13 May

Monthly Update - April 2022

Duxton Capital Australia Pty Ltd Monthly Update I N V E S T M E N T N A M E Duxton Water Limited ASX Code: D2O I N V E S T M E N T M A N A G E R Duxton Capital (Australia) Pty Ltd I N V E S T M E N T U N I V E R S E Australian Water Entitlements N E T A S S E T V A L U E ( P O S T - T A X ) $1.86 per share S H A R E S O N I S S U E 120,066,629 W A T E R P O R T F O L I O V A L U E $366 million A P R I L 2 0 2 2 Duxton Capital Australia Pty Ltd Portfolio Managers’ Update As the end of the 2021/22 Water Year (WY) approaches, irrigators have continued to reposition their businesses in preparation for another irrigation season. While some continue to sell down unused allocation holdings, others purchase allocation water to fill carryover space. It has been evident that in this environment of lower allocation prices, irrigators are happy to hold back from transacting as the allocation market continues to move downwards (as it tends to do leading up to the new water year). Conversations around forward and leasing products have continued to become more frequent as repositioning from irrigators stems the thoughts of long-term water security. Throughout April, we continued to be active within the entitlement market, deploying capital to assets that fit within our target portfolio composition. The Company has continued to strategically deploy capital into preferred regions and zones, even though market turnover has been relatively low. During the month, we were able to add an additional 22 parcels to the portfolio, with an additional 3 parcels in the entitlement acquisition pipeline, ready for contract execution. These acquisitions will be reflected in the Company’s May portfolio holdings. Entitlement values softened slightly during April, on the back of limited parcels transacting in the market, with a weighted average decrease of 0.2% experienced across the portfolio. Strong interest for specific entitlement types continues to be seen within some markets. The allocation holdings that come from the Company’s unleased entitlements (usable water) were well hedged earlier in the irrigation season. Small residual holdings have however continued to be sold down into the spot market, providing irrigators any last-minute water requirements. Throughout April, two new leases were contracted to begin 1 July 2022. These leases provide diversity to the leasing book, visibility to long term revenue, while strengthening the Company’s WALE. These agreements also help to strengthen our ties and build new partnerships with our irrigator customers. A number of other conversations with existing and future lessees are also underway. On Friday 29 April 2022, the Company was pleased to pay shareholders its tenth consecutive and increasing dividend to shareholders of 3.2 cents per share (franked to 100%). The Board of Duxton Water remains committed to achieving its long-term dividend targets and maintains its commitment to provide shareholders with a bi-annual dividend, franked to the maximum extent possible. ^These figures are based on NAV movements and include franked dividends for the period. The primary investment objective of Duxton Water (“the Company”) is to build a portfolio of permanent water entitlements and utilise this portfolio to provide flexible water supply solutions to our Australian farming partners. The Company generates a return by offering Irrigators a range of supply solutions including long-term entitlement leases, forward allocation contracts and spot allocation supply. A P R I L 2 0 2 2 Monthly Update Page 2 1 Month 3 months 6 Months 12 Months Inception 1.31% 4.82% 13.36% 23.28% 109.87% C O M P A N Y P E R F O R M A N C E Duxton Water Limited (ASX:D2O) Lachlan Campbell Portfolio Manager Lachlan Beech Portfolio Manager Duxton Capital Australia Pty Ltd Water Lease Update At 30 April 2022, Duxton Water had 67% of its permanent water portfolio (by value) leased to Australian farming businesses. This accounts for 86% of the Company’s high security portfolio (by value). Demand for leasing products remains constant, as irrigators consider future water security ahead of the new water year. Throughout April, the Company contracted two new leases to begin 1 July 2022. These leases include both Goulburn high reliability and low reliability leases. These leases provide further diversity to the lease book and allow the Company to partner with another farming family. The current Weighted Average Lease Expiry (“WALE”) is 1.0 years. Inclusive of renewal options, this increases the WALE to 3.3 years. From 1 July 2022, the Company’s WALE is expected to be 1.7 years or 4.8 years including renewal options. The Company’s forecasted WALE is expected to increase between now and 1 July 2022 as new leases are finalised. Through long-term leasing arrangements, Duxton Water is able to satisfy the water needs of its customers, enabling them to risk manage a key input into their business. Long- term water leases give irrigators reliable access to water at a fraction of the cost of owning the same water outright. Entitlements Market Update At 30 April 2022, Duxton Water holds approximately 83.7GL of permanent water entitlements across 18 different asset types and classes. An additional 22 parcels of entitlement water were added to the portfolio throughout April, with 3 new parcels in the acquisition pipeline ready for contract execution. Permanent water pricing across the southern Murray Darling Basin (sMDB) softened marginally throughout April, with a weighted average decrease of 0.2%. This comes on the back of a quieter entitlement market that has shown reduced transactional activity. It has however been evident that parcels at auction continue to attract strong bidding from buyers. The Company continues to deploy capital into valleys and zones that fit its target portfolio composition, as well as those entitlements that provide greater flexibility when it comes to the delivery of water to its irrigator customers. Allocation Market Update As the end of the 21/22 water year (WY) comes closer to an end, allocation prices have continued to follow typical trends of price softening. Allocations traded between $45- $55/ML in the Lower Murray, $20-$30/ML in the Goulburn system, $5-$10/ML in the Murrumbidgee, and $5-$10/ML in the Upper Murray throughout April. Irrigated Vegetable Field A P R I L 2 0 2 2 Monthly Update Page 3 Q U I C K F A C T S S U M M A R Y W A T E R L E A S E C A S E S T U D Y : G O U L B U R N Duxton Water recently finalised a 2,300ML water lease to a family farming business located in the Goulburn region, Victoria. This lessee is a dairy farmer. Through our partnership, this family can continue to grow irrigated pastures as a way of feeding livestock. Irrigated pastures allow farmers to stockpile feed for year-round use, and prepare for future dry periods. By entering into a long- term water lease, this family now has fixed cost of water for 5 years. This allows them to both hedge against future allocation pricing movements and have a fixed cost of feed production. It also significantly reduces the cost to produce feed based on having access to the characteristics of these water entitlements at a fraction of the cost of owning them outright. Through this type of partnership, Duxton Water continues to build a stronger Australian economy by supporting Australian farming businesses. March 2022 April 2022 Water Entitlements 82.2GL 83.7GL Portfolio Diversification (types) 18 18 Leased % of Portfolio 68% 67% Weighted Average Lease Expiry (WALE) 1.1 years 1.0 years WALE (incl. renewal options) 3.3 years 3.3 years Duxton Water Limited (ASX:D2O) Duxton Capital Australia Pty Ltd A P R I L 2 0 2 2 Monthly Update Page 4 Finance Update At 30 April 2022, Duxton Water had total debt drawn of $111 million. The Company’s debt facility has been used to acquire permanent water entitlements that will be leased to irrigators, further strengthening the Company’s visible leasing revenue stream. Sensible debt funding continues to be used to enhance shareholder returns with interest rates being lower than lease income rates. At full deployment, D2O will have approximately 40% of its debt locked into 5 and 10-year interest rate swaps that expire between 2024 and 2031. Duxton Water’s post-tax NAV decreased 2 cents to $1.86 per share during the April, as a result of the Company’s dividend payment made on 29 April 2022. The Company’s NAV excluding tax provisions for unrealised capital gain decreased 2 cents during the month to $2.14 per share. The NAV primarily consists of the fair value of its water asset portfolio, cash, and net current assets. The Company uses an independent Fair Market Unit Value for entitlement and allocations provided by Aither Pty Ltd ("Aither") to undertake the NAV assessment on a monthly basis. At 30 April 2022, the Company's Net Debt to Water Assets is 30%. The Company’s maximum Net Debt Covenant is 40%. Share Buyback At 30 April 2022, the Company has bought back a total of 511k shares at an average price of $1.52 per share since November 2021. The Board believes buying back shares at the current discount to NAV is in the interest of all shareholders. Dividends On 29 April 2022, Duxton Water paid its tenth consecutive and increasing dividend to shareholders of 3.2 cents per share (franked to 100%). The Board of Duxton Water was pleased to see continued support from shareholders who elected to participate in the Company’s Dividend Re-investment Plan. The Board maintains its commitment to providing shareholders with a bi-annual dividend, franked to the maximum extent possible. With the Company’s high percentage of leased entitlements and visible revenue streams, the Board is pleased to reaffirm targets for the following four dividends: V A L U A T I O N M E T H O D O L O G Y The Company uses an independent Fair Market Unit Value for entitlement and allocation provided by Aither Pty Ltd (‘Aither’) to undertake the NAV assessment. Aither’s definition of fair market value is consistent with the principles of the Australian Accounting Standards Board (AASB) 13 Fair Value Measurement. It is a non IFRS measure that is not reviewed or audited by the Company’s auditor. Further information can be found at www.duxtonwater.com.au Cents Per Share Franking Target Interim 2022 3.3 cps Fully Franked Final 2022 3.4 cps Fully Franked Interim 2023 3.5 cps Fully Franked Final 2023 3.6 cps Fully Franked D I V I D E N D G U I D A N C E N E T A S S E T V A L U E P E R S H A R E – S I N C E I N C E P T I O N NAV (post tax) NAV (pre tax) $1.86 per Share $2.14 per Share Duxton Water Limited (ASX:D2O) 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 3.5 3.6 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 Dividends per Shaer (c) Price per Share ($) Dividend Paid Dividend Target NAV per Share Share Price Duxton Capital Australia Pty Ltd Weather Update April Rainfall was 27% above average for Australia as a whole, with a majority of the eastern half of the country receiving strong rainfall. Large areas of New South Wales received above average rainfalls, with parts of the southern MDB getting an early autumn break. Rainfall was however below average for coastal south-eastern South Australia, south-western Victoria and a large area of central Australia. Rainfall for the MDB area was 40% above average for April. Temperatures across the country were warmer than average, with this month being the 7 th highest on record for April. Soil moistures to the north continue to be below average as a result of warmer temperatures. However, in the south-east and south-west of the country, soil moisture is generally higher than average. The La Nina event in the topical Pacific Ocean remains active, however it is forecast by the Bureau of Meteorology (BOM) that it will likely return to a neutral ENSO by winter. The Madden-Julian Oscillation (MJO) has shown some small strengthening and weakening fluctuations. Should the MJO re-strengthen in the Maritime Continent region, it can enhance rainfall in north-eastern Australia. The Southern Annular Mode (SAM) is currently positive and forecast to remain positive for the coming four weeks. As we approach winter, the SAM often has a drying influence for parts of south-west and south- east of Australia. The Indian Ocean Dipole (IOD) is neutral. However, all model outlooks surveyed suggest a negative IOD may develop in the coming months. A negative IOD typically increases the chances of above average winter-spring rainfall for much of Australia. A P R I L 2 0 2 2 Monthly Update Page 5 C H A N C E O F A B O V E - A V E R A G E R A I N F A L L J U N E 2 0 2 2 – A U G U S T 2 0 2 2 Duxton Water Limited (ASX:D2O) W A T E R P O R T F O L I O D I V E R S I F I C A T I O N W A T E R S E C U R I T Y B R E A K D O W N E N T I T L E M E N T V A L U E B Y R E G I O N R A I N F A L L D E C I L E C H A R T J A N U A R Y 2 0 2 2 – A P R I L 2 0 2 2 Source: Bureau of Meteorology Source: Bureau of Meteorology 67% 33% Leased Unleased 77% 21% 1% High Security General Security Groundwater 70% 13% 13% 3% 1% Murray Murrumbidgee Goulburn Lachlan Mallee Duxton Capital Australia Pty Ltd Outlook & Storages The June to August outlook suggests a wetter than average winter for most of Australia, except for the south-west and far south-east of the country. The La Nina event in the tropical Pacific Ocean will likely return to a neutral ENSO by early winter, however this may continue to influence rainfall until then. Models suggest the potential for a negative IOD to form in the coming months, which typically brings more rainfall to central and southern Australia. April to June streamflow’s are forecast to be high in the south-east and near median in the north. Cooler days can be expected for inland, central and southern Australia, with warmer daytime temperatures expected in the north, south- west and south-east. Nighttime temperatures are likely to remain warm across the country until July. In the northern and southern MDB, storages are now at 95% and 87%, compared to 49% and 50% the same time last year. This announcement has been authorised for release by the Chairman of Duxton Water Limited DISCLAIMER: This factsheet is prepared by Duxton Capital (Australia) Pty Ltd [ACN: 164 225 647; AFSL no. 450218] (“Duxton Capital (Australia)”). Duxton Capital (Australia) is the Investment Manager of Duxton Water Limited [ACN 611 976 517] (“Duxton Water”). This factsheet has been prepared for the purposes of providing general information only and does not constitute an offer, invitation, solicitation or recommendation with respect to the purchase or sale of any securities in Duxton Water. Information from this factsheet must not be issued in any jurisdiction where prohibited by law and must not be used in any way that would be contrary to local law or regulation. The terms of Duxton Water are set out in the prospectus of Duxton Water (“Prospectus”), and should there be any conflict between the terms set out in this factsheet and the Prospectus, the terms in the Prospectus shall prevail. The forecasts provided are based upon our opinion of the market as at this date and are subject to change, dependent on future changes in the market. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Investments are subject to risks, including possible loss of principal amount invested. The value of shares/ units and their derived income may fall as well as rise. Past performance or any prediction or forecast is not necessarily indicative of future performance. No assurance is given that the investment objective or the targets will be met. This document does not constitute investment, tax, legal or any other form of advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Investors should study all relevant information and consider whether the investment is appropriate for them. If you require investment or financial advice please contact a regulated financial adviser. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this presentation. The Duxton Group or its affiliates may hold positions in the securities referred. Where stocks are mentioned, it should not be construed that these are recommendations to buy or sell those stocks. You are not authorized to redistribute this document nor qualified to make any offer, representation or contract on behalf of Duxton Capital (Australia) or its affiliates. Although the information was compiled from sources believed to be reliable, no liability for any error or omission is accepted by Duxton Capital (Australia) or its affiliates or any of their directors or employees. The information and opinions contained may also change. Copyright protection exists in this presentation. To the extent permitted by applicable law, none of the Duxton Group, their affiliates, or any officer or employee of the Duxton Group accepts any liability whatsoever for any direct or consequential loss arising from any use of this factsheet or its contents, including for negligence. A P R I L 2 0 2 2 Monthly Update Page 6 Duxton Water Limited (ASX:D2O) S T O R A G E L E V E L S I N M A J O R D A M S D A I L Y I N F L O W S T O T H E M U R R A Y D A R L I N G B A S I N Murray System Daily Inflows (excl. Snowy Darling, inter-valley trade and environmental inflows) - 5 day rolling average Megalitres (ML) 78% 82% 80% 64% 43% 27% 29% 57% 50% 96% 94% 95% 93% 86% 54% 77% 87% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Burrinjuck Blowering Total Murrumbidgee Dartmouth Hume Lake Victoria Menindee Lakes Lake Eildon Total Murray Goulburn 2022 2021 100%
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