09/03/2021 - 09:00

Interest grows in ag investment

09/03/2021 - 09:00

Bookmark

Upgrade your subscription to use this feature.

Investors are hungrier than ever for alternative, nondiscretionary assets, and agricultural property appears to fit the bill.

Interest grows in ag investment
Alterra is progressing its flagship $40 million Carpenters project in Pemberton. Photo: Alterra

Investors are hungrier than ever for alternative, nondiscretionary assets, and agricultural property appears to fit the bill.

The recent move by ASX-listed Primewest to increase the target size of its agricultural trust fund is just one example of the growing level of market appetite for the sector.

The decision came within a year of the private real estate funds management business launching its Primewest Agricultural Trust No.1, expanding its initial $100 million scope to $350 million last month due to additional opportunities available in the market.

The Perth-founded group also unveiled its plans to consider a potential listing of the fund on the ASX.

Primewest managing director and co-founder David Schwartz said the group’s agricultural property interest was driven by investors increasingly seeking alternative asset classes with secured income.

“The fund is still relatively small, but we’ve got a big push and drive now to try and build it up,” Mr Schwartz told Business News.

“What we’re really looking at doing is horticultural produce, targeting assets across Australia, and we’ll do everything from avocados and apples to asparagus and celery.

“We’re really agnostic as to where we go and as to the kinds of products; what we’re not agnostic about is that the farm or operations are going to be profitable.”

Since establishing the fund, Primewest has acquired a handful of assets, including a 385-hectare farm in Victoria producing celery and parsnip, and a 425ha carrot and potato farm in NSW.

“We’re looking to find farms where there’s stability of income and you do that by making sure you’ve got water and that we’ve acquired the necessary water assets or water licences,” Mr Schwartz said.

“On the horticultural side, we believe we can get [good] returns; they [farms] are pretty solid, stable income producers.”

Mr Schwartz said Primewest was aiming to provide a cash return between 6 per cent and 7.5 per cent, which didn’t differ so much from what the group had been able to deliver in regard to its other property investments, such as retail and office assets.

However, the rate of return in the long run was more promising, he said.

“The beauty of agriculture is if we look at how farms have traditionally improved in capital value… we believe we can get our investors anything from 12 to 14 per cent internal rate of return, when you combine the capital gain and the income,” he said.

“The shortage of water and water licences, that’s also escalated in price. And if we have a look at what’s happened with so many of these agricultural assets over time, the prices have just gone up and up.”

According to Rural Bank, Australian farmland has (on average) delivered compound annual growth of 7.5 per cent over the past 20 years.

While the impact of the COVID-19 pandemic and trade tensions with China is yet to fully materialise in the sector, analysts are confident in the defensive characteristics of agricultural property.

The latest data from the National Council of Real Estate Investment Fiduciaries (NCREIF) Australian Farmland Index found returns for the country’s farmland had remained steady during the first few months of COVID-19.

On an annualised basis, returns were also higher than the same period in 2019: 12.81 per cent for the quarter ending June 30 2020, up slightly from 12.49 per cent for the same period in 2019.

Most returns for 2020 had come from income, the NCREIF said, with capital appreciation making up the bulk of returns in 2019.

Commenting on the data, Melbourne-based goFARM Australia managing director Liam Lenaghan said one likely factor influencing the uptick in institutional interest was growing awareness of the upside in returns available from funding underutilised or undercapitalised assets.

Mr Schwartz said the succession planning of family farms was another driver of recent interest. “What’s tending to happen is there are farmers getting older … the kids have gone to the city to become lawyers and doctors and don’t want to operate the farm,” he said.

“In some cases, the farm could now be worth $20 million; one way to distribute wealth to the kids is selling the farm and keeping the opco [operating company].

“So, a lot of the farms are becoming corporatised … they’re of such a size and scale and require so much capital that opportunities are presenting themselves.”

Connecting landowners who require capital with investors seeking access to agricultural opportunities is the premise behind Western Australia-based Alterra.

The business is an originator, developer, and manager of agricultural land and water assets, and is progressing its flagship $40 million project, Carpenters Beedelup, in Pemberton.

Via a special-purpose vehicle, the property (including water resources) is under a 30-year lease (with a further 10-year plus 10-year option) to build, own and operate a 300ha avocado development.

Alterra chief executive Oliver Barnes said the group was well positioned to bank the full balance of the project by year’s end, and that it was focused on building its portfolio to comprise up to 1,000ha of horticultural assets.

“Last year really shone a light on the strength of the agricultural sector, where the pandemic has had a horrific effect on many other sectors, the world will always need food,” Mr Barnes told Business News.

“The way to access this is through investment into land assets, and over the past decade we’ve seen big institutional interest both domestically and internationally pouring billions into the sector.”

Mr Barnes said operating under a partnership model with landowners for large-scale direct investment into farmland had helped change investor perspective on the operational risk usually associated with the asset class.

“In Australia, there are not many scalable doorways into agricultural projects for investment,” he said.

“This increasing scarcity is driving demand and the appreciation in value of these land assets long term.”

Opportunity

Rabobank Australia’s annual agribusiness outlook report outlined a promising and profitable 2021 for Australian farmers.

Rabobank general manager of food and agribusiness research Tim Hunt said despite a turbulent series of economic events and droughts in 2020, global demand for produce remained firm.

While barley, wine, and timber exports to China had been blocked, Mr Hunt said many other products were still making their way to China (Rabobank found $800 million worth of Australian produce had been shipped to China in November).

Preliminary data showed strong wheat exports in December 2020. Wheat forms part of the broadacre segment of agricultural property: farms producing grains, oilseeds and other crops. WA-based Caltha Capital is a relatively new player in the agricultural space, targeting Australian investors and broadacre properties with a purchase-leaseback strategy.

Caltha Capital was established in 2019 by father and son Craig and Daniel Sutherland, who are fourth and fifth-generation farmers.

The group is similar to Alterra, seeking to free-up capital for local farmers, and launched the capital raising for its first fund last year.

Daniel Sutherland, a fifth-generation farmer, established Caltha Capital with his father. Photo: David Henry

Daniel Sutherland said the fund was using the family farm in Dalwallinu in the central Wheatbelt as a pilot study.

“With Asia and emerging markets on our doorstep, in such close proximity for transportation, we’re in a prime position to be a world-leading, high-quality food supplier for the world,” Mr Sutherland told Business News.

“We want to free-up capital for local farmers and to maintain a competitive edge throughout the world markets.”

Mr Sutherland said there had been a lot of foreign investment into the state recently.

“We’re really wanting to see the Australian investment community get more involved in investing in agriculture,” he said.

“They [foreign investors] have no connection to the land, they don’t put any money back into the regional towns … that’s another goal of ours; we’ll be reinvesting our profits into the local regions the properties are held in.”

Mr Sutherland said the group was also planning to create an initiative empowering indigenous community involvement in the agriculture sector.

Investments with an associated social or environmental impact, he said, were also becoming more popular among investors, with Caltha Capital aiming to install renewable energy across its properties, as well as rolling out a program to rehabilitate non-productive farming land.

“Agriculture is a long-term play,” Mr Sutherland said.

“But it’s stable with proven returns … because we’re doing a purchase-leaseback strategy, we’re not getting the seasonal cycles you would on an operational property.

“Ag is really the backbone of Australia … before the mining it was what kept us going for a large part of our GDP and it’ll be there well after the mining for sure.”

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options