31 Jul Lease Fund Launches $100 Million Farmland Investment Scheme
Investment company Growth Farms has announced a $100 million venture to lease land to Australian farmers.
As the cost of agricultural land increases, leasing farmland is becoming an increasingly popular option for farmers who want to expand holdings and capitalise on enterprise scale.
Growth Farm’s ten-year investment fund will acquire mid-sized properties in high rainfall areas across northorn Queensland and northern New South Wales, the southern Murray Darling Basin region, Victoria, Tasmania and South Australia, with the first purchases expected to be made later in 2018.
The Australian Agricultural Lease Fund will target properties up to the value of $8 million, with the aim of leasing the land to nearby family farmers. Growth Farms expects to generate a return of around 10% per annum for investors through a combination of rental returns and capital gains.
“The leasing model gives farmers more opportunities to expand their businesses without having to find the capital to buy more land,” said David Sackett from Growth Farms.
“Many existing farmers are sub scale and capital constrained. Leasing overcomes this.”
Farmers leasing land through the fund will be required by Growth Farm to use the land sustainably, employ and train local workers and actively engage with the local community. At the end of the fund’s ten year period, the lessee would be given the opportunity to buy the land.
“From an investor’s point of view, leasing provides a stable cash flow based on rental yields and avoids much of the volatility that comes with direct exposure to agricultural markets,” he said.
While the fund has a ten-year life span, investor support and earnings will be calculated at the five-year mark. Investment is being sought from wholesale contributors with a minimum $100,000 investment.
Growth Farms has managed agricultural land for investors for nearly 20 years with properties across Queensland, New South Wales and Victoria. With a portfolio of 20 properties – valued with assets at $440 million – the company has made pre-tax internal rates of return of 10.4% for the last ten years.
The company currently leases around 10% of the land it manages, with strong demand for additional leased land. According to Mr Sackett, farms purchased by the fund could include sugar cane, irrigated grain and dairy properties, although favourable market trends and seasonal conditions would also influence purchasing decisions.
Growth Farm expects farmland prices to improve by 2-3% above CPI over the long term, while returns in high rainfall zones have averaged 6% over the last 40 years.
“[Farmland values were] driven by strong demand for quality broadacre and permanent cropping properties, with avocado, citrus, nut and table grape properties experiencing particularly strong demand.”
While agricultural lease models have traditionally been popular in the US and Europe, there are an increasing number of agricultural investment groups operating in Australia.
The US global asset manager Westchester has made bold moves in Australia, including the $50 million acquisition of Milton Downs – a 10,000-hectare parcel of land bought from Australia’s largest wheat grower in 2016.