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Rural Funds Group (ASX: RFF)


Farmland has been useful for many centuries and I imagine it will continue to be so for the rest of my life. Incredible technological change or horrifying climate change would have to occur to make farmland a useless asset in my lifetime.


Rural Funds owns a variety of farm types including almonds, vineyards, macadamias, cotton, cattle and poultry. The farms are diversified by geography and climate as well.


The real estate investment trust (REIT) is actively adding more farms to its portfolio and investing in productivity improvements where it can to boost the rent from its tenants.


Rural Funds aims to grow its distribution by 4% a year, which means it could be a very good long-term holding for steady income growth.


It currently has a distribution yield of 4.6%

Motley Fool


- but trading above sum of assets NTA

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  • 2 months later...

Some serious damage here, caused by short sell Bonitas - previously part of the Glaucus outfit - https://www.bonitasresearch.com/company/rural-funds-asx-rff/


Rural Funds Group shares plunged more than 42 per cent on Tuesday morning, wiping $335 million from its value in just half an hour after it was targeted in a report by American-based short-seller Bonitas Research. Bonitas is the new short selling operation founded by Matt Wiechert, the co-founder of Glaucus Research which launched a withering assault on Australia's Blue Sky Alternative Investments last year. Rural Funds shares dropped to $1.36 before trading paused at 10.55am and was then halted at 11.30am pending an announcement.


"Evidence suggests that RFF's reported profitability had included $ 28+ million (sic) of fabricated rental income paid to RFF by its two largest third-party lessees," said a report posted to Bonitas' web site.


The short-seller said it calculated that RFF had overstated its net assets by 100 per cent and that the company's true net assets figure was only $268 million as of December 31, 2018. According to Bonitas, that would put RFF in breach of its recently increased minimum $400 million net asset loan covenant.


"And as we have laid out in this report, we believe nearly 100 per cent of RFF's reported profits since FY'17 are attributable to either fabricated rental income or non-cash gains from dubious fair value changes applied to RFF's assets," it said


Shortman shows as at 31 July 2019 total shorts = 2.79% - not a lot, but they seem to have been adding steadily over a period of time



Because of this, we are short RFF and believe RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s equity is ultimately worthless.




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Came across this article written in 2015 - Revaluation fraud using sham internal transactions. The author called RFF a "fraud" back in 2015 - also BLA - BLA was the subject of short attack by Glaucus. One of the two founders of Glaucus has set up Bonitas, who are the activist shorters in RFF



From this article - "The only viable form of business in Australia now involves fraud, as only fraud schemes can promise sufficient returns. Pie cannot be sold profitably in Australia, only pie in the sky need apply."


Food for thought - "pie in the sky" being peddled by many companies on the ASX, particularly at the spec end

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Must say in previous unlisted iterations (RFF came out of a bunch of unlisted funds/ REITs; only one that came across my bow was Lachlan Farming) the reported numbers and what investors received never made much sense. Fees flowed profusely, though.


Was an AVOID then, and no reason to change that view subsequently.

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RFF's response to Bonitas Research Report is in. Seem to be taking same approach as QIN and BLA - have engaged EY to independently audit its audited accounts (by PwC). Sloppy work re item 6 .. Rebuttal from Bonitas no doubt in the next day or so


On 6 August 2019, Bonitas Research LLC (Bonitas) selectively released a document about the

financial position of the Rural Funds Group (ASX: RFF) (Document).


The Document was published without any inquiry of RFF or Rural Funds Management Limited

(RFM). Notably, at the foot of page 1 of the Document, Bonitas states:


"We [bonitas] have a short interest in RFF's stock and stand to realize significant gains in the event

that the price of such instrument declines."

RFM rejects entirely the unfounded allegations of financial impropriety and irregularity

contained in the Document and is obtaining legal advice in respect of those matters.

Notwithstanding, given the seriousness of the matters raised and the resultant adverse effect on

the price of RFF securities, RFM has engaged Ernst & Young to independently investigate the

matters raised and assess RFM's rejection of each of the claims made in the Document as set

out below.


Bonitas statement 1:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Evidence suggests that RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s reported profitability had included A$ 28+ million of fabricated

rental income paid to RFF by its two largest third-party lessees.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 1, paragraph 2.

Repeated and discussed: Pages 1, 2, 7, 8, 9, 10, 11, 12, 13, 14, 20.


RFM response:

This statement is incorrect. The Bonitas reading of the accounts of third-party lessees is

mistaken. All rental income recorded in RFF accounts, including that relating to third-party

lessees is accurate.


Bonitas statement 2:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“We believe that RFF had artificially inflated its reported financial performance...âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 1, paragraph 2.

Repeated and discussed: pages 7, 8, 9, 10, 11, 12, 13, 14, 15, 16.


RFM response:

This statement is incorrect. RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s accounts are audited and are an accurate record of the

financial performance and financial position of RFF.


Bonitas statement 3:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Dividend afforded with cash from equity raises and bank borrowings.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 14, heading.


RFM response:

This statement is incorrect. Distributions are paid from Adjusted Funds from Operations (AFFO),

which is the free cash flow generated from rents after payment of expenses. RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s audited

accounts disclose the AFFO and accurately reflect that AFFO exceeds distributions paid.


Bonitas statement 4:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“We calculate that RFF Management overstated RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s net assets by 100% and that RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s true net

assets figure was only A$ 268 million as of December 31, 2018, which would put RFF in breach of

its recently increased minimum A$ 400 million net asset loan covenant.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 1, paragraph 3.

Repeated and discussed: Pages 14,15,16,17.


RFM response:

This statement is incorrect. All asset values recorded in RFF accounts are accurate, appropriate,

supported by independent valuations and reviewed by its auditor, PricewaterhouseCoopers.


Bonitas statement 5:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s largest nefarious transaction appeared as an undisclosed dividend recapitalization of RFMâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s

newly acquired cattle asset, J&F, which included a A$ 30 million special cash dividend paid to RFM

financed by borrowings backstopped by RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s A$ 75 million financial guarantee to J&F.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 1, paragraph 5.

Repeated and discussed: Pages 4, 19, 20, 21, 22, 23, 24, 25, 30.


RFM response:

This statement is incorrect. The ending capital structure of J&F and the guarantee were exactly

as described to investors in the equity raising document and the member meeting

documentation provided in July 2018. The guarantee was considered fair and reasonable by an

independent expert and due to its related party nature, approved by RFF unitholders. RFM did

not benefit from a $30m special dividend, rather it was repaid $30m it outlaid to acquire J&F.


Bonitas statement 6:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s 1Hâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢19 results disclosed that it was owed A$ 14.5 million from an RFM related party

macadamia lessee which inexplicably did not appear on the lesseeâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s balance sheet.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 1, paragraph 5.

Repeated and discussed: Pages 3, 4, 19, 20, 26, 27, 28, 29.


RFM response:

The RFF 31 December 2018 accounts contained a table formatting error in Note E2, p31. The

table incorrectly lists a loan to the 2007 Macgrove Project of $14.463m. The correct figure is

$0.008m. This error is confined to this table only and does not flow through to, or alter, the

accuracy of RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s 31 December 2018 Financial Statements.


Bonitas statement 7:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFF Management continues to tell investors that RFMâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s sole form of compensation for managing

RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s assets under management is ~1% fee per annum.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 3, paragraph 4.

Repeated: pages 5, 18, 20.


RFM response:

RFM, as responsible entity of RFF, charges a management fee of 1.05% of the adjusted gross

asset value of RFF. RFM is also entitled to be reimbursed for expenses incurred in performing its

duties as responsible entity of RFF.


Bonitas statement 8:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFF Management controls and operates both boards of RFF and RFM.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

Page 3, paragraph 5.

Repeated: pages 8, 18.


RFM response:

RFM is the responsible entity of RFF and holds an Australian Financial Services Licence

authorising it to operate RFF. RFF does not have a board of directors. This structure is common

amongst Australian REITs and other managed investments.


Bonitas statement 9:

âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚¦..former Company Secretary Andrea Lemmon, who abruptly resigned in August 2018 after 21

years of working with David Bryant since RFM was founded in 1997.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

RFM response:


Andrea Lemmon advised David Bryant of her plan to retire in 2015. Andrea and other RFM staff

then planned and managed her succession over a two-year period preceding her retirement in

October 2018. Andrea continues to hold a significant unitholding in RFF.



To reiterate, while entirely without foundation, RFF is seriously addressing the allegations made

by Bonitas and will vigorously defend the business in the interests of all RFF unitholders.


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Opened this morning - another massive dump down 21.32% @ $1.65. . Not sure why they allowed it back - should have kept it in a TH until the EY audit - just IMHO


Have released today's investor webinar in response to Bonitas Document - https://drive.google.com/file/d/1u4nnpjA1Gb...V6YomAFdT4/view


Subject: Further response to Bonitas Research document

On 6 August 2019, Bonitas Research LLC (Bonitas) selectively released a document about the

financial position of the Rural Funds Group (ASX: RFF) (Document)


Rural Funds Management Limited (RFM) as responsible entity for the Rural Funds Group (ASX:

RFF), released a response to the Document on 7 August 2019. RFM will not provide further

detailed responses to any existing, or possible future, allegations made by Bonitas, a shortactivist with an acknowledged financial interest in a declining RFF security price.


RFM has engaged Ernst & Young to independently investigate the matters raised and assess

RFF's rejection of each of the claims made in the Document.


RFM relies on its audited financial statements and again confirms their accuracy. RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s results for

the financial year ended 30 June 2019 are scheduled for release on Tuesday, 27 August 2019

and remain in line with guidance.


In light of the above, trading in RFF securities will resume today. The Board of the responsible

entity has determined that RFM staff and Directors may trade in RFF securities from market

open in accordance with the RFM Securities Trading Policy.


In view of the above - are directors/staff selling this morning?

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Rebuttal to the rebuttal Note Bonitas have locked onto David Bryant's strange comment made during the webinator - note also their comments re "auditors"


Rural Funds Group (ASX: RFF) = Fraud


âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Our strategy is to deliberately provide a lack of detailed explication.âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ

- David Bryant, RFF Webinar 8 August 2019


On 6 August 2019 we published our initial opinion (âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Reportâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ on Rural Funds Group (ASX: RFF) (âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ÂÂ, the âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Companyâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ which highlighted independent evidence from RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s largest independent customers that suggested RFF fabricated A$ 28 million of its reported rental income since FYâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢17. Additional evidence suggested that RFF entered into multiple nefarious transactions with RFF Managementâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s privately-held business, Rural Funds Management (âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFMâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ to siphon A$ 86+ million into RFM at the ultimate expense of RFF minority shareholders.


On August 8, 2019, RFF responded (âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“RFF Responseâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ to our allegations with a strategy of non-disclosure. Despite David Bryantâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s claim yesterday to journalists that âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“What we will do from here is work to ensure maximum transparency with the objective being that we look after the unit holders of RFF,âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ investors did not receive transparency today from RFF Management.


Instead, âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“we will not discloseâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’‚ was repeatedly echoed in Bryantâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s drivel to investors which provided zero clarity to investors about our allegations of RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s fabricated rental income or its increased related party transaction activity between RFM and RFF in the last 3 years.


On a hosted webinar Q&A, David Bryant repeatedly fell back on the credibility of PwC to certify the accuracy of its reported financial statements. We have been in this business a long time, and remind readers that not once has there been a public market fraud that didnâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢t trick an auditor into signing off on its historical reported financial statements.


RFF chose to remain silent on details about its customer relationships and its asset valuations. Our Report highlighted specific transactions and customer relationships with credible evidence that suggested RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s reported profits and net assets were artificially inflated. RFF avoided all discussion about the specifics of its rental income, instead claiming that for competitive reasons it would not disclose additional details about its customer relationships to investors.


We highlighted irrefutable evidence where RFF disclosed its A$ 75 million guarantee to J&F to that RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s newly acquired âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“feedlots can be stocked with cattle, appropriately fed, and looked after."


If RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s A$ 75 million guarantee was meant for working capital, why was RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s guarantee immediately used to repay the A$ 30 million borrowed by RFM to acquire J&F? RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s Reponse confirmed that RFM received the equity benefit of J&F for free by using RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s A$ 75 million guarantee as a balance sheet backstop. How is that not a conflict of interest??


RFF Management avoided the discussion of its conflicts of interest that RFF Management operates both RFF and RFM, yet RFF Management owns 100% of RFM and owns less than 5% of RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s equity. RFF Management failed to disclose to investors how RFF Managementâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s lop-sided compensation structure between RFF and RFM is handled to ensure decisions are made by RFF Management to prioritize the best interests of RFF minority shareholders.


RFF Management avoided the discussion about Michael Carrollâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s clear clonflict of interest as director at SHV, at RFF, and at RFM.


RFMâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s business failed to generate cash from operations and has recently taken borrowings from RFF which coincided with RFM and RFM Related Fund lessees generating increasingly negative operating cash flows. Do these look like good underlying businesses to have as customers?


Based on RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s Response, we do not expect RFF to volunteer any details to investors that would be helpful in understanding the value of RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s underlying assets.


RFF stated that it engaged E&Y to conduct an Independent Review to confirm RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s reported financial statements. While this sounds like progress, if E&Y is paid by RFF to perform a voluntary review reported directly to, and paid for, by RFF, then how is RFFâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s proposed Independent Review supposed to actually produce any independent findings? What the hell is the difference between E&Yâââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â€š¬Ã…¾Ãƒâ€šÃ‚¢s Independent Review and RFF paying for a second certified audit opinion?


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True to their word - directors buying yesterday. Confident or giving the impression of confidence? Meanwhile SP hit the $2.00 mark in early trading - currently $1.955


Change of Director's Interest Notice - Guy Paynter - acquired 400,000 shares


Change of Director's Interest Notice - David Bryant - acquired 292,500 shares


Change of Director's Interest Notice - Mike Carroll - acquired 15,730 shares

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