Global Sustainable Farmland Income Trust PLC (LON:FARM) is a novel investment.
Not that there is anything new in investing in agricultural land – it has been the basis of wealth for time immemorial – but FARM, when it lists next week, will be the only vehicle of its type available to UK investors.
The initial fundraising has a target of US$300mln and given the detailed planning over three years to put the trust together, a good reception seems likely.
Sven Miserey, the trust’s co-manager, concedes the idea is to replicate what’s being done currently by large institutional investors, pension funds and the family offices of the super-wealthy.
He is part of an impressive team of agricultural specialists that boasts Ian Monks, a 37-year stalwart of farmland investments, Kristof Bulkai, an 18-year veteran of listed agricultural investment managers, and Carl Atkin with 20 years of agricultural land management.
The board also boasts Tom Green, who is chairman of LEAF Marque, the gold standard of sustainable (or integrated) farm management.
Sustainability is at the heart of what the trust is trying to achieve, says Miserey.
Returns from farmland have proved themselves over the past 40 years.
There is also an increasing shift in farming towards sustainable methods of land management and a recognition of its long-term benefits on both profits and capital values.
Shift towards sustainable farming
It is a theme that investors have bought into, he adds.
“21st-century agriculture is about technology and precision to use less in terms of inputs, not more.
“Farmers now use sensors to get data to be able to deliver what's needed, where it's needed, at the right time and in the right quantity.”
It is such benefits from continuing to implement ‘Agtech’ that underpins Miserey’s confidence that the trust will be able to deliver returns of 7-8% to investors going forward.
The initial dividend yield will be 2.5% a year, which will grow to 4.25+% when fully invested.
Dividends will rise progressively thereafter with returns also boosted in the medium term by operational lease income and land appreciation.
Experienced corporate and independent farmers will be chosen to run the farms with an emphasis on the LEAF Marque or equivalent sustainable farming objectives.
Farms will typically be worth between US$10-50mln with a need for capital to deploy the latest technology to optimise yields.
Land title and water
FARM uses three filters for selection.
First, there must be a clear land title and an independent judiciary to enforce landlord rights to the land and legal contracts with the operators.
The idea is to standardise the relationship between the landlord and tenant to make it transparent to both sides.
Secondly, and as important, is access to a sustainable supply of water so land in the foothills of mountains is an ideal spot, it says.
Finally, the trust will look for sites that give it a competitive edge and shorter growing seasons so it can be first to market.
Miserey says these are ‘five – a- day' products such as fruit, vegetables and tree nuts, all areas where demand is growing as the amount that people have to spend rises.
An estimated 3bn people now have US$10 per day to spend on food, a group that is set to rise to 5 and a half billion people over the coming decades.
The trust will stay away from commodity products (wheat, barley etc) where growers are price takers and too reliant on variable input costs and the vagaries of the weather.
“We prefer something closer to a factory where the yield is predictable (within a 10% range) and prices have been agreed through offtake agreements. Examples include fresh fruits, nuts and vegetables "
As part of the arrangement, the trust will also benefit through bonuses when crop yields come in above expectations.
After careful sifting, FARM has whittled its focus down to Australia, the US, New Zealand and Europe, though South America is on the cards further down the line.
Miserey adds that the raise is a relatively modest US$300mln because it wants to deploy the money quickly, though it has already looked at projects worth US$1bn and some of these will form part of the company’s second round of investments.
In total, 18 preferred target assets have been identified of which 50% will be acquired in 9 months and the balance in 18. A further 12 are in the pipeline.
Taking care of the land
It’s a straightforward proposition, Miserey adds.
If the farmer takes good care of the land, they also take good care of the trust's capital for the long-term and we become more confident they will be able to provide us with the rents from our land.
“In the end, if you are making more money from the land, the price also goes up so there is strong capital gain potential as well."
Closing date for the share offer is 25 February with first trading to start on the 28th.