Rural Funds Group Earnings Soar on $315m Asset Sales and Gearing Reduction

Earnings Leap on Asset Sales and Revaluations

Rural Funds Group (ASX:RFF) delivered a striking FY26 financial performance, reporting net profit after tax of $114.8 million, a nearly sixfold increase from $26.1 million in FY25. This surge was largely driven by contracted sales of agricultural assets at premiums to book value and a favourable mark-to-market adjustment on interest rate swaps, contributing to total earnings of $124.1 million or 31.8 cents per unit (cpu).

Net property income rose 5.7% to $100.5 million, buoyed by additional rental income from capital expenditure, predominantly on macadamia orchards, and lease indexation. Adjusted funds from operations (AFFO) held steady at 11.7 cpu, in line with prior guidance, supporting distributions per unit (DPU) of 11.73 cents, consistent with forecasts.

Strategic Asset Sales Trim Gearing and Extend Lease Profile

RFF executed divestments totaling $314.9 million, including six properties and 8,754 megalitres of water entitlements, at an average 18% premium to prior book values. These sales included four cattle properties sold for $234.2 million at a 25% premium and water entitlements sold in line with book value. The proceeds have been used to reduce debt, bringing pro forma gearing down to 31.8%, comfortably within the group's 30-35% target range.

The sales also positively impacted portfolio quality, with the weighted average lease expiry (WALE) extending to 14.8 years pro forma, up from 13.2 years at the end of calendar 2025. This extension reflects the divestment of assets with shorter leases and capital investment in macadamia developments, underpinning a stable income stream for investors.

Development Pipeline and Capital Management

RFF continues to invest in its development pipeline, particularly in macadamia orchards and irrigated cropping properties. Notably, 694 hectares of macadamias commenced planting at Rookwood Farms, with 293 hectares completed and 401 hectares expected by the end of 2026. The Kaiuroo Aggregation development progressed through stage one, contributing to FY26 AFFO, with stage two, a 3,600 ML water storage and 120-hectare pivot-irrigated cropping area, forecast to complete early FY27 and contribute to AFFO.

Capital expenditure for FY27 is forecast at $46.7 million, fully funded by a pro forma bank debt facility headroom of $300.8 million following asset sales. The group's core debt facility was reduced from $830 million to $770 million post-settlement of asset sales, with an active interest rate hedging program covering 82% of drawn debt on a pro forma basis, mitigating exposure to rising rates.

Sustainability and Operational Highlights

RFF's FY26 sustainability initiatives include ongoing Scope 1 and 2 greenhouse gas emissions reporting, implementation of carbon accounting software, and progress on carbon projects such as the Kaiuroo soil carbon project and Lynora Downs environmental plantings. The group also expanded integrated pest and disease management training, autonomous tractor trials, and virtual cattle fencing pilots, reflecting a commitment to operational efficiency and environmental stewardship.

Environmental certifications were maintained and expanded, including Hort360 Reef certification for macadamia orchards and MyBMP certification for cotton operations. RFF also strengthened community engagement and workforce diversity, with 78% of employees based in regional areas and ongoing efforts to improve female representation in leadership.

Financial Position and Governance

At 30 June 2026, RFF's adjusted net asset value (NAV) per unit rose 4.5% to $3.22, supported by property revaluations and financial instruments. The group held total assets of $2.04 billion, with water entitlements valued at $195 million on the balance sheet and $321 million at fair value. The core debt facility remains well within covenant limits, with an interest cover ratio of 3.26x and loan-to-value ratio of 43.7% pro forma.

Governance remains robust with a stable board and management team, led by Managing Director David Bryant. The group maintains a prudent capital management approach, balancing growth through development and acquisitions with disciplined asset sales to manage gearing.

What to Watch Next

Looking ahead, RFF forecasts steady AFFO of 11.7 cpu and distributions of 11.73 cpu for FY27, maintaining a 100% payout ratio. The group plans further asset sales to enhance balance sheet capacity for potential accretive acquisitions. Investors will be watching the progression of macadamia and cropping developments, the impact of sustainability initiatives on operational efficiency, and the settlement of contracted asset sales that underpin capital management targets.

With a defensive, inflation-hedged portfolio diversified across sectors and geographies, RFF's ability to navigate climate-related risks and capital market volatility will be critical to sustaining income growth and asset values in a changing agricultural landscape.