It's Costa v Costa in juicy berry and citrus dispute
A dispute over rental income has pitted the country’s largest fruit and vegetable grower, Costa Group, against its landlord, the Costa family’s recently spun off berry and citrus farms owner, the Vitalharvest Freehold Trust.
The outcome of the dispute, which Vitalharvest hopes to resolve through mediation, could have a material impact on the financial performance of the trust, given it pays distributions from rental income earned.
Major unitholders in the trust include equities manager Auscap Asset Managment, Telstra Super and Challenger.
The Costa family, which raised $185 million when it floated the trust in August last year, retains a 5 per cent stake and co-owns its manager, goFARM Asset Management, a joint venture between the Rich Listers and goFARM founder Liam Lenaghan.
News of the dispute emerged as the trust reported a 31 per cent fall in funds from operations to $11.4 million on a pro-forma basis and a 20 per cent drop in rental revenue.
Driving this drop in revenue was an almost halving of the variable component of the trust’s rental income – calculated at 25 per cent of Costa Group’s earnings before tax generated from operating the four berry and three citrus farms – which fell to $7.7 million in fiscal 2019 (pro-forma) from $14.2 million in the prior year.
Base rent (calculated at 8 per cent of the 2011 historical acquisition price plus capital expenditure) rose slightly to $9.3 million.
The trust noted that its berry properties did not contribute to variable rent for the six-month period ending June 30, which was “inconsistent with prior comparable periods, having always contributed to variable rent in the past”.
The trust said it had served dispute notices on its tenant, the Costa Group, after it “received insufficient information” to “verify the calculation of the forecast variable rent as required under the terms of the leases” and because the “budget and other financial information which have been provided by the tenant to Vitalharvest, do not comply with the requirements of the leases”.
“Vitalharvest does not intend to make any further public announcements in relation to the disputes whilst any mediation is proposed or under way,” the trust said.
Vitalharvest units shed almost 5 per cent of their value on Monday, closing at 82¢ and are down 18 per cent from their $1 per unit IPO on August 1 last year.
The trust reported funds from operations of $10.5 million or 5.66¢ per unit, well down on 8.9 cents in the prior period. The full-year distribution was 5.65¢
Shares in its tenant, Costa Group crashed 16 per cent when the grower reported a 15 per cent slump in interim profits 10 days ago, in part due to adverse conditions affecting its blueberry, raspberry and citrus categories.
The Costa family remain shareholders in the Costa Group, which they floated in 2015, after it was founded by Frank and Adrian Costa in 1959.
Frank Costa announced his retirement from the Costa board in July.
