June 20, 2018

Australian agricultural asset manager Growth Farms Australia (GFA) announced the launch of a new 10-year, A$140 million (US$103 million) fund designed to acquire farmland which will then be leased to primary producers.

The new fund, called the Australian Agricultural Lease Fund, plans to target self-managed super funds, high-net wealth individual investors, and family offices for investment, and was launched with backing from its cornerstone investor, Sydney-based Providence Wealth.

Looking to gain returns generated through the dual channels of leasing agreements and the appreciated value of farmland, GFA managing director David Sackett told The Australian that the fund aims to acquire between 20 and 25 farms valued between $4 million and $6 million each, stating that the smaller asset size will pay off in greater ability to diversify across geographies and crops, while being able to offer nearby farmers parcels to lease that would be welcome additions to their existing operations.

Acquisitions may even be determined by farmers indicating to the firm what farms in their area they would like to lease.

“If somebody with an existing family operation sees a place next door, we may well be interested, although we won’t be rushing into buying anything,” Sackett told Farm Online.

Geographically, Growth Farms plans to target high rainfall regions including North Queensland, Northern New South Wales, Victoria, the Southern Murray Darling Basin, Tasmania, and South Australia – all regions where the firm’s portfolio managers have experience in buying and leasing farmland, reports Beef Central.

“Many existing farms are sub-scale and capital constrained,” said Sackett. “Leasing overcomes this.”

Targeting net returns of between 10 and 12 percent including a 4.5 percent return generated from its leasing model, 80 percent of the fund’s holdings will be in farmland with the remaining 20 percent being water entitlements. All leases will have an initial term of three years, with optional three-year terms to follow.

A minimum investment of $100,000 has been established for the closed-end fund, which at the end of the 10-year term will divest – however, at the five-year point, Growth Farms plans to give its investors the option to vote to either continue the fund or close. At the end of the 10-year period the firm plans to divest the farms, however, the leasing farmers will have the first option to buy.

Through the adoption of a leasing model that is currently more popular in the U.S. market by REITs such as Gladstone Land, or leading asset investor, Westchester, Providence Wealth, which manages $1 billion on behalf of private clients, sees the fund as a vehicle through which to gain the upside of investment in ag, such as non-correlation, while also mitigating risk and the volatility of ag markets.

“We didn’t want to have commodity risk as part of this,” Grant Patterson, managing director, Providence Wealth told AFR. “We like long-term growth of land values and the yield from the farm.”

“Over the 20 years to 2016, Australian agriculture is negatively correlated to international equities and Australian fixed interest, and has a low correlation to Australian equities and Australian REITs,” said Sackett.

Value will also be captured through farm asset improvement with an aspect of social and environmental awareness, according to Sackett who told Beef Central, “We will look at a range of environmental issues, including salinity, water quality, and important vegetation ecosystems. And we want tenants who are engaged with their local communities. For example, we will be looking for farmers who are prepared to take on local people for work experience.”

-Lynda Kiernan