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Rural Funds Group (ASX: RFF) is set to opt out of its poultry assets and buy up more cattle properties after a recent deal to sell its broiler chicken farms for $72 million.
The figure is just shy of the $74.6 million adjusted property value for RFF's poultry assets released by Rural Funds Management (RFM) for 30 June.
These assets generated $10.7 million in revenue for the fund in FY19, or 15.5 per cent of the total.
As RFF's responsible entity RFM plans to sell the assets to ProTen, a specialist developer and operator of broiler chicken farms with a significant industry presence in Griffith, NSW where most of the assets are based.
"RFF owns 17 broiler chicken farms, 11 of which have an average age of 30 years with grower agreements and leases expiring in FY24," RFM said in an announcement this morning.
"RFM has determined that continued investment in this sector is better suited to businesses with greater economies of scale."
The transaction still requires agreement from the lessee RFM Poultry (NSX:RFP) to the early termination of the leases, as well as approval from RFP unitholders.
"A notice of meeting is expected to be sent to RFP unitholders in the coming daysto convene a meeting for late November 2019," RFM said.
"If approved, by ordinary resolution, the transaction is expected to occur by 31 December 2019."
Proceeds will be used to pay down part of its debt, which according to RFF's FY19 Annual Report stood at $291.4 million in total that had been drawn from a $335 million debt facility.
The company will also use the funds for investments in "natural resource predominant assets which have potential for higher total returns", the first of which will be three Western Australian cattle properties.
RFM has entered into options to acquire three cattle properties for $22.6 million inclusive of estimated transaction costs. The properties in Petro, High Hill and Willara are between 200km and 280km north of Perth.
"The WA cattle properties will be leased to Stone Axe Pastoral Company Pty Ltd (SAP). The properties will allow SAP to expand and further diversify their Wagyu beef operations," RFM said.
"Consistent with other cattle properties acquired by RFF, the WA properties have the potential to improve carrying capacity through grazing area development and additional irrigation.
"The leases will be on largely the same terms as existing cattle property leases, including a 10-year term with a rent review in year 5. Settlement is expected to occur April 2020.
RFM is also contracted to acquire the property Cygnet near Bundaberg, Queensland for $1.6 million to develop into a macadamia orchard.
While Australia has seen a boom in macadamia exports in recent years, for RFF in FY20 they are expected only to account for 2 per cent of revenue compared to 45 per cent for almonds and 30 per cent for cattle.
Rural Funds has been under pressure since a short seller report was released by US group Bonitas Research in August and then followed by a report from Bucephalus Research in September.
RFF shares lost more than 40 per cent of their value in the immediate aftermath of the report, but quickly bounced back as founder David Bryant hit back at criticisms and bought shares.
From a low of $1.36 per share RFF units are now trading at $1.79 - still well short of their 52-week high of $2.42 and up 0.56 per cent this morning.
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