September 26, 2017

Farmland Partners has agreed to acquire 5,100 acres of permanent crop farmland in California’s Central Valley from Olam International Limited for $110 million.

The land in question is currently producing almonds, pistachios, and walnuts, and brings Farmland Partners’ portfolio to more than 300 farms totaling 154,000 acres producing more than 30 commercial crops across 17 states.

Upon closing, Farmland Partners will sign a 25-year triple net lease agreement with Olam on a revenue share basis. Over the course of the 25 year period, Olam will operate and maintain the orchards in alignment with the group’s goal of remaining active in the production of tree crops, however, under an asset-light business model.

“We have built a sizable portfolio of prime orchards and have adopted sustainable and industry leading agricultural practices in managing these orchards,” said Ashok Krishen, managing director and CEO of Edible Nuts for Olam. “We had been looking for the right partner who sees the long-term value of farming, while we are looking for an asset light model to participate in the production economics of the tree crops. Farmland Partners, whose success is based on strong partnerships with farmers, is therefore a strategic fit for our business model.”

Impact

As an internally managed, publicly traded real estate investment trust (REIT) Farmland Partners seeks to acquire high quality farmland assets in North America, and also makes loans to farmers that are secured by farm real estate.

During the six months ending June 30, 2017 the company completed 16 acquisitions in Illinois, South Carolina, South Dakota, Arkansas, Michigan, Georgia, Kansas, California, Colorado, Florida, and Alabama. These deals were completed in exchange for consideration of $373.5 million comprised of cash, shares of common stock, and units in the company’s operating partnership.

Perhaps the deal with the most impact was Farmland Partners’ stock for stock merger with American Farmland Company (AFCO) announced in September 2016.  At the time, the deal created the largest public REIT in the U.S., and brought the value of the company’s total assets  to $800-$850 million.

The transaction was also highly complementary, bringing together Farmland Partners’ portfolio that is mainly comprised of row crop farmland, with American Farmland’s portfolio of predominantly specialty and permanent crop farms – resulting in a combined portfolio that is approximately 75 percent row crop and 25 percent specialty crop farms by value.

In a conversation with GAI News last year, Pittman explained the transaction will bring a “significant increase in scale and in crop type and cash flow diversification.” He went on to describe that specialty crops have a tendency to trade on a different cycle than commodity crops -the latter of which FPI, as a traditional REIT, has been heavily focused on. With this diversification, FPI can now collect rents at more points during the year.

Pittman added that while specialty crops tend to have a higher return, they also tend to be a little riskier. However, blended in a portfolio that is 75 percent row crops actually reduces risk and volatility while increasing total rental return, which Pittman called a “win-win.”

The increased scale of the combined REIT created a sizeable platform from which to pursue both row and permanent crop acquisitions across the country, and with a fully diluted market cap of approximately $400 million, will provide greater access to global investors looking to invest in U.S. farmland.

Commenting on the company’s latest permanent cropland acquisition, Pittman said, “… we look forward to bringing these properties into our portfolio. They are unique, high-quality farms in the heart of California’s tree nut industry. The properties and associated agreements will bring higher cap rate permanent crop production into our portfolio furthering our goal of delivering a well-balanced portfolio of U.S. farmland to our stockholders. On an unlevered NOI basis, we expect these leases in 2018 to be accretive to our portfolio relative to the cost of our recently issued preferred security.”

The deal with Olam is expected to close by the end of November 2017, subject to the conclusion of Farmland Partners’ debt raising, and the satisfaction of standard conditions.

-Lynda Kiernan