Interest Rate Swaps and Development Risks Loom Over Rural Funds Group’s Outlook
Rural Funds Group reported FY25 results aligned with forecasts, showcasing steady distributions and a diversified agricultural portfolio. The group maintains solid gearing and advances key development projects while forecasting stable AFFO and distributions for FY26.
- FY25 AFFO of 11.5 cents per unit, distributions at 11.73 cents per unit
- Adjusted NAV per unit slightly down to $3.08 due to interest rate swap revaluations
- Portfolio valued at $1.96 billion with 13.9 years weighted average lease expiry
- Capital expenditure partially funded by $69.7 million in divestments
- FY26 forecast AFFO of 11.7 cents per unit and distributions maintained at 11.73 cents
FY25 Financial Performance in Line with Expectations
Rural Funds Group (ASX – RFF) has delivered its financial year 2025 results largely in line with market guidance, reporting an adjusted funds from operations (AFFO) of 11.5 cents per unit, slightly exceeding the forecast of 11.4 cents. Distributions were maintained at 11.73 cents per unit, consistent with prior guidance, underscoring the group's commitment to steady income returns for unitholders.
The adjusted net asset value (NAV) per unit experienced a modest decline to $3.08, primarily influenced by mark-to-market revaluations of interest rate swaps amid a changing interest rate environment. Despite this, the group’s pro forma gearing remained stable at 38.8%, reflecting prudent capital management.
Portfolio Strength and Leasing Activity
RFF’s diversified agricultural portfolio, valued at approximately $1.96 billion, spans 63 properties across five key sectors including macadamias, almonds, cattle, cropping, and vineyards. The portfolio benefits from a long weighted average lease expiry (WALE) of 13.9 years, providing income visibility and stability.
During FY25, the group leased eight properties valued at $119 million with a weighted average lease term of 9.7 years, reinforcing its leasing momentum. Independent valuations covering 68% of the portfolio yielded a 1.2% uplift, driven by capital expenditure primarily in macadamia orchard developments.
Capital Management and Development Pipeline
Capital expenditure was partially funded through divestments totaling $69.7 million, executed in line with book values. The group refinanced its syndicated debt facility, increasing the limit by $80 million and extending debt tenor by two years, while maintaining an undrawn debt headroom of $126.4 million to support FY26 forecast capital expenditure of $96.9 million.
Development projects remain a core focus, particularly the near completion of the TRG JV macadamia orchards and staged developments at Rookwood Farms and Kaiuroo. These initiatives aim to enhance asset productivity and generate future AFFO growth.
Sustainability and Forward Outlook
RFF continues to advance sustainability initiatives, including emissions disclosure aligned with upcoming Australian Sustainability Reporting Standards and feasibility studies on carbon projects within its cattle and cropping sectors. Technological integration in macadamia orchards supports operational efficiency and environmental stewardship.
Looking ahead, FY26 forecasts project AFFO growth to 11.7 cents per unit with distributions maintained at 11.73 cents, reflecting a payout ratio returning to 100%. The group plans further non-core asset sales and development completions, positioning itself for continued steady income generation and capital growth.
Bottom Line?
Rural Funds Group’s steady FY25 results and disciplined capital management set the stage for measured growth amid evolving market conditions.
Questions in the middle?
- How will rising interest rates impact RFF’s earnings volatility given mark-to-market swap exposures?
- What is the timeline and expected financial impact of the staged developments at Rookwood Farms and Kaiuroo?
- How might sustainability initiatives influence operational costs and asset valuations going forward?
