RURAL FUNDS GROUP — Capital/Financing Update 2019

Oct 8, 2019

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Managed by:

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ASX Release

9 October 2019

Subject: Independent property valuations and reconciliation to FY19 Financial Statements

In response to investor enquiries, Rural Funds Management Limited (RFM), as responsible entity for the Rural Funds Group (ASX:RFF), provides the following reconciliations to the FY19 Financial Statements:

1. Adjusted funds from operations (AFFO) by agricultural sector to net profit after tax.

2. Total adjusted property assets, which have been based on independent asset valuations, to Total adjusted assets.

Figure 1 shows AFFO derived from RFF assets, grouped by agricultural sector and adjusted for non-cash tax expenses. AFFO represents the underlying and recurring cash earnings from its operations from which distributions are funded.

Figure 1: AFFO calculation

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Figure 2: Reconciliation of AFFO to net profit after tax

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Figure 3 provides details of the independent valuations, acquisition and lease expiry for each of RFF’s assets.

RFM has a policy to independently value assets at least every two years and rotate valuers every three years. The firms that completed valuation reports are part of global real estate businesses.

• CBRE – the world’s largest commercial real estate and investment firm with 2018 revenues of $21.3B.

• Colliers – an industry leading global real estate company with more than 14,000 employees in 68 countries.

• JLL – a leading professional services firm that specialises in real estate and investment management, with more than 90,000 employees in 80 countries.

Valuation reports are prepared in accordance with International Valuation Standards. At least one qualified valuer physically inspects each asset when preparing the valuation. A second qualified valuer reviews the work and co-signs the completed report.

The valuations adopted by RFM are primarily on an encumbered basis, as is appropriate where an executed lease is in place over the asset. Valuation reports are addressed to the reliant parties as follows:

• Rural Funds Management Ltd for Financial Reporting purposes; and

• ANZ Fiduciary Services Pty Ltd as security trustee for First Mortgage Security purposes.

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Figure 3: Adjusted Property Assets: valuation, valuer and lease expiry as at 30 June 2019

Notes to Figure 3:

• Many of the assets have ancillary assets which are not included in the brief description, for example additional land. These ancillary assets also form part of the independent valuation.

• Consistent with previous disclosures, RFM applies a directors’ valuation to the poultry assets, to reflect the increasing average age of the infrastructure. For the avoidance of doubt, the director’s valuation applied to the poultry assets is less than the independent valuation.

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• RFF owns a significant amount of water entitlements (116,829 ML) and water delivery entitlements (21,430 ML) representing a fair value of $208.0m. Most of these entitlements are not shown separately as they are embedded in an asset (e.g. an almond orchard) and therefore included in that independent valuation.

• Some independent valuations differ from the value recognised in the Financial Statements. This is primarily a result of capital expenditure subsequent to the valuation, designed to improve an asset’s productivity and value and attracts additional lease income.

Figure 4 provides a reconciliation of Total adjusted property assets to Total adjusted assets in the FY19 Financial Statements.

Figure 4: Reconciliation of Total adjusted property assets to Total adjusted assets

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In summary:

• The principal activity of RFF is to distribute income to investors from leasing agricultural assets.

• The assets owned by RFF are independently valued by qualified valuers employed by reputable organisations.

• The underlying and recurring cash earnings from its operations, represented by AFFO, generated by RFF from leasing these assets exceeds distributions.

• RFF is managed by RFM; a highly competent manager with 22 years’ experience in agricultural operations and funds management.

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About Rural Funds Group (RFF)

RFF owns a diversified portfolio of high quality Australian agricultural assets. RFF’s investment objective is to generate a stable income stream derived from leasing its assets to suitable counterparts and capital growth through any appreciation in the value of those assets. RFF is a stapled security, incorporating Rural Funds Trust (ARSN 112 951 578) and RF Active (ARSN 168 740 805), trading under the ASX code ‘RFF’. Rural Funds Management Ltd (RFM) is the responsible entity of RFF.

For further information:

For investor relations and media enquiries:

David Bryant Tim Sheridan James Powell Managing Director Chief Operating Officer General Manager – Investor Relations & Rural Funds Management Rural Funds Management Marketing T 02 6203 9700 T 0400 634 230 Rural Funds Management E DBryant@ruralfunds.com.au E TSheridan@ruralfunds.com.au T 0420 279 374 E JPowell@ruralfunds.com.au

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