Global Sustainable Farmland emphasis on the sustainable – QuotedData’s James Carthew wrote an article on this new IPO a couple of weeks ago but on Friday he got to meet the people behind the fund, which is looking to raise up to $300m and is targeting returns of 7% to 8% a year with dividends of 2.5 cents in the first year and 4.25 cents in the year to 30/9/22.
FARM is an investor in agricultural land (in the US, Europe, Australia, New Zealand and maybe parts of central and south America) which will be leased to tenant farmers. The management team has a breadth of experience including farming, land investment and credit assessment.
Most income will be in the form of rents but FARM may also be paid on a crop share basis (based on the profitability of a crop once harvested). This would be paid out as special dividends.
Farmers will be required under the terms of the lease to manage the land in accordance with ‘LEAF’ – Linking Environment and Farming’s Integrated Farm Management framework. This is not organic farming but it emphasises soil health, pest controls that have a minimal impact on the environment and human health, pollution control, animal welfare, energy efficiency, prudent water management and landscape and nature conservation.
Maintaining/improving soil health is a key objective. Indeed, they will avoid commoditised crops like wheat and barley and all the excessive pesticide and fertliser problem that goes with these. Instead the focus is on vegetables, fruits, nuts and other higher value produce.
There is also an emphasis on the availability of water, which helps mitigate the climate change problem, and the use of insurance to counter problems with disease and fire, for example.
Technology will be used to improve crop yields and minimise the use of water, pesticides and fertiliser.
Often they will be alerted to potential investments by the people that will end up as their tenants. A farmer wanting to expand will be able to do so by getting FARM to buy the land and rent it to them. Investment sizes range from $4m to $50m (too big for individual farmers to buy on their own yet too small for institutional investors.
Capital Advisory Partners Limited, the manager, will get a management fee worked out on a sliding scale starting at 1.25% on the first $200m of invested assets and falling from there. The ongoing charges ratio is estimated to be about 1.47% for a $300m fund or 2.17% for a $100m fund. Gearing will be around 10% of gross asset value.
An ever increasing global population and rising incomes, ought to be positive for farming incomes. The managers stress that that our experience here in the UK of farming on its knees and reliant on subsidy cannot be extrapolated to their target portfolio. Credit assessment of their tenants is a big part of their due diligence process and they try to ensure that the farmer will make a decent profit after paying their rents even on conservative assumptions about yield.
FARM : Global Sustainable Farmland emphasis on the sustainable