October 26, 2020

By Lynda Kiernan, Global AgInvesting Media

It was in 2016, after Laguna Bay Agricultural Fund I closed at $280 million that the fund acquired its first asset – Banongill Station, a cropping and livestock asset in Victoria’s Western District – from former VFL footballer Stewart Gull and his wife Sue in an off-market deal for an undisclosed amount.

Today, Fund I announces its first sale, stating that Laguna Bay has signed an unconditional agreement to sell Banongill to a local consortium of farming families for approximately A$80 million (US$57 million).

As a specific purpose funds group founded in 2010, Laguna Bay is a full-service management vehicle that offers institutional investors exposure to agriculture, assuming responsibility for both assets and operational management. Under this mandate, the group has established a diverse range of contracts, creating a positive reputation in the agricultural industry, offering access to a proprietary deal flow of off-market opportunities for investors, having invested in some of Australia’s largest producers of dairy, wine, almonds, and olive oil.

The firm made headlines in December 2019 when it sold, on behalf of its investors, the largest almond portfolio in Australia to Canadian pension fund giant Public Sector Pension Investment Board (PSP Investments) for over A$350 million (~US$240 million).

Laguna Bay again demonstrated its ability to navigate significant deals, having negotiated directly with the consortium on the terms of the Banongill sale, which is expected to close post-harvest in Q1 2021, and will not require any regulatory approvals.

Banongill was established in 1853 when it was split off of Borriyalook Station, which was owned by Frances Ormond, the founder of the University of Melbourne’s Ormond College. When the Gulls acquired the property from the wool-merchant Lempriere family, the station was reliant solely on income from wool. Over the course of a decade, the Gulls diversified the property’s income sources to include wool, fat lambs, beef, and cereals.

Since acquiring the property from the Gills in 2016, Laguna Bay has undertaken extensive upgrades, converting significant area from grazing to cropping, improving existing cropping acreage, and overseeing substantial pasture and water infrastructure upgrades. 

Prior to the acquisition of Banongill, Tim McGavin, founder and CEO, Laguna Bay stated that the firm would work to establish 10-year supply deals with major Australian food companies and retailers before its first asset acquisition. The nature of these take-off deals would direct the kind of farm property that would be bought first.

This work has resulted in the sale of Banongill to include 8,200 hectares (20,000 acres) of prime mixed farming land. Laguna Bay notes that 30,000 head of sheep, and significant plant and equipment assets will be sold separately.

“This sale solidifies a significant return for our Fund investors and reflects the resilience of the agricultural sector in contrast to the crippling impacts we are seeing in other sectors of the economy,” said McGavin.

“We look forward to a smooth transition to the Australian buyer group and to continuing our contribution to the local community through the retention of our 3,300ha (8,200 acre) Woorndoo cropping enterprise, 50km from Banongill.” 

Ag in the Year of COVID

Laguna Bay’s Fund I has established a 10-year timeframe with a minimum investment requirement of $10 million. In addition to land appreciation, the fund is targeting a minimum 5 percent cash return generated from operations on its portfolio of farms that will either be bought and leased to farmer-operators, directly owned and operated by the fund, or operated within a joint venture agreement with local farmers.

Targeted assets will have a wide spread across crops, geography, and water resources in order to reduce risk, with investments made into farms or clusters of farms involved in horticulture, beef, lamb, and grain production that carry a value of $25 million each or higher.

And although 2020 has been a year of upheaval and uncertainty unequaled in our lifetime, McGavin told GAI News in April that it is an ideal time to be invested in agriculture. 

“At a time when people are seeing their superannuation balances plummet through stock market declines, we are fortunate to be in a position to help protect and build on the savings of millions of public service employees, and other investors, who put their trust in us via their LP’s,” McGavin told GAI News. 

“It’s humbling, and we take this obligation seriously, especially now. We’re in regular communication with investors about the impact of COVID-19 on the Australian agricultural landscape and our investments. For LP’s, I cannot think of a better time to be invested in agriculture and food.”

McGavin continued, “The best thing we can do for our investors is to stay the course and do what we do best – which is diligently allocate capital to the opportunities that offer the best risk reward…”

“The most important lesson for all of us is how resilient agriculture is as an investment class. Demand for food has increased in the last few months as everything else has collapsed.”

“At the forefront of people’s minds right now is security of supply of nutrition. Western society has not had to worry about food security in peacetime, and the sight of empty supermarket shelves has bred further panic buying. Securing the supply chains for food in nations which are not self-sufficient will continue to pose challenges as nationalistic tendencies take hold and border restrictions limit trade.”

It’s not only agriculture’s connection to ensuring supply chains that makes it attractive in challenging times, but also the fact that agricultural investment means allocation to real assets, according to McGavin. 

“Agricultural land as an asset is tangible and not just another financial contract like so many other asset classes. I feel that investors generally put too much confidence in financial products like stocks and bonds and the thousands of derivatives around these, and not enough emphasis on real assets. There has never been a more important time to understand what you actually own and how you will get a return on your money.”

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.