Why is Rural Funds Group (RFF) falling?
Why is RFF in a big decline in share price?
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Answer
Hi Greg,
There has been considerable weakness in Rural Funds Group on the back of higher interest costs and an expected decline in agricultural land values. For those that aren’t across the company, RFF is an agricultural REIT with exposure to almond orchards, vineyards and cattle as well as many other products.
They have considerable leverage on their balance sheet, but often undertake interest rate hedging that mutes the impact of higher cash rates which should offset a portion of the higher interest bill. They are on an expected yield of around 6.5% which is attractive, but their underlying cashflow is likely to be more volatile than a traditional REIT. It is trading on a ~25% discount to NAV which looks excessive given how agricultural assets have traded historically, i.e. there have only been a handful of double-digit declines in rural land values in the last century.
