Investment trust insider on farmland – James Carthew: I don’t want to commit to FARM float no more
After a quiet year for investment company flotations last year, brokers are hoping for a livelier new issue market in 2020. One of the first to market, helped by kicking off the process in December, could be Global Sustainable Farmland Income Trust (FARM), which is looking to raise up to $300m (£230m).
The initial public offer (IPO) is open until 25 February. The starting net asset value (NAV) per share will be between 97.7 cents and 98.6 cents depending on the size of the issue (the figures are based on $100m of gross proceeds and $300m, respectively).
Readers will know I love new ideas, as long as they stack up intellectually and come with good corporate governance built in. This one I am not yet convinced about.
The business model is fairly simple. FARM will buy land and rent that out to tenant farmers, who might be individuals or companies. Most tenants will pay rent on leases subject to inflation or fixed uplifts, but the prospectus leaves room for FARM to get paid on a ‘crop share’ basis where it takes a slice of the profit once a crop has been harvested and sold. Crop share profits may be distributed as special dividends but probably not in the first couple of years of the fund’s life.
The proposed fund will be global in that it will invest in the US, Europe, Australia, New Zealand and maybe parts of central and south America, but not Russia. There will be limits on exposures designed to ensure the portfolio is diversified geographically.
The sustainable bit comes in because its farmers will be required to manage the land in accordance with ‘LEAF’, the 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.
It is a set of noble ambitions rather than hard and fast rules and looks to me as though it leaves wiggle room for US farming methods such as GM crops.
This is handy as… read more here