Fund to buy and lease back
A new investment fund will allow farmers to expand their production without going into debt for more hectares, but they will have to assume the unfamiliar role of a tenant.
The $100 million Australian Agricultural Lease Fund was launched by NSW-based Growth Farms Australia this month to buy agricultural land in the Eastern States and lease it to farmers.
Growth Farms Australia managing director David Sackett said the model was common in the US.
“Many existing farms are subscale and capital constrained,” he said. “Leasing overcomes this.”
The fund would target land over a range of areas and in different sectors; including dairy, grazing, crops and perhaps horticulture and water rights; to lower the risk for investors.
Mr Sackett said land purchased needed to be in areas with 450mm- 500mm of rainfall a year, as drier regions had more volatile returns and were at higher risk from climate change.
Each lease would have conditions tailored to the property to ensure it was well cared. Payments would be linked to inflation and adjusted to the revised land valuation at rollover.
He said the fund had a life of 10 years, but it could be extended.
Initial leases would likely be for three years, and if the relationship went well, the tenants could renew.
Mr Sackett said Growth Farms wanted to improve the condition of each farm it buys.
“We will look at a range of environmental issues, including salinity, water quality and important vegetation ecosystems,” he said.
“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.”
Mr Sackett said leasing the land back to the original owner was not preferred as it would be difficult to show investors the fund had achieved the best deal without going to the open market.
He said investors were attracted to agricultural land as returns were not correlated with other investments.
Growth Farms estimated rising agricultural productivity would drive land value growth to two to three per cent more than inflation.
The fund is targeting farms values of $3-8 million.
Growth Farms was established in 1999. It manages $440 million of investments in Australian agriculture on behalf of institutional, family office and high net worth investors.
Mr Sackett said a farm leasing fund was similar to investing in a commercial property fund, with an income-based rent and exposure to the capital growth of the property, not the value of the business using the property.
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