Rural Funds Group: Capital Recycling Amid a Macadamia Price Bust
Rural Funds Group (RFF.AX), a REIT specialising in developed agricultural assets, delivered its FY26 results on 20 August 2026. The headline is a proactive balance-sheet reset: asset sales of $315 million at an average 17.9% premium to book value, gearing cut from 39.8% to 31.8% (pro forma), and undrawn headroom ballooning from $46 million to $301 million. Yet the earnings story remains stuck in neutral, with AFFO per unit flat at $0.117 and distributions unchanged at $0.1173. The market's initial reaction is muted—the stock closed at $2.18, a 5.4% distribution yield—but the narrative is one of deliberate capital recycling to fund future growth.
A balance sheet rebuilt for flexibility
The divestment program was the centrepiece of the results. Tim Sheridan, COO, laid out the rationale: “The purpose of these asset sales was threefold: to fund forecast development expenditure, to reduce gearing back to within the target range and to improve the balance sheet flexibility for the group.” — Tim Sheridan, Chief Operating Officer · 2026-08-20 The proceeds were largely applied to debt, leaving the group with $301 million of headroom against just $47 million of committed FY27 capex. This is a critical transition: the major development programs at Rookwood Farms and Kaiuroo are either complete or nearing completion, and the group is pivoting from a capital-intensive development phase to one focused on leasing and income generation.
The sales also validate the portfolio's valuation. “The overall conclusion is that independent valuations remain broadly supported of carrying values by actual transactions, particularly the cattle property sales have occurred at a meaningful premium to those values.” — Tim Sheridan, Chief Operating Officer · 2026-08-20 The average premium of 17.9% across the six properties sold is tangible evidence that the market supports the book value, something that has been a point of scepticism for listed agricultural REITs.
The macadamia price drag
While the balance sheet strengthens, the income statement is being hit by a sharp fall in macadamia price from $4.25/kg to $3.80/kg, announced at the end of July. This single factor accounts for the bulk of the flat AFFO guidance for FY27. David Bryant, Managing Director, acknowledged the disappointment: “The absence of growth in AFFO is disappointing and primarily reflects revised forecast from operated farms, but the most significant impact is derived from the lower macadamia price, which was advised to growers at the end of July.” — David Bryant, Managing Director · 2026-08-20 He also noted that the price is part of a commodity cycle, expecting a recovery over the next few years as supply adjusts and demand picks up.
That cyclicality is a reminder that the group's operated assets—roughly 16% of the portfolio—introduce earnings volatility that leased assets do not. The mature macadamia orchards, not yet leased, are a key swing factor. Should the price recovery come later than expected, the path to AFFO growth could be further delayed.
Capital allocation and the path forward
Management is clearly frustrated with five years of flat AFFO per unit. Bryant did not mince words:
The plan is to deploy the $301 million headroom into acquisitions that are immediately AFFO-accretive, though he declined to provide specifics: “We can see some good opportunities. But needless to say that the capacity will not be wasted. It will be deployed one way or another with the object of increasing the FFO generation per unit.” — David Bryant, Managing Director · 2026-08-20We are very frustrated by the lack of AFFO growth over the last number of years, and we're going to do something about it.
This is the crux of the investment case. The asset sales have been successful in strengthening the balance sheet and crystallising capital growth, but the income statement remains stagnant. The group's ability to reinvest proceeds into higher-yielding assets will determine whether the flat AFFO is a temporary pause or a structural issue. The FY27 guidance of $0.117 per unit assumes no such acquisitions, so any deployment would be upside.
With a market cap of ~$814 million and a portfolio of $1.8 billion, the leverage ratio at 31.8% is comfortably within target, and 82% of debt is hedged. The company has the flexibility to act, and the management team has the incentive. The next 12 months will be telling.