New Zealand Rural Land Company’s HY24 Result Delivers Income Growth And Dividend Resumption

30 August 2024

New Zealand Rural Land Co (NZL.NZX) has today announced a net profit after tax of $12.4m for the six months ending 30 June 2024 (HY24 end), up from $2.5m for the same period last year, and Adjusted Funds From Operations (AFFO) of $3.6m.

NZL’s Richard Milsom said, “These results demonstrate that NZL’s strategy is delivering increased portfolio value, effective risk management, and sustainable long-term growth for shareholders. Our strategy has also provided resilience in more challenged economic conditions.”

NZL currently owns 17,457 hectares of high quality productive rural land in New Zealand which is fully tenanted on long-term leases with regular CPI adjustment provisions. It generates shareholder value through a combination of asset value appreciation and cash flows from its long-term leases.

HY24 Highlights

• Roc Partners purchased 25% of NZL’s portfolio, validating strategy and partnering for future growth;
• AFFO grew from 1.53 cps in HY23 to 1.94 cps (+26.8%) in HY24;
• Portfolio diversification materially increased by forestry and horticultural acquisitions;
• Weighted Average Lease Term (WALT) increased from 11.7 years (31 December 2023) to 12.7 years at HY24 end;
• 17,457 hectares of rural land now owned, an increase of +18.3% on FY23;
• Gearing lowered to 30.5% with 64.0% of debt hedged;
• Dividend reinstated at 75% of AFFO, equivalent to 1.46 cps. Dividend will be paid in mid-October 2024;
• Dividend reinvestment plan will be reinstated; and
• On-market share buyback programme continued, with 10,000 shares repurchased at an average price of $0.88 per share, bringing the total shares repurchased to 621,327 since buyback was initiated in June 2023.

A detailed results presentation is available at: https://www.nzrlc.co.nz/reports-presentations.

CPI Adjustments

Mr Milsom said that during HY24, NZL has seen the positive impact of rental growth with approximately half of its portfolio (by lease income) coming up for CPI review.

“NZL benefits from CPI adjustments for all its properties. CPI linked rental increases of +18.6% on 37.3% of NZL’s portfolio took effect in mid 2024 and a further 26.5% of NZL’s portfolio was subject to a +4.0% increase in April 2024.

“These adjustments represent a period of strong inflationary pressures, and unlike most businesses, NZL is structured to match it’s income profile with inflation. The portfolio’s total lease value has increased by ~$1.56m or +7.6%,” said Mr Milsom.

NZL’s dairy leases undergo CPI review every three years, while its horticultural and forestry leases undergo CPI review annually.

Roc Transaction

In early HY24, NZL announced it had entered into an agreement to sell a 25% equity interest in its land portfolio to Roc Partners (Roc), a specialist private markets investment manager. This transaction settled on 9 February 2024.

Roc acquired the equity interest for $44.2m in cash. NZL used the proceeds to repay the $11.8m owing on a convertible note it drew down in April 2023 to partially fund its forestry acquisition. Further proceeds were used to fund orchard and forestry land acquisitions detailed below, with the balance retained as working capital while other opportunities are investigated.

Acquisitions

NZL has continued to diversify its rural property portfolio with recent forestry and orchard acquisitions, said Mr Milsom.

“Our forestry and horticulture properties now represent 33% and 6% respectively of the company’s annual lease income.”

In February 2024, NZL announced its intention to acquire a 97 hectare horticultural property in Hawke’s Bay and a 1,105 hectare forestry estate in Manawatu-Whanganui. NZL has since settled both transactions and supplemented the purchases with an additional 1,501 hectare forestry estate in the same well regarded forestry region.

These properties were collectively purchased for $34.9m and were leased to Kiwi Crunch, New Zealand Forest Leasing and MM forests, for an average weighted lease term and yield of 24.5 years and 7.9%, respectively (by lease value). All leases include annual CPI adjustments.

“Our recent forestry transactions reaffirm NZL’s partnership with New Zealand Carbon Farming (NZCF) and continue its contribution to the New Zealand Government’s international and domestic greenhouse gas emissions and biodiversity enhancements” said Mr Milsom.

NZL now owns 17,457 hectares of rural land (25% of which is owned by Roc) with a 12.7 year WALT (by lease value) and 100% occupancy across eight tenants.

Post-balance date, NZL has entered into an unconditional agreement to purchase 126 hectares of high-quality horticultural land in one of Central Otago’s prime growing districts. The property will be purchased for $13.3m, yielding 8.5% annually and will be leased to SI Orchards with annual CPI adjustments. The acquisition will be settled in part with $3.5m of NZL shares issued at Net Asset Value (NAV).

Dividend and Share Buyback Programme

NZL has reinstated dividend payments and resolved to pay an interim dividend of 1.46 cps, representing 75% of HY24 AFFO. The dividend will be paid in mid-October 2024.

NZL’s amended dividend policy targets a payout of 60-90% of AFFO. This target aims to provide flexibility to deploy cash operating earnings in ways that increase shareholder value.

NZL is also reinstating its dividend reinvestment plan which offers shareholders the opportunity to reinvest the net proceeds of cash dividends payable on some or all of their NZL shares into additional fully paid shares.

NZL maintains a selective on-market share buyback programme. The total number of shares that may be bought back shall not exceed 5,350,000 shares. Shares will only be acquired if the acquisition price represents 90% or less of NZL’s prevailing net asset value (NAV) per share.

Under the programme, 621,327 shares have been acquired as at the date of this announcement.

Outlook

NZL forecasts FY24 AFFO of between $7.0m and $7.5m and between 5.01 cps and 5.36 cps, excluding earnings from properties with put/call arrangements in place (~$1.2m).

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