Australia: Rural Funds continues expansion into almonds with Olam leasing deal

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Rural Funds Group will develop almond groves in the NSW Riverina. (Photo: Erin Jonasson)
Financial Review | 21 September 2015

Rural Funds continues expansion into almonds with Olam leasing deal

by Larry Schlesinger

The $150 million diversified rural property fund manager, Rural Funds Group, has increased its exposure to Australia's hottest horticultural commodity, almonds, after striking a deal to develop 1500 hectares in two new almond orchards in the NSW Riverina backed by a long-term lease to Singapore giant Olam.

The deals come as Australian almond growers continue to benefit from the continued drought in California, the world's biggest almond growing region, which has driven up demand for the "super nut" from other regions.

In 2014/15, almonds were Australia's most valuable horticultural export product with annual export sales of $422 million, an increase of 14 per cent on the previous year. 50,000 tonnes were exported and 20,000 tonnes sold domestically, according to the Almond Board of Australia.

Almond prices rose above $8.50 a kilogram last year, compared with $5 a kg in 2011, with orchard prices surging from $25,000 a hectare to above $47,000 a hectare, according to recent Colliers International figures.

Rural Funds Group (RFF), which owns $250 million of poultry farms, almond groves and vineyards, supplying the likes of Baiada, Select Harvests and Treasury Wine Estates, has entered into contracts to acquire two former grazing and cropping properties – Kerarbury and Kamelda – south west of Darlington Point for $19.25 million.

The properties will be developed into new almond groves at a cost of $109 million and leased to Olam, Australia's biggest almond grower, for a period of 22 years and nine months.

The have been acquired from local growers, the Toscan brothers, and are close to where RFF is developing 600 hectares of almonds for Olam at Tocabil, near Hillston, with 400 hectares of trees already planted.
Poultry earner replacement

RFF managing director David Bryant said almonds, which make up 42 per cent of RFF's 27 property portfolio by value, could in the coming years replace poultry as its biggest revenue earner.

"The almond sector is very strong and should remain strong for a couple of years. The drought in California has not yet broken and the trees will take a while to recover," Mr Bryant said.

"There will eventually be a decline in almond prices but this does not faze groups like Olam, which needs high quality and high yielding assets. We are very encouraged at the potential of new almond grove development," he said.

Almond trees typically take about seven years to reach full maturity and also require large amounts of irrigation. Under the deal RFF will supply eight megalitres of water per hectare prior to planting, with further water to be supplied as the orchard matures.

Under the confidential leasing deal, Olam will pay rent on capital expenditure over the first four years of the orchard's development as well as leasing the property for the remaining 19 years of the lease. Last year RRF earned $22.3 million in revenue from its rural properties with net profits of $9.4 million. In FY16 it increased its forecast distribution by 4 per cent to 8.93¢ unit.

The leasing deal with Olam requires approval by the Foreign Investment Review Board.

Development of the Darlington Point orchards are due to commence once the property purchases, which will be funded from a combination of equity, debt and retained earnings have been completed.

There is also the potential for a further 1000 hectares of land to be developed.
Original source: Financial Review
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