Thank you for standing by. Welcome to Rural Funds Group Fiscal Year 2023 results presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone, or type your question into the dialogue box on your screen. Please be advised that today's call is being recorded. Now I'd like to introduce your host for today's program. Just one moment. James Powell, General Manager of Investor Relations. Please go ahead, sir. Good morning, everybody, and welcome to the financial results presentation for the Rural Funds Group for the full year ended 30 June 2023. My name is James Powell, and presenting today is David Bryant, Managing Director, Tim Sheridan, Chief Operating Officer, and Daniel Yap, Chief Financial Officer. Tim and David will shortly provide a detailed financial results update, after which we'll take questions from attendees. I'll now hand over to our first speaker. Thank you, James. Good morning, everybody. I will focus on the results for the financial year ended 30 June 2023, before handing over to David, who will provide a portfolio and strategy update. Revenue from property leasing increased by 11% in FY 2023 compared to FY 2022. The increase is mainly due to the rent, which is being received on the macadamia developments occurring in Queensland as a result of the 40-year lease that was entered into during the year. In addition, property revenue also benefited from the market rent reviews for cattle property and vineyards, as well as the annual indexation mechanisms. Earnings of AUD 116 million or AUD 0.30 on a per unit basis, were driven by revaluation of assets across the portfolio. Two-thirds of the assets were externally revalued during FY 2023. The figure on the bottom right of this slide shows the percentage increase in each sector, with increases to the valuation of almonds, cattle, macadamias, cropping, and vineyards. The valuation of almond orchards increased by AUD 47 million, or 11.7%. Driving this valuation growth was annual lease indexation mechanisms, which is predominantly CPI. This increased the future cash flows, as well as the ongoing demand from institutional investors for permanent plantings. In the macadamia sector, transactions by institutional investors drove the valuations of RFF's mature macadamia orchards, Beerwah and Bauple, along with RFF's development assets, which were revalued in the first half of the year. Cattle and cropping assets benefited from higher land valuations and were independently revalued by AUD 33 million during the year. Adjusted Funds From Operations and net cash generated by the portfolio was AUD 0.107 per unit, which is in line with the revised guidance provided earlier this year. Distributions are in line with the prior forecast, being AUD 0.1173 of cash with AUD 0.0047 of franking credits per unit. Now, looking at the balance sheet, revaluations across the portfolio resulted in a 10% increase in adjusted net assets. Two property acquisitions occurred during the year in the cattle and cropping sectors. One acquisition was for a property, Kaiuroo, a 28,000-hectare cattle and cropping aggregation, which included 12,000 megaliters of water entitlements. This property purchase was negotiated in November 2021 with a long settlement period. The development activities on this asset will now accelerate following the settlement in April this year. A second property, Wyseby, was acquired during the year as tenants in common with another party. Wyseby is in the process of being subdivided, and RFF will retain approximately 14,000 hectares. The RFF portion adjoins the existing cattle property, Rewan, which will add scale and quality background in country to this already highly productive farm. Wyseby is leased for three years to the co-owners. The increase in total assets by 19% was also driven by the deployment of AUD 59 million of capital expenditure, primarily linked to the macadamia developments and revaluations, which are outlined on the previous slide. Gearing at the end of the period was 35%, which is at the upper end of the target range. Later in this presentation, we'll provide more details of transactions management are currently working on to maintain gearing at or below this current level. Debt facilities were increased to AUD 795 million during the year to accommodate the macadamia developments and other CapEx within the portfolio. The facilities include a AUD 695 million floating facility and a AUD 100 million fixed-rate facility. These facilities have AUD 155 million of headroom, which is sufficient for the CapEx planned in FY 2024. Over the next six months, we'll seek to extend the facility and change the limit if required... RFF's LVR at 30 June was 45%, compared to a covenant of 55%. Since the year-end, management have negotiated a temporary reduction in the interest cover ratio covenant, which was reduced from 2 times to 1.5 times until June 2025. This provides headroom should further interest rate rises occur. During FY 2023, RFF also completed a restructure on its long-dated hedges between FY 2033 and FY 2035, providing lower debt costs over the next three years. AUD 432 million of interest rate hedges will become effective in FY 2024, an increase of AUD 242 million compared to FY 2023. After taking into account the fixed finance facility of AUD 100 million and the new interest rate hedges, 67% of the pro forma debt in FY 2024 is fixed. I'll now hand over to David. Good morning, ladies and gentlemen. Over the following pages, I will provide an update of the various activities occurring within the portfolio. Before doing so, this slide provides a summary of the investment strategy of RFF. RFF aims to generate income from long Triple Net Leases of agricultural assets to predominantly corporate lessees. Capital growth is derived from acquiring good assets and identifying productivity or higher and better use development opportunities. In some cases, during the early development phase, assets will be operated prior to leasing. This provides a source of income during this initial phase. RFF's operating experience assists with the identification of acquisitions, particularly those assets which can be low-cost producers of agricultural commodities in sectors in which Australia has a comparative advantage. One such sector is the macadamia industry. During the year, RFF contracted a 40-year lease for 3,000 hectares of orchard developments to a major institutional investor. Capital expenditure on these developments are forecast to total AUD 330 million, with the majority of that investment to occur by the end of this financial year. As the rent paid by the lessee on these assets is calculated on deployed capital, a rapid increase in rent will occur over the next two years, rising from AUD 8 million last year to AUD 21 million in the next financial year. The properties which are being developed to macadamia orchards were initially funded through the sale of other mature income-producing assets in FY 2020 and FY 2021. The sale of the mature assets has caused a dip in AFFO, while capital is being recycled into the macadamia orchards as they are developed. In the long term, it is expected that higher returns will flow to RFF as a result. Present time, the positive impact of the developments has been less pronounced as interest rates rose rapidly during this period of transition. However, over the next two years, rental income from the macadamia developments will increase significantly. To this end, we forecast 5% growth in AFFO in FY 2024, and will hold distributions at FY 2023 levels. The consequent payout ratio for FY 2024 is forecast to be 105%, and this is expected to decline further as revenue increases in future years. RFF has been working on several transactions, predominantly focusing on unleased assets. The transactions have the objectives of reducing debt, operating exposure, and improving earnings. Negotiations on the leasing of two cotton farms that are being developed are progressing, with the aim of completing these transactions in the next few months. RFF has also engaged with parties interested in leasing the mature macadamia assets owned by the fund. RFF is reviewing non-core assets, which, if sold, will reduce debt, reaffirm valuations, and provide funding for an additional 2,000 hectares of macadamia developments. Material progress is expected on these transactions in FY 2024. Another area where we recognize as being important to our investors and other stakeholders is sustainability. As part of the FY 2022 annual report, RFF outlined a number of ambitions, particularly with respect to emissions and the formal incorporation of climate-related risk in our acquisitions process. RFF continues to make progress in this area, and specific details will be included in the FY 2023 annual report. In conclusion, we are pleased to report 5% growth in FY 2024 forecast to AFFO. Over the next year, we will continue to focus on completing transactions to further improve the earnings, generation, and risk profile of the portfolio. ... Thank you. We will now move to the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone, or type your question in the dialogue box on your screen. One moment for our first question. Our first question comes from the line of James Ferrier from Wilsons. Your question, please. You about slide 12, that David was just talking about a moment ago. There's a bullet point there around non-core asset sales. Could you add some color around which assets would fall within that categorization? Thanks, James. We didn't get the first part of your question. Well, I'm not sure who you were directing it to, but it's David Bryant speaking. I'll jump in and attempt an answer. Any asset that's not leased, I would classify as non-core. But we're working to lease a number of those assets, and so the unleased assets that we have at the moment are our cropping properties. We've got several cropping properties unleased. We've also got, I think, one cattle property unleased. And then we've got three macadamia properties that are unleased. Whilst they're not leased, they're operated, and that's creating operating exposure to the fund, which is undesirable. So we'll either lease those assets or sell them. The... I can't be any more specific than that because we're in negotiations, quite advanced negotiations, you know, moving towards documentation, in fact, on some of these assets. And so we would expect to answer your question completely in the next few months. Thanks, David. That's helpful. And I think there's a parcel of high security water owned that, but not leased. Would that also fit into that categorization of non-core? That's a good question. No, no, it doesn't. That's been a very lucrative investment for the fund. We're moving into a drier period, so we think that the income that we can generate from that parcel of water will improve over the next year or two. We do actually have some of it leased out on sort of, you know, 2-3-year periods. So... And it also helps, we can apply that water to some of our almond orchards in the Murray-Darling Basin as well. So we'd prefer to retain those assets, and that's what we intend to do. We have a parcel of groundwater, and that, I'd say that's not a long-term hold. Eventually, we would need to either acquire land and attach that water to that land permanently, or sell that water to somebody who's wishing to, you know, who's bought some land that needs the water. So that, the groundwater parcel, which is worth about- Forty-five million. 45. Thanks, Tim. That's not as, not as dear to us, but, you know, there, there's sort of pragmatic reasons why you would look for an opportunity to deal with that water long term. Understood. Thank you, David. And perhaps while you've got the microphone there, on slide ten, on the attraction of this asset class for Rural Funds Group, and particularly in the context of Australia's potential to be a low-cost producer. James, can you just quickly repeat that? Sorry, you broke up, so just repeat it. Slide 10. What was your question regarding slide 10? I'm keen to hear your view on how Australia can be a low-cost producer and make the macadamia category an attractive investment for RFF. Okay, thanks, James. So first and foremost, when we go into a commodity class, we're looking for a commodity where Australia has comparative advantage in production. That means that you're going to have an industry that will survive the economic cycles that occur in specific commodities or in the global economy, more generally. People will want to trade with us because we can produce it cheaper than those other countries. So macadamias, Australia enjoys comparative advantage. Why? Not because it's Australia's only native plant that's been commercialized, but that doesn't give us comparative advantage. The thing that gives us comparative advantage is farm size, primarily. We can make the farms pretty big, very big, in fact, and the developments that we're doing are the largest in the world.... Big on its own doesn't provide comparative advantage, but what it does mean is that you can bring better resources to bear. And so Australia has quite good water infrastructure with which to supply irrigation to macadamia orchards. And so through our subtropics, we have good irrigation developments that can supply reliable water. That increases the yield of the crop that you grow. And it's the yield, the increased yield, that gets your cost of production down. And it's the only thing that a farmer can control, and that is their yield, and that's the greatest determiner of cost of production. So first and foremost, it's good water supply, but then because you've got big farms, you can actually get better people to bring better technology and manage that technology well, so that you can again improve your yield and get your cost of production down. Now, added to that, there's a feature of the macadamia industry that we find very attractive, and that is that it's not a state-subsidized crop. So it's not actually subject to state interference or government interference that then can create, you know, can displace resources or can create a low price because of overproduction. China had a bit of a program underway under a forestry mandate, but that's ceased. Chinese production is not state-sponsored anymore. It's not occurring anywhere else in the world. What that means is that you actually have a commodity that is being traded purely on supply and demand, just the good old, you know, that, that is the market economics and supply and demand are the best defense in commodity production. Then you use those attributes I described a moment ago to get your cost of production down. So yeah, we're seeing supply and demand work through in the macadamia category now. So you'll be aware that the price plummeted for macadamias, the price probably went from AUD 6 to below AUD 2, which is a big decline. It's not unusual for agricultural commodities. They are volatile. But we're seeing, we're not seeing green shoots. We're seeing long green grass in terms of the recovery of macadamia prices. There's exceptionally good demand for products going into China. Something that happens when you have a downturn in an agricultural commodity is you'll see at the end of the season, high ending stocks. And so there was a carry-out, they call it. So there was a lot of macadamias that were unsold, and that contributes to a collapse in price. Those stocks have been sold, so the carry-out or the ending stocks have been cleared, and we're moving into a new season with the only thing that we can supply in the new season is what we grow in the coming season. So there will be really good pressure for an upward movement in prices. So, it's just, you know, supply and demand is working its way through once again, and, we're now on the favorable, leg of the cycle. So a long answer, but it's a big part of the portfolio, so, hope that all helps. No, that was great. Thanks, David. You did answer the question, and you answered my next question as well with those last comments, so thanks very much for that. You're welcome, James. Thank you. Thank you. One moment for our next question. Our next question comes from the line of James Druce from CLSA. Your question please. Yeah. Good morning, David, and team. Can we just talk about the debt facilities that you've increased? You've got AUD 155 million worth of headroom, and you've got sort of a AUD 150 million of CapEx for 2024, if I've got my numbers right. How do we look at FY 2025 then? Do you need to go back to the banks? Like, what's the decision process from here? Because clearly there's gonna be some spend for that year. I'm just thinking about how you the options you have to deal with that. Yeah. Thanks, James. We'll go back to the bank shortly to increase the tenor of those facilities. And as part of that process, we'll look to either increase the size of that facility, or we won't do anything if some of these non-core asset sales have occurred. So it will either be funded through the non-core asset sales or an increase in the facility. All right, that's clear. Okay, so you're doing that sort of now-ish, Yeah, that's right. In terms of chatting to the bank. Okay, all right. And then just maybe, I haven't checked the almond price recently, but it looks, from memory, it's quite low. I remember some of the almond leases you had sort of three-year rent reviews for some of the farms, at least. I'm just wondering if you can provide, firstly, any color on where you think the price is going. Secondly, any color on those rent reviews? And we'll maybe leave it there. ... It's David Bryant speaking, James. So, I think so, demand is flat for almonds, and that's because high interest rates are hurting households. A lot of the softness, though, in the price is really around the strong U.S. dollar. So, you know, Australia has the giant shock absorber of the floating exchange rate. And so, you know, the movement is not as unfavorable as we're seeing our dollar decline compared to the U.S., and there's plenty of talk of further decline. So I think, you know, almonds are going through its cycle. You know, there are big crops in the U.S., and the demand growth that normally would have soaked up those increasing crops has not been there as it once was. But again, it's cyclical and people who own or lease almond orchards have got long-established businesses, businesses that work their way through the cycle. Yeah. Yeah. I'll just add to that. The market rent reviews probably apply to about 25% of our orchards, and as you saw in the presentation, all of the valuations have increased for the almonds. So looking at the impact from FY 2023 revenue to when that occurs, it's likely to be positive, but, yeah, we'll see what happens. All right, and maybe just comment on... I mean, you've had a very strong uplift in valuations, which is great to see. Is there anything that you're seeing in the market transaction-wise to call out that would perhaps show a further upside, or just give a level of where the remainder of the portfolio is? So we think that the productivity improvements, particularly increased stocking capacity on some of our properties, has not been fully factored into valuations yet. So that's that will provide a bit of growth as that starts to factor through, for want of a better term. But, you know, instinctively, I would think that we will see asset prices plateau now, because funding costs, you know, the debt costs for the main buyer of agricultural assets, which is a farming family unit, their debt costs have gone up. So I think that their desire to really pay up for assets is probably not what it was. And the institutional investment in Australia is dominated by North American pension funds. They are, by far, the most active, but there are other areas of the globe that are investing in Australia. But they, their appetite is still there. They're still pretty active in buying assets at... They're probably actually the main driver of value in the larger asset sales. And there's still competition among them for assets, so they are still bidding up to outbid each other for assets. But I still come back to the point where I think that asset sales are probably likely to plateau in cattle, macadamias, almonds. Maybe not, perhaps not in cropping, because commodity prices are very strong. All of the commodity prices in the cropping sector are very strong at the moment for a range of reasons. So I don't think we'll see plateauing there. It's probably more growth to come there. Right. That's very, very clear. Thank you. Thank you. I would now like to turn the conference back to management to answer questions received online, and for closing remarks. Just as a reminder, you can type your question in the dialogue box on your screen. Thank you, operator. We've received a number of questions through, from investors, and would encourage you to keep sending them through, should you have any. We'll just pause for a moment while we ready ourselves to respond to the first question, to which I'll hand over to David. Okay. Thanks, James. Look, there's a number of questions regarding the share price. Somebody's kindly pointed out that the share price has declined 28% over the last 12 months, and even worse, 8% over the past 5 years. And so people... Yeah, why has the share price gone down? Probably ask you to have a look at slide 11. And there's a range of reasons. The first reason is interest rates. So interest rates have gone up. The return that can be got achieved on alternatives, the returns for alternative investments have improved for risk-free rates of return. So you get a downgrading of income-producing assets like ours. And it's happened across the whole REIT sector, of course. Because we're grouped as a REIT, there are a range of REIT investors, or the money that has been allocated to investment in REITs has declined, so there's been a flow of funds out of REITs and into other defensive asset classes. So there has been selling of our stock by REIT managers as their funds under management decline. So that's a contributing factor. Then, if you look at slide 11, you can see the AFFO or the earnings dip that's occurred in our fund, as we've deliberately transitioned out of higher yielding, higher depreciating assets, particularly poultry farms, that delivered a high yield, but had negative capital growth. We've sold those. We sold an almond orchard, but and then we've recycled that money into these macadamia developments. That's caused the dip in the AFFO, and so our AFFO was AUD 0.135. It's declined to a low of AUD 0.117, and we will now start to see an improvement in that. But I think that that's a significant contributing factor, but it's a dip that we've undertaken or pain that we have taken for long-term gain. And 40-year macadamia leases are a vindication of that gain that we will achieve for unit holders of RFF because of these long-term decisions. I think it's probably... So the other aspect of the share price decline is that people have been selling our shares at lower prices because they are worried that people will be selling our shares. So it's the issue of momentum. So there are momentum investors that are active within the ASX who will buy or sell based on their perception regarding the momentum or direction of the stock. What will happen one day, and I don't know when, is that somebody will wake up and realize that our dip, we've been through our dip, and that our AFFO is starting to increase. They'll realize that we've got a strong, an excellent portfolio of assets with very long leases that are indexed, and they will realize that our AFFO is increasing, and they will buy because they're worried or interested because they will buy because they think others will buy. And I think that the turnaround will come, and it can be quite quick when it occurs. The other aspect, of course, is what will happen with interest rates? Who knows, but it's probably wise to think that we're getting to the peak of the cycle in terms of interest rate increases. But it's probably prudent to operate on the basis that these high rates of interest rates will remain for a while. Or at least conclude that the very low interest rates that we all wanted to become used to were an aberration, and that we, you know, the global economy will operate with higher interest rates for a period, for the foreseeable future. So I don't think there'll be a huge amount of relief from that, that avenue or that aspect, but increasing AFFO coming from our macadamia developments, specifically, but other cropping developments, the indexation clauses in our leases, they will drive AFFO growth. And, you know, we will then see a path to an increasing share price over time. And I'd just remind people that, you know, if inflation is something that is going to hang around, and that higher interest rates is something that we are going to have to endure, agricultural assets, if you look at them historically, and we have done so with over 120 years of data, agricultural assets are an excellent store of wealth in periods of high inflation. And the portfolio we have is certainly capable of that. While I've got the floor, there's also been questions really around the gearing level, and I think that Tim has addressed some of the hard numbers regarding outright limits. But question has been, what asset sales will we be achieving to get our debt down? I think I'll just reiterate that we are engaged in negotiations on asset sales. We're engaged in negotiations on leasing assets. They are, they're well advanced. There's been a lot of months of work gone into it. We will steer the ship in relation to gearing, achieving gearing of between 30% and 35%, because higher than 35% is undesirable. But we think that maintaining gearing within that range is sensible, given the cost of debt and the rate of return that we can get on an asset when you look at the income that we get, the capital growth that we get, and the indexation of that income that we get as well. So using a prudent level of debt, it remains central to our investment strategy, and steering the ship between 30% and 35% is something that we will continue to do this year and in future years. We've had a question asking if we're looking at buying more properties. It's probably the perfect time to follow on from that. No, where management is seeking to get gearing back within the range of 30%-35%, as David just touched on. Another question relating to the bushfire season warning. Similar to the last significant bushfire season, I don't expect any losses if there were fires; we had no impact from the last significant bushfire event in Australia. The only farms that are exposed are cattle properties. There's a small number of them, and they maintain levels of insurance if there was a fire, so I don't expect any impact from fires. Question from Larry Schlesinger. Hello, Larry, from the Financial Review. What impact will the resumption of water buybacks in the Murray-Darling Basin have, and the return of drier conditions, what impact will those two circumstances have on the value of RFF's water entitlements? Good question, Larry. We were just talking about that yesterday. The drier conditions, what that tends to do is increase the price that you can get for renting the water. So we're expecting that we will see greater income from our water investments. That's the water investments that I was referring to yesterday in answering James Ferrier's questions. In relation to capital value, I think that the main driver of water capital values is how much money a farmer can make from a megaliter of water. So if you get a technology, whether it's a better plant variety or a better irrigation system, if you get a technology that can make another buck on a megaliter of water, that will be reflected in the water price. Now, buybacks by the government will make supply scarcer, more scarce, so that you would think that really that should increase prices, but it's not. Increased prices are not sustainable unless the productivity, which comes from technology, unless that productivity is there to support and drive those prices. So I don't know, you could probably see a bit of a lift in the trading price, particularly if the government comes in and buys water at really high values that are at a, you know, do what it takes to get the water, type of price. But that wouldn't be sustainable. You'd see the market fall back again, unless it's supported by these technologies that I was referring to. So hopefully, that answers your question, Larry. Okay, and then we've got a question about the Marquis. Marquis. I'll read the question. It's a very good question. "Hi, David. While clearly not a large part of the business, how should we think about RFF's shareholding in the Marquis Macadamias co-op, given that the business is loss-making? Okay, so first of all, the business is a co-op, so it's designed to, you know, through the cycle, it's designed to make profits or retain sufficient profits, so that it can reinvest in the capital equipment needed to sustain the operations of the business. Otherwise, it buys nuts from growers, and then sells the macadamias into the global market. The price it pays the growers is set at a level that achieves a small amount of retained earnings, and then the rest is paid to growers in terms of that price per kilogram. And that's sort of classic co-op model. We've acquired that shareholding because processing the macadamias that are being produced by the existing farms and the new developmental farms is very important, and having a window into the operations of the industry are very important. And the shareholding that we have in Marquis gives us an entitlement to have a director on the board of Marquis, and I've recently taken on that position, so I'm now director of Marquis. And certainly, it gives you much more granular knowledge of the operation of the industry, which is really helpful for, you know, the direction that we take with our processing decisions in the future, our marketing decisions in the future, as these new developments come on stream. We think Marquis. Okay, it's made a small loss this year, but it's recovering to profitability in the coming year. We think that it's a sophisticated business. It has very good processes. What I mean by processes, processes for processing of macadamias, but also processes for marketing macadamias. I think it's a business that is worth building on. It's the largest macadamia processor and marketer in the world, and I think it will become larger. Just pause one more moment, if there are any questions from participants? Yeah. There's a question there from somebody about whether we should buy the dip in relation to the RFF share price. We're not, not able to give financial advice. I think really what investors should be looking at is the long-term attributes of RFF and forming their own view in relation to price. Sorry, I can't be any clearer. That concludes this morning's presentation. I'd like to reiterate our thanks for your interest and time this morning. Of course, we'll be meeting with many of you over the coming weeks and months, and if you do have any queries, please don't hesitate to contact our investor services team, who are more than happy to assist wherever possible. So thank you and good morning. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.