Rural Funds Group sells poultry for $72m and beefs up in WA

After 15 years in the chicken farming business, agricultural property investor, Rural Funds Group, is selling out to big rival player, ProTen, and buying up cattle country in Western Australia, instead.

It's also looking at other beef country and expanding its toehold in the macadamia plantation sector, with plans to buy more land near Bundaberg, Queensland.

The listed Rural Funds, which grows about 30 million birds a year under long term contracts with big poultry names Baiada and Turi Foods, will sell its 17 broiler farms in the NSW Riverina and at Lethbridge in southern Victoria for $72m.

At the same time it is spreading its cattle property interests west, buying three holdings for $22.6m to be leased by next April to fast-rising corporate Wagyu beef producer, Stone Axe Pastoral.

The properties, Petro, High Hill and Willara, about 200 to 280 kilometres north of Perth, were sold by Pilbara pastoralist and businessman, Brent Smoothy.

They will likely be the focus of irrigation and grazing productivity investment under their new ownership and lease arrangements.

Leasee, Stone Axe, founded three years ago by WA-based Mathew Walker and James Robinson, also began renting NSW beef properties, Dyamberin and Woodburn on the New England tablelands from Rural Funds a year ago.

In February Stone Axe bought a controlling interest in WA's biggest Wagyu producer, Margaret River Premium Meat Exports, and in April a half share in the 25,000-head Yarranbrook feedlot, at Inglewood on Queensland's southern Darling Downs, from export beef processor, John Dee.

The Wagyu beef business, now one of Australia's biggest, is majority owned by Asia Pacific private equity group, ROC Partners, which has other agribusiness interests including, Capilano Honey and oyster farms.

Stone Axe's founders also have ties to Queensland's original Westholme Wagyu venture, later sold to Australian Agricultural Company.

Rural Funds Group's other agricultural investments over 36 properties include beef feedlots and grazing holdings in Queensland, almonds, vineyards and irrigated cropping country at Hillston in NSW.

Managing director, David Bryant, said the agricultural real estate investment trust's strategy of developing assets for better or more productive uses had prompted it to seek out more beef and horticulture options instead of committing to investing significantly more in upgrading its poultry assets.

Rural Funds wanted acquisitions in industries where Australia had a comparative advantage, where it could enhance its climatic diversification and "could increase the growth rate of adjusted funds from operations through market rent".

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Its poultry divestment was in part prompted by the fact returns from growing out chickens were much tighter now than a decade ago, rival operators had consolidated and built more sheds in recent years, and some of Rural Funds' sheds were old and probably needed replacing.

ProTen, had greater economies of scale including a significant presence around Griffith where Rural Funds first established its chicken growing footprint, contracting to Bartter Enterprises, then buying and building more sheds nearby and in Victoria.

Rural Funds currently has 154 chicken sheds, 11 of which average about 30 years-old, producing broilers under long term contracts, although the poultry business recorded a loss in 2018-19.

"For the past year we've been weighing up the cost of rebuilding sheds versus putting that capital into other sectors where we can develop assets, possibly for less expense," Mr Bryant said.

"We'll use the money from the poultry sale to initially reduce our debt, but we will also have plans afoot to buy more beef property and we see good opportunities in macadamias."

The business had contracted to spend $1.6m on a Bundaberg district property, Cygnet, to develop for nuts, and was investigating more opportunities.

Rural Funds has 40 hectares of trees, and more land in the development phase, and a nursery recently established to supply young trees to other developments as land was acquired.

ProTen, founded by New Zealand chicken farmer, Max Bryant, 30 years ago has been a much faster growing player in the broiler chicken business, with more than 300 poultry sheds on 20 farms in NSW, South Australia and WA.

Since entering the Australian market in 2002 and divesting its NZ interests shortly afterwards, ProTen has grown rapidly to produce about 72 million birds a year, equivalent to more than 10 per cent of the nation's annual broiler production.

ProTen's takeover of Rural Funds farms is expected by December 31.

While the trust company, which has a property portfolio worth more than $1billion, doesn't actually farm the land it owns, Mr Bryant said Australia's burgeoning export opportunities, particularly in Asia, provided a bullish and diverse marketplace for those who leased its land for production.

The protein supply gap left by African swine fever in China and other parts of Asia would also generate a huge increase in demand for meat exports.

The 22-year-old Rural Funds Group has also been in the stock market spotlight during a turbulent few months, after two unfavourable reports from short sellers who claimed the agribusiness had over valued its assets.

The property fund strenuously denied the claims and is suing Texan-based Bonitas Research after producing independent analysis to support its accounts.

The company said the poultry portfolio sale, for just $3m less than its June valuation, validated the fund's asset value claims and the findings by Ernst and Young (EY).