalling confidence in growth opportunities.
Portfolio Quality and Defensive Positioning
Rural Funds Group's portfolio remains diversified across 63 properties spanning five agricultural sectors and multiple climatic zones, providing a defensive exposure to food production with inflation-hedging characteristics. The portfolio benefits from a long weighted average lease expiry (WALE) of 13.9 years and predominantly triple-net lease structures, which transfer many operating costs to tenants.
Approximately 80% of forecast FY26 income is derived from corporate and institutional lessees, underscoring the quality and reliability of cash flows. Structural rental growth is supported by a mix of lease indexation mechanisms and market rent reviews, positioning the group well to navigate inflationary pressures.
Bottom Line?
Rural Funds Group’s FY25 results set a solid foundation for growth, but execution of ambitious capital plans and market conditions will be key to sustaining momentum.
Questions in the middle?
- How will interest rate swap revaluations impact NAV volatility going forward?
- What are the risks and timelines associated with the planned $96.9 million capital expenditure?
- Can the TRG JV macadamia development sustain its rapid revenue growth beyond FY26?
