Good day and welcome to the Rural Funds Group First Half 2024 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to James Powell, General Manager of Investor Relations. Please go ahead. Good morning, everybody, and welcome to the financial results presentation for the Rural Funds Group for the half year ended 31 December 2023. Presenting today is David Bryant, Managing Director, Tim Sheridan, Chief Operating Officer, and Daniel Yap, Chief Financial Officer. Tim and David will shortly provide details of the financial results, after which we'll take questions from attendees. Attendees can submit a question by clicking on the blue hand icon in the top of the screen, completing the pop-up question box, and clicking submit. For those dialing in to ask a verbal question, please dial star 1. I will now hand over to Tim. Thank you, James. Good morning, everybody. I'll focus on the financial results for the half year before handing over to David, who will provide a portfolio and strategy update. First, looking at the income and earnings metrics. Revenue from property leasing increased by 12% compared to the prior period. The increase is mainly due to rent, which is being received on the macadamia developments occurring in Queensland. Earnings of AUD 71 million or AUD 0.18 per unit was driven by external valuation of assets. This is an increase of 19% compared to the prior period. AUD 0.04 per unit of adjusted funds from operations, or AFFO, was generated during the period. AFFO is expected to be higher in the second half because of two factors. Firstly, rent is yet to be received on all of the land, water, and CapEx for the second tranche of the macadamia developments. This will be paid following the issuance of Rookwood Weir water entitlements, which are expected shortly. And secondly, harvest income, mainly from cotton and macadamias and livestock sales from operated assets, is mostly received in the second half. Now looking at the balance sheet, revaluations contributed to an AUD 129 million increase in assets. The 7% increase was driven by the deployment of AUD 45 million of capital expenditure, primarily for the macadamia orchard developments, and positive revaluations of AUD 72 million. Despite the significant capital spend on the macadamia developments, gearing at the end of the period increased by less than 1% because of the increase in property values. Finally, adjusted net assets per unit increased by 5%. Further details are provided on the next slide. The chart on the left of this page shows the increase in adjusted NAV from AUD 2.93 per unit to AUD 3.07 per unit at 31 December. As outlined, a key driver for the AUD 0.18 increase was from revaluations. One-quarter of the portfolio, or AUD 439 million of assets, were externally revalued during the half. This included four cattle properties held at AUD 175 million, which achieved a net uplift of 28%. Contributing to this was a favorable rent review on two Northern New South Wales cattle properties, where on a full-year basis, rent will increase by 38%. 17 macadamia orchards, consisting of both mature orchards and those in the initial stages of development, were revalued to AUD 247 million at the end of the period, which represents a 10% uplift. Finally, AUD 69 million of other assets, which mainly consist of sugarcane properties and water entitlements, achieved a 10% uplift. Now looking at the capital management of the group. During the period, a refinance of RFF bank debt facilities were arranged. This was required as our approaching expiry. Part of the facility was extended to FY 2027, and the limit increased to AUD 775 million, demonstrating the ongoing support from our financiers. The combined facilities provide AUD 172 million of headroom, which is sufficient for the group's committed development pipeline in FY 2024 and in FY 2025. There also remains headroom to the facility's key covenants. RFF's LVR at 31 December was 46% compared to the covenant of 55%. The interest cover ratio was 2.25x compared to the covenant of 1.5x. At 31 December, 74% of debt was fixed, up from 46% in the prior period as a result of additional interest rate hedges coming into effect. No new hedges were required during the period. A summary of the year-on-year hedges is presented in the bottom right of this page. I'll now hand over to David. Good morning, ladies and gentlemen. I'll now provide a portfolio update, but before doing so, I thought you would be interested in this photo taken at the Rookwood Weir west of Rockhampton one month ago. In the background is the Riverton macadamia orchard, while the foreground features a new and now full Rookwood Weir. This is the source of water for our macadamia developments in this area. The macadamia developments have been a feature of recent financial results, contributing to income and asset growth. The developments are also consistent with RFF's strategy outlined on the left of this page and have contributed to improved diversification, as shown in the pie charts on the right of this page. The next page highlights the lessees of our RFF farms. They include a mix of listed and corporate entities. These leases generate approximately 80% of the total forecast revenue of the group. The lease profile also provides income stability as they have a long-weighted average expiry of 12.8 years. Long-term rental growth is achieved through a mix of indexation mechanisms. The chart on this page also shows minimal expiries over the next 18 months. The revenue expiry in FY 2024 includes a cotton property. A leasing transaction is currently being documented for this asset, which is detailed on the next page. This transaction involves two cropping properties, Mainland and Bamboo Plains. The lessee will acquire a 50% interest in each of these properties. They will also sign a 10-year lease for both properties in their entirety. The transaction is consistent with commitments from RFF's prior investor presentation. These are to reduce operating risk, reduce debt, and improve earnings. It will also provide confirmation of the asset's current value. Management are also pursuing a transaction with similar characteristics for RFF's macadamia assets, the unleased assets. It is possible this will include both unleased mature orchards and additional development assets. However, our priority has been to conclude the cropping property transaction first. Settlement of the cropping transactions is expected by financial year-end. The following page provides an update on the leased macadamia developments. Rent is earned by RFF as capital is spent on the developments. The key stages of development are presented on the screen. Rent is also earned on land and associated water as they are developed. Many would be aware that over the past year, Queensland has experienced several significant rainfall events. This has delayed the timing of the developments and capital expenditure. Despite this, we were very satisfied with the orchard's development standard. We expect that the diligence and precision taken in this stage will benefit the lessee, and it will also benefit the Rural Funds Group for decades to come. The rest of the plantings should be mostly done this year, particularly since we are now entering the dry season. This will result in a significant increase of capital expenditure for which RFF will derive rent, providing substantial property revenue growth to the group. RFF also continues to improve various sustainability initiatives in the portfolio. Below are the achievements from the last year, also presented as some of the activities described in the FY 2023 annual report and our focus areas for the first half. In conclusion, this set of results demonstrates RFF's work based on the strategy outlined in our prior investor communications. The objectives of this strategy are to reduce operating risk, reduce debt, and improve earnings. The ongoing increases in RFF's asset values have assisted in maintaining gearing close to our target range. This is despite the development capital expenditure being deployed. The cropping transaction will further assist gearing through the partial sale of these assets, as will future transactions which include this feature. The current macadamia orchard developments continue to be a highlight of the results. They provide ongoing property revenue growth to the group and other benefits such as improved diversification and a very high-quality lessee. These and other key attributes of RFF are included on this slide. This concludes today's presentation. We'll now take questions from our investors. Thank you. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question today will come from Cody Shield of UBS. Please go ahead. Good morning, David and team. Maybe just on the water allocations around Rookwood Weir. Could you provide some more detail on that? Is that a foregone conclusion, or is it definitely going to happen, or what's happening with that? Yeah, it pretty much is. So the Weir's been built. It has already filled. We're just waiting for some paperwork, essentially, to come through from the government, and that's all on track. Okay. Great. Now, you've flagged you've got the potential sale of the two cropping properties, potential macadamia transaction. Are you looking at anything else such as the sale of water entitlements, or is that now kind of off the table? Yeah, it's David speaking. We've got one parcel of water entitlements which represents about 2% of the fund. We would consider selling those, but certainly, the rest of the actually, I'll rephrase that. We are going to explore the sale of those entitlements. We do that in conjunction with the lessee, who actually is the landowner of where the water is being used at the moment. Apart from that, the rest of the water entitlements, our preference and we're quite determined to keep those water entitlements and rent them out and get the income growth and capital growth that's been a really strong feature of the fund. And that 2% of the fund that you'd consider selling off, would that be a second half 2024 story, or would that creep into next year? Some of these sale processes can take a long time. Yeah, second half 2024 or first half 2025. Okay. Great. Just the last one for me. I think it was around a quarter of the portfolio was revalued. Could you just talk to the outlook for revaluations for the remainder of the portfolio? Yeah. Well, just talking about the market first, I would expect that the market is plateauing, partly because of higher interest rates, partly because commodity prices are not galloping along, thankfully, for cost of living for all of us. And there's been quite a surge. So I think that we will see a slowdown in these large capital uplifts, a slowdown in agricultural properties generally. However, what you're seeing in the Rural Funds Group is the consequence of the development that we're doing to properties to improve their productivity. So we think that there's still a large amount of productivity gains showing up in capital gains still to come. So yeah, we're pretty happy about the future for capital increases. Okay. That's great. Thanks for that. That's all from me. Thank you. Our next question today will come from James Druce of CLSA. Please go ahead. Yeah. Good morning, David and team. Just having a look at the cash flow statement, it had a pretty strong half, AUD 24 million versus AUD 19 million on the prior half and well above AFFO. Could you just talk to the drivers of that and whether that's going to continue in the second half? Thanks, James. It's Daniel speaking here. So the key driver that we have seen in this half relates to unearned revenue, which is where it's really to do with the timing of when lessees pay their invoices. So that should even out year-on-year. Right. So that's not a cash event, though, right, for the first half? Yeah. So for this first half, we didn't receive revenue in advance of the period. All right. Okay. That's clear. Then looking at the second half skew, you've held guidance. It looks like you've got to pick up around about AUD 10 million to hit guidance in the second half. You've got some macadamia leasing income coming through, but can you just go and some farming income that you've pointed out, Keith? Could you talk to anything else in the quantums of those pieces, please? Yeah. So it's Tim speaking. The large portion is from the farming income. So that's the macadamia harvest, which occurs from now until June, essentially. So that will flow through into this half. And that's from 735 hectares of macadamia. So that's quite substantial. We've also got the cotton harvest, which occurs in this period. And then, as you said, it's the macadamia lease coming into force. So there's essentially some catch-up rent that gets paid on the second tranche as they commence following that issuance of the water licenses. All right. Is the amount of cash coming to the door from the two harvests, is that relatively known today, or is it still quite subject to market conditions? I mean, those crops are pretty much growing, so it's relatively known. So that's why we're confident in our FFO guidance number because, essentially, the macadamia harvest is commencing and the cotton harvest is very close. So yes, it's relatively known at this stage. But we have got to harvest the crops, and there can be volatility, but we're comfortable with where it is at this stage. James, David speaking. I'll just add, on the price side for those commodities, the cotton, a large portion of it we can hedge. Then with macadamias, we're very close to the movements in macadamia prices through the processor and marketer that we utilize. We've got good visibility on what the international market is doing in terms of price movements. There's been a substantial price recovery. Probably, prices have doubled over the last 12 months. So we've got a fair degree of confidence around that. Nevertheless, it's assets with operating exposure that's causing volatility in the fund. It is our desire, and the work we're doing is working on transactions that remove that agricultural operating risk from that portion of the fund. Particularly as these farms are developed, they become much more leasable, and the time is right to now work on leasing the last of these assets or these exposures out. Okay. That's clear. Thank you. Another one, if I may. Can you just talk to, I'm just interested in the structure of the asset sales that you're looking at doing with cropping, the 50% sale, not 100%. Can you just talk to why that works for both parties? Yeah. So from Rural Funds Group's perspective, we're in the business of developing farms and leasing them out, not developing the farms and selling them. So our preference would have been to develop it, lease out 100%, and not sell any of it. But to get this particular lessee that we're working with, their preference was to have a 50% ownership of the land so they had some upside from the capital growth that will be generated from the productivity improvements that'll occur on these farms, and it'll be proven up over the next couple of years. And they've got deep pockets and so wanted a stake in the land ownership. So what have we got? Some sort of hybrid model, I suppose, and I think it'll work well. Okay. That makes sense. And is the lessee institutional, large private, small private? Can you provide any color or fund at this stage? Yeah, institutional, and we'll be conducting the farm management operations for them. All right. That's clear. Thank you. Our next question today will come from Edward Day of Moelis Australia. Please go ahead. Morning, David and team. Just a follow-on on the asset sales. Are you able to give an idea of the yield equivalent? Sorry. What was that question? The yield equivalent? The yield, as in from what would the implied yield be from the lessee's perspective? Oh, so it's in line with our other cropping leases that we have on book at the moment. So it's that market, essentially. Yeah. Okay. I know you say you're pursuing a similar strategy with a couple of macadamia assets. Is that going to be that 50% interest retained? Yeah, that's what we'd anticipate. And we'll probably bundle it up with the Kaiuroo property, which is a property that has cattle and will be developed for cotton as well. So it's a cattle-cotton property along with mature macadamia orchards and developmental ones. So it's a parcel of assets that we're going to offer to institutional investors. We've done a bit of work on this already, and there's a lot of demand. Thanks. Just one more. Just wondering if you can talk through the market rent reviews on the two cattle properties that got the 30%-odd uplift there and just really, I guess, the CapEx that you outlaid and the incremental productivity that will result from that. Yeah. Okay. So those two cattle properties, they're relatively small cattle properties within the portfolio. So they're the two in Northern New South Wales. They were acquired five years ago. And in line with all of our cattle properties, there's a market rent review that occurs every five years. So it's just going through that process. We would have outlaid relatively small amounts of CapEx on that. It'd be close to 5% of the initial purchase price. And the main driver for the rent review in this instance is mainly market movement. So obviously, cattle property values have increased a lot over the last five years. But Tim, it's David speaking. You might also comment on the Natal revaluation. Yeah. So the other revaluation we had during the period was Natal Aggregation. The increase was about 30%. Of Of that 30% uplift, the majority or 2/3 was market-driven, so based on comparative sales, and 1/3 was driven by productivity improvements. So we have all of these assets are now starting to see productivity improvements flow through, and we have more rent reviews occurring. We've got a rent review on the Cobungra property that occurs in this half. So hopefully, we have a positive outcome there. And then we've got Rewan at the start of next financial year. So there will be further growth coming from these market rent reviews. What's the capital value of Natal, Tim? About AUD 180 million. So a much larger asset. It's probably worth just sort of emphasizing that, yeah, the cattle markets had a bit of a stampede in terms of valuations, and the productivity incremental capital gains that we get lag. And it's because the valuers wished to see proof of carrying capacity increase, and that takes a bit of time. And that's why, despite my earlier comments about a plateauing in capital values, particularly, say, for cattle properties, we still think that we'll get a drip feed of pretty material capital gains as a consequence of this lag effect in the productivity improvements. Thank you. That's all from me. Thank you. Again, it is Star and then One to ask a question. And our next question will come from James Ferrier with Wilsons Advisory. Please go ahead. Good morning, David, Tim, and James. Thanks for your time. Can I, first of all, ask you just maybe a little bit more color on the opportunities ahead and perhaps how far you are progressed on non-core asset sales? Yeah. Good morning, James. This transaction we're doing with the cotton property has been our main focus. We actually don't have a lot of non-core assets because we don't buy assets that are non-core. Having said that, we can see a benefit in selling on this groundwater entitlement because of the circumstances of the lessee. So that's something that we will progress over, as I committed, we think that we'll achieve that over the next nine months. There might come a time where we have offers or consider offering other properties for sale, but there's nothing that is pressing that needs to be spun out. I think it's probably worth stating that what we're doing with Bamboo and Mainland, the two cropping properties, is providing a template for what we will do with the other assets where we have operational exposure. So the real focus is not non-core assets because we just don't have any particular non-core assets. The real focus is assets where the fund maintains operational exposure. We want to remove that operational exposure. To do so, our desire would be just to lease them out. Second preference is the 50/50 deal that you can see with this transaction. But if pressed, if we were unable to find lessees rather than maintain operational exposure on an asset indefinitely, then we would sell it. I'm confident that the 50/50 model with 100% of the property being leased out is a model that we can repeat with these assets that I've listed before. Yep. That makes sense. Thank you. And probably good to segue into the next question then. I think Cerberus and Yarra were two cattle properties that are potential to be leased out in the near term. So if that is the case, an update there would be great. Thanks. Yeah. That process is starting. Now, those developments are only just being completed. Particularly, Yarra, it was reliant on the completion of the Rookwood Weir to have irrigation water available. Now that that process has been completed and the developments are largely completed, we are commencing that process to lease it out. But I can't provide any further update as to when. Thanks, Tim. The transaction today that you're talking about with the two cropping properties, is it just coincidence that you're looking at the same structure for the collection of other assets that David referenced, mature macadamias, Kaiuroo, and some developmental macs, or is it actually the same counterparty? No. It's not the same counterparty, and we don't actually have another counterparty yet for this suite of macadamia assets and so forth. But we know that there is strong demand. We've sounded out advisors and investors, and we know that there is strong demand for that structure, much greater demand than for a straight lease. So I'm not sure at all who the ultimate investor will be, and it could well be a familiar face, but we're going to go to the market more widely. Okay. Understood, David. And I might have misheard you just lastly. I might have misheard you in describing this potential transaction. But did you say that it would include some development macadamias as well as mature? And if that's the case, are you talking about a portion of the 2,000 hectares of additional area that's been earmarked for macadamias but obviously not committed until now? Yeah, that's correct, James. It will include 1,000 hectares of the two. The remaining 1,000 hectares, we've got to sift through the paperwork and identify land, and that'll come later. But yeah, so it'd be 1,000 hectares of development, probably roughly 1,000 hectares of mature macadamias, and then the Kaiuroo property as well, which is cattle and cotton. So basically, very well firmed up investment opportunity for an institution wanting to get into agriculture but know exactly where their money's going rather than into some sort of blind pool. Yep. Absolutely. That's very encouraging. Thanks for the update. At this point-- Operator, if there are no further questions via the audio module, we'll go to questions on screen. Just a reminder to all of our attendees today, to submit a question to the presenters today, please click the blue hand icon on your screen. A dialog box will pop up. Type in your question and, crucially, hit submit. Then we will receive the question and answer them for our unit holders and other attendees. We'll just pause for a moment while questions start coming through. It's David Bryant speaking. So the first question that we have is, do you supply Woolworths or Coles? If so, do you welcome the industry investigation by government on broader supplier pressures? Will you benefit from a more regulated competitive industry? So well, about 80%-odd of our assets are leased out, so that question would be best directed to our lessees. The 20% that is not leased out, the bulk of that well, I'll just back up for a minute and just distinguish RFF's investment strategy to many others. And that is that RFF targets assets in enterprises where Australia has a sustainable or has a comparative advantage. It means that we can compete and trade globally because we can produce that commodity at a lower price than many of our trading partners. Now, as a consequence of that, we are not held hostage by Coles or Woolworths or any oligopoly that may or may not exist in this country. So I won't comment on the regulatory issues, and I won't sidestep it. I'll just deliberately, well, I will say that we have deliberately invested so that we would never be exposed to anything like that. So I hope that answers your question. Thank you. Now, the next question is, how far are you affected by natural disasters and climate change? What are you doing to mitigate potential future impacts? So how does one know whether one is being impacted already by climate change in terms of weather volatility? I would say, without a doubt, we are being affected by a change in atmospheric concentrations of CO2. And that's manifesting itself in the fact that our plants can grow much quicker because plants consume CO2. So this effect is called the CO2 fertilization effect. What it means is that a plant, say, for example, a grapevine, it can burst into life after the winter, grow its canes, grow its leaves, grow the grapes, and get the business done a lot more quickly. And the whole industry is observing that vintages are coming in earlier and earlier. And it's not because of heat. It's because of the CO2 fertilization effect. So without a doubt, we are being affected, at this stage, beneficially by the increased concentration of CO2 in the atmosphere. The volatile weather events. It's just impossible to say whether or not the events that we're experiencing are a consequence of climate change or a consequence of a big thunderstorm that happens from time to time. Last year at Hillston, we had flooding there that was, without a doubt, higher than recorded history. So then let's call it climate change and then move on to answering your question, which is, what are we doing about it to manage the potential impacts? What we're doing is reviewing our risk management systems and approaches to major volatile events such as floods. How high do we build levee banks? How do we respond? Do we simply allow the water to flood through our orchards and ensure that there is oxygenated water flooding through rather than dead water so that the trees still survive? So there's strategies that we can deploy to manage these events in the case of flooding. Again, in the case of fires, they are events that we can manage. And because of the location of our properties and the way we select them, we do not think that fire, as a consequence of climate change, is a risk to us, a significant risk because of the way we locate them, the fact that they're irrigated, and a bunch of other issues. So the risk of climate change has been around a long time. It's been part of our investment strategy in acquisitions, being mindful of that. But then beefing up our systems and response plans to things like a major flood is something that we're working on. Okay. So yeah, it's David Bryant. Thank you very much, everybody, for attending our meeting. We appreciate your interest in the fund. We look forward to reporting future results where we expect the growth in the fund to resume. And so I'll wind up the meeting now, and thanks again. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.