Tuesday, February 27, 2024

Two more big farms for NZ Rural Land

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New Zealand Rural Land Company (NZL) is raising more share equity to purchase two large Southland dairy farms totalling over 900ha at a cost of $29 million.

Existing shareholders have been offered a 1-for-5 shares entitlement at a discounted price of $1.05, which they may take up, leave to a retail shortfall bookbuild, or supplement with an application for additional new shares.

Some $11.4m was already raised last week with an institutional offer at $1.05 and the retail offer aims to add $9m, followed by a further $9m of debt financing.

The retail offer is open until June 23 and the shortfall bookbuild, if required will begin on June 28.

The new properties are Argyll Downs near Invercargill and Greenhill near Winton, both to be leased to long-term sharemilkers.

When completed, the new purchases will take the NZL total assets to $250m and net assets to $151m, which is a loan-to-value ratio of 38%.

NZL has also predicted that revaluations of its properties on the upcoming June 30 balance date will be in the range of 7.5% to 9.5%, which will bring net asset value up to around $1.50 a share.

Recently NZL reweighed two major influences on its business, inflation rates and interest rates, and adjusted its earnings forecasts.

It began by confirming its earnings guidance for FY22, along with a full-year dividend of 4.2c a share.

It is in the three following financial years that higher inflation and interest rates will come to bear on the listed rural property owner with some short-term pain followed by longer-term gains.

All farmland leases, from which NZL gains its income, have three-year uncapped CPI adjustment clauses.

“Given the high level of inflation already observed and forecasts for inflation to remain at elevated levels, NZL expects to realise a significant and permanent uplift to lease income at renewal intervals in 2024 and 2025.”

These have been estimated as 14% for leases resetting in June 2024 (about 65% of the NZL portfolio) and 9% for those resetting in June 2025.

“Strong dairy prices and the underlying credit quality of NZL’s tenants provides comfort that the increased lease costs will be within the financial capacity of the tenants,” the company said.

The new capital raise has pulled the NZL share price down to $1.06, compared with $1.12 recently and the initial public offering of $1.25 in late 2020.

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