Morning, everyone, and welcome to the New Zealand Rural Land Company First Half Financial Year 2023 Report. For those of you that don't know me, my name is Chris Swasbrook. I'm a Director of New Zealand Rural Land Company, and to my right is Richard Milsom, the Managing Director of New Zealand Rural Land Management, the manager of New Zealand Rural Land Company. Now, Richard will take you through what is a short first half result presentation this morning, and then we'll both open up to questions, once Richard finishes that presentation. So, Richard, over to you.
Thanks, Chris. Morning, everyone, and thanks for joining us. I'll share my screen, which is a copy of our first half presentation that's been released to the stock exchange this morning. So the highlights of our result are that NAV has continued to grow from IPO. It now sits at approximately NZD 1.53. Our share price is trading at a discount to net asset value. You'll see further in the presentation that we continue to be an acquirer of shares on market. The first half of this year saw us complete a forestry acquisition, which has built diversification in our portfolio by way of rural land class, by way of tenancy, and by way of geography. As I said, the buyback, the share buyback continues.
Our FFO per share continues to grow, and as we're reaffirming guidance, and it's forecast to grow further. We drew down an inaugural green loan, which we used to fund the forestry acquisition and some proceeds earmarked for planting a small amount of marginal land around our properties. We've launched and started reporting on our Enduring Land for Life program. This has been in action since the business started, and what we've been working on is how we articulate that to investors, and we've begun some native planting and some other initiatives we'll touch on later in our presentation. So the financial highlights for FY, for the half year, FY 2023, I've touched on those. Total returns, including dividends that have been paid, have been just under a 15% compounded annual growth rate or a total return of nearly 41%.
Shares continue to trade at a significant discount to net asset value, and which is why our share buyback remains ongoing. We're reaffirming our increased FFO per share guidance for FY 2024, which will be the first full year of our forestry earnings. In terms of operational updates, we drew down the green loan. We have launched our Enduring Land for Life program, and there's details of that on our website, but it's really 5 key areas that we believe are critical to ensuring that our business, our land, our tenants, are enduring over the extreme long term. Then the 6th area is strong and diverse governance, which holds that all together. Then we've got special projects, and so some of that is planting on marginal areas of land. 2 of those properties are earmarked for planting this year.
They're not, they're not large areas. It's covered in our forecast R&M budget. There is a reasonable return from that planting as well by way of carbon credits, and it increases both land stability and therefore decreases erosion and also increases biodiversity. And then there's a couple of other special projects that we've undertaken this year. We've contributed a small amount of land near a river to have a solar pump replace a big diesel pump. We've improved some effluent systems on some of our farms, which we planned to do when we purchased them. And there's a large-scale native regeneration predator control project with one of our partners in the forestry estate that we own with them.
In terms of key financial metrics, just over NZD 360 million worth of assets, a net asset value for the company of NZD 214.5 million. Net asset value per share is NZD 1.53. The FFO or free cash flow per share from FY 2022 through to our forecast 2023-2024 result, we'll see just under a 32% compounding growth rate, and gearing sits at around 37%. In terms of summarizing our acquisitions and our corporate actions, I won't labor these points. These have been well communicated to the market, and they are effectively our forestry acquisition and our dividend suspension in favor of a buyback and paying down our convertible note. In terms of a bit of an update on the timber and carbon and dairy markets.
So, the carbon market or the Emissions Trading Scheme has seen quite a bit of volatility recently. We've seen a carbon price or an NZU price recently go from NZD 90-NZD 35 and then back up to NZD 65. This is a product of uncertainty in the market associated with later or much earlier in the year, late last year, the government ignoring some Climate Change Commission advice. They then retrospectively adopted that advice, and the market saw some stability come to it.
We think there's tailwinds for both timber, forestry, and carbon over the long term, and I think the short-term volatility is just a good reminder about tenant selection and the nice way of being insulated from some of that activity by being a landlord and not being exposed in the short to medium-term operationally. I'm sure that some of our investors will have read about the current milk price, the midpoint of which is NZD 6.75. Fonterra announced that a week ago. So at NZD 6.75, this is lower than some farmers in the country's cost of production. So we're checking in with our tenants for our dairy farms. We're offering support where we can. We've offered to utilize some of our guys for sensitivity analysis if they wish to.
We've got quite a deep bench of FarmRight farm consultants, but our, our tenants have been through it before. They've seen a NZD 3.90 a year. The, the theme that we're consistently getting back from tenants is: "It's tough, we're okay, we're cutting our cloth to the, to the environment that we're operating in." All of our leases continue to be current, and we're monitoring and offering help where, where we can. In terms of the financials themselves, so for this half year, which is a slightly, is slightly off, two reasons. The, shares on issue at the end of the period were higher than shares on issue at the start of the period, and we picked up a small amount of forestry income at the tail end of the period.
This next half year will be a whole half year with forestry income. So with that, we saw NZD 0.0212 per share of funds from operations or FFO, and NZD 0.0196 per share of adjusted funds from operations or AFFO. We're reaffirming FY 2023 AFFO per share, which we're forecasting to be between NZD 0.042 and NZD 0.046 per share for the year, and FY 2024 AFFO, which we're forecasting to be between NZD 0.057 and NZD 0.06 per share. In terms of the profit and loss statement, with the acquisition of forestry, we've seen a 45.2% increase in rental income. Net profit after tax was NZD 6.85 million, and earnings per share at NZD 0.0192 per share.
I think that net profit after tax number is actually a mistake. Those 2.492 million is the right number, so I'll have to get that corrected and reissue the presentation to the NZX. My apologies. In terms of the balance sheet, NZD 362.7 million of total assets and NZD 214.5 million of total equity. There's been a 12.4% increase in NAV. In terms of gearing, 37.1% geared, weighted average cost of debt is 6.42%. You can see our debt expiry profile below, and we're currently 53% hedged. In terms of total returns, a usual slide that we'll keep in presentations going forward.
You can see that, NAV growth per share, even in the face of issuing some shares, has been 8.5% compound annual growth rate. In terms of AFFO growth per share, taken from FY 2022 to FY 2024, because 2021 was such a low base and it'd blow out the number, that's a 31.4% compound annual growth rate of AFFO. And you can see dividends there with the FY 2023 dividends suspended. Our portfolio continues to increase its diversification geographically and by asset class and by tenant. You can see the rural sub-sector breakdown in the top left-hand side. That's broken down by way of productive hectares. So it's 21%, 32% and 46%. So 46% dairy, 32% support.
In terms of tenant concentration and the lease profile, you can see that the lease expiry profile, the tenant diversification, and our WALT all continues to spread and grow, which is pleasing from a portfolio diversity point of view. In terms of an operational update, I've touched on these three themes, which is we'll do a little bit of planting for biodiversity and carbon sequestration and erosion control on two of our properties this year. We've had the odd special projects take place, and we've released our framework for our Enduring Land for Life program, which is the five pillars that are underpinned by governance strength, and we'll report, you know, a balanced dashboard on that in our year-end result.
In terms of outlook, just a reminder that our leases incorporate regular and uncapped CPI reviews, so, accordingly, high inflation will result in rental growth. We've touched on our FFO forecasts for this year in FY 2024. We've talked about our, our hedging and our banking arrangements. In terms of our investment properties, these are valued annually, so they were valued at December 2022. The REINZ Farm Price Index for the first six months of this year has, has declined 2.4% in round numbers, and we think that's largely immaterial and demonstrates that, you know, the, the resilience of, of rural land in the face of semi-tough operating conditions. And just a summary of NZL. In general, we have been included in another index, which is the MSCI World Micro Cap Index. And that's, and that's the half year presentation.
I'll, um-
I think I've just three notes, you know, that foreign ownership that the company has approximately 21.89% at the moment. So, other than that small typo, which will get corrected, I think Richard has covered it, but just, you know, for a recap, the company recorded a net profit after tax of NZD 2.5 million for the period and adjusted funds from operations of NZD 2.7 million. So, we remain on track, with our forecast guidance and giving guidance out to FY 2024 as the current, as the company currently stands. In terms of, you know, what is in the pipeline, there is, you know, we are clearly constrained at the moment, but there's a sizable discount on net asset value.
So people that have been concerned about capital raising can rest at ease on that basis because we are very focused on the share price, and buying back shares makes much more sense than doing anything else at the moment. Despite the fact that there are really compelling opportunities out there that are coming to us with 7%-8% yields on the ground leases and would provide further diversification. So there is still no shortage of opportunities, but rest assured that the board is focused on closing the sizable discount to net asset value.
Quite frankly, there's not been a deal. You do get shown a lot, you get approached and stuff, but if the market's gonna sell the shares to us for a good discount, we will buy them.
Yeah. And so that's what we're focused on but, look, there's not a lot of activity in the market that anybody would expect during these times. Prices do start to shift, and there's still opportunities out there, but nothing for us to do at the moment. So just please rest assured on that, because I know some people have been concerned about our appetite to continue to acquire, and our only appetite at the moment is to acquire our own shares.
There's no hands up, and I see there are no open questions, and so, oh, Nick Hill just raised their hand. Yes, Nick? Hi, Nick.
Hi there. Hi, guys. Just checking if you can hear me. Can you hear me?
I'm not sure I can.
Okay, um-
I can't hear you.
I kept speaking, so I'll just put it into the chat. Disabled.
Yeah, sorry, Nick. I can't hear you.
Okay, um-
We've had one question come in. Are there opportunities to reduce the interest bill by looking at longer-term debt rates? So we do, we do look at balancing our our debt both by tenure or length of our debt and our hedging arrangements. By, by hedging or by hedging more than we currently have, we're well over 50% hedged. We think that that would tip the balance too far one way, and so we're quite happy with our balance of hedging at the moment. You know, there is, there is a chance that interest rates do start to come back. It just is a, is a matter of timing. Nick, in terms of, in terms of total amounts, 2023 and 2024 FFO guidance is unchanged.
However, when looked at on a per security basis, FY 2023 FFO guidance has gone down at the midpoint, whereas FY 2024 has gone up. Would it be possible to outline your thinking as to why this has changed since May? I'd have to look at the specifics of that, Nick. I suspect it'll be the amount of securities that actually got issued at the very end of the capital raise. There was still some late placement to European investors, and so it might be a product of changing of the number of securities on issue, but I can circle back and check that. In terms of actual FFO and the business itself, nothing has changed since May.
Mention that the milk price is low, and some farmers' cost of production, and it's lower than some farmers' cost of production. What kind of support are we offering apart from advice and access to operational support experts? None. That's the extent of the assistance. I mean, it is this, a low milk price was inevitable at some stage, especially as a long-term rural landlord, and that's what makes tenant selection so important. If the milk price is still providing headwinds to farmers' operations next year, it seems there could be a risk of delinquency for your tenants if they're hit by a round numbers, 13 increase in rental costs from 1 July as a result of the uncapped CPI increases.
That's true, Nick, but, you know, in the same sense that, farmers lease farms, they also, you know, some have interest bills, and when they went from 2% interest to 4% interest, they were able to, you know, that was a 100% increase in their financing costs and going to 6% was another 100%, increase off a 2% base. And so they are able to, swallow some growth in their costs of leasing farms or capital costs of being on those farms. And so, at the moment, we don't see an issue.
They are just cutting their cloth accordingly, and we are seeing some farmer input costs by way of fuel, fertilizer, freight, and feed starting to come back, as on-farm cost inflation was a big piece of the cost of people's production. I would say from a macro sense, well, New Zealand's got the lowest cost of milk production in the world. If our cost of production is getting towards where the milk price is, the rest of the world, Australia, America, big milk producers, are under substantial pressure in terms of their costs of production. We will, at some stage, it's a matter of when, see a reaction.
I think, just remember that, you know, these guys have had some good years leading up to this, so, they are in the business of forward planning and have done so successfully in the cases of many of our tenants for decades now, and dealt with this kind of volatility. So they are used to it. Another question: Can you please comment on your distribution policy going forward, i.e., beyond the already announced H1 suspension? Look, we've said that we intend to be a dividend-paying company over the long term, but we would be, you know, we'd be remiss in our duties if we just totally ignored a very accretive opportunity to buy back shares when they were trading where they have been.
But no, we, you know, over the long term, aim to be a growing dividend payer. And I should say the board has to make a decision on the second half dividend, but with the share price where it is, and again, I'm not speaking for the board, I'm speaking for myself as a director, you'd have to think that the most accretive thing we could do for shareholders is to continue to buy back shares and continue to pay down the note. Now, you know, and that's just the reality of the situation, but we'll update the market on where our thinking is at in the next little while.
But certainly, based on current pricing, you would have to see that's a reasonable conclusion to draw. I've got another question. Given the current dairy payout, the revision to asset values is likely to come down. If they came down 10%-20%, are there covenants this would trigger from your end? What are the terms related to the nearly NZD 20 million loan receivable, how credit safe is this? So there are two parts to that. If asset values came down 10%-20%, that would be across the rural board in New Zealand. I have to say, I think that's very unlikely. We haven't ever really seen that. What tends to happen in New Zealand and globally with rural land is you see, peaks and plateaus, if that makes sense.
So when times are tough, people sort of go to ground. There's not a lot of activity, but you don't see big declines in asset values. They climb when things are going well, and they tend to plateau when they aren't. And so are asset values likely to come back? They may, but they haven't really moved around a lot in the past when there's been tight payout times, and that won't last forever. And in terms of the question around the NZD 20 million loan receivable, so in actual fact, those are properties that we own. So because those properties have a call option associated with them, i.e., the tenants can give us notice and call those properties back for us, they're classified as a loan.
But the NZD 20 million loan receivable is actually about NZD 25 million worth of property that tenants are paying us approximately 10% a year on by way of lease rental, and they can call back their ownership should they wish to. So the accounting treatment classifies that as a loan, where, whereas in practice, we own the farms, we're on the title, we lease them out, the tenant just has a right to call them back. So Nick, another question, just to confirm, with regards to planting on your properties as part of your sustainability program, who gets the carbon credits? We as the landlord get the carbon credits. What is your target gearing ratio? Are there any covenants around your level of gearing?
We've our banking covenant is a 40% LVR, and our internal ratio is between 30% and 40%, and we'd like to see it creep a little bit lower over time, which it's likely to. Okay, everyone, I think that's worked through all the questions. Thank you very much for joining us this morning. Please feel free to reach out to Chris or I. Our emails are in the presentations, along with our phone numbers, and so if anyone's got any further questions, really happy to chat with you. But otherwise, thank you very much and see you again.