Farmland real estate investment trust (REIT) Vitalharvest Freehold Trust (ASX: VTH) has announced its half-year result to 31 December 2019.
Vitalharvest's half-year result
The prior comparative period are pro forma figures to 31 December 2018, compared to the statutory figures for the half-year to December 2019 reported today.
Vitalharvest's base rent increased by almost 2% to $4.75 million. However, its variable rent – which comes from an earnings agreement with its main and only tenant Costa Group Holdings Ltd (ASX: CGC) – fell by almost 40% to $4.7 million.
The variable rent fell because of both citrus and berries. Citrus was down due to smaller fruit sizing, higher water costs and the fruit fly impact. Berries were down because of smaller fruit sizing, crumbly raspberries, increased industry supply and the impact of the drought.
Funds from operations (FFO) fell by almost 30% to $6.7 million because of the above issues. On a per unit basis, this translates to 3.62 cents.
Vitalharvest reported a statutory profit of $14.3 million, compared to a net loss of $7.9 million last year. The loss last year was largely due to establishment costs of $7.5 million. This period's profit was helped by $12.2 million of "fair value adjustments", meaning an increase of value, relating to investment properties, bearer plants and mark-to-market of interest rate swaps.
Vitalharvest distribution and balance sheet
The REIT declared a distribution of 3.25 cents per unit, representing an FFO payout ratio of 90%. That brings the last 12 months of distributions to 4.9 cents, or 6.9% in yield terms.
Vitalharvest finished the period with total assets of $282.6 million which includes a cash balance of $6.8 million. It had a net asset value (NAV) per unit of $0.95 and gearing was 35%.
Growth plans
Capital expenditure by Vitalharvest earns a 8% per annum base rent and may contribute to an increase in variable rent as a result of productivity and profitability gains. Vitalharvest funded $2.7 million of capital expenditure which improved the base rent cost base during the period.
In terms of acquisitions, in July 2019 Vitalharvest settled on a 5.3 hectare berry property at Corindi containing 3.3 hectares of raspberry plantings. This property is being leased to Costa Group under the same terms as the remaining berry leases.
Management comments
Managing Director Liam Lenaghan said: "From an agricultural perspective, if it could go wrong, it did go wrong in the past six months. Our assets and our tenant have both been challenged by drought, bushfire, pestilence and crumbly berries.
"The assets themselves are investment-grade, important to the Australian horticultural industry and appreciating in value, as validated independently by Colliers International. Vitalharvest continues to offer an excellent investment opportunity for patient investors."
