There are thousands of ways to invest money, but people are always looking for new ideas. Here’s a recent e-mail I received.
“I am doing my homework on investing in farming/agriculture from a land ownership point of view, both in Canada and the U.S. Are there companies/ETFs that focus on this? It is my hunch that the same thing that has happened to housing will likely happen to farmland (if it hasn’t already), i.e., the land will become more expensive. I have read reports that indicate that institutional investors are interested in acquiring more agricultural land. How can a retail investor like me participate in this price appreciation?” – Kamal G.
Interesting question. Prime agricultural land in Canada has indeed seen significant price appreciation in recent years. A farmer friend told me that a half-section of second-rate Saskatchewan wheat-growing land that sold in 2014 for $60,000 is now worth $450,000 a decade later!
But is there an investment opportunity here if you’re not a farmer?
There is at least one Canadian company that operates in this space. Bonnefield Investments has about $1-billion in assets under management, which includes approximately 134,000 agricultural acres across six provinces. It acquires the land through lease-back arrangements with farmers. The company is not publicly traded but it is open to subscriptions from accredited institutions and private investors.
I could not find any public company in Canada that fits the profile our reader is looking for, but there are at least two REIT-type companies in the United States that do. Here are the details.
Farmland Partners Inc. (FPI-N)
FPI is the largest farmland REIT in the U.S. by acreage. The Denver-based firm is an internally managed real estate company that owns and seeks to acquire high-quality North American farmland and makes loans to farmers secured by farm real estate.
As of March 31, FPI owned and/or managed approximately 177,400 acres in 17 states. In addition, it owns land and buildings for four agriculture equipment dealerships in Ohio leased to Ag Pro under the John Deere brand. FPI has approximately 26 crop types and over 100 tenants.
The company recently released first-quarter results. Net income was US$1.4-million (one U.S. cent a share), compared with US$1.7-million (two U.S. cents a share) for the same period in 2023. Adjusted funds from operations (AFFO) totalled US$2.8-million (six U.S. cents a share), up from US$1.6-million (three U.S. cents a share) last year.
Average gross book value of real estate was US$1-billion compared with US$1.14-billion for the same period in 2023, a decrease of 12.2 per cent. This was because of dispositions that occurred during 2023.
FPI increased the bottom and top end of its 2024 AFFO guidance range to 19 U.S. cents to 26 U.S. cents, from 15 U.S. cents to 23 U.S. cents previously.
During the quarter, the company completed acquisitions of three properties for a cost of US$16.3-million.
Chief executive officer Luca Fabbri said the first-quarter AFFO was the highest ever recorded in the company’s history. “After the overall portfolio improvements and very strong rent increases of 2023, we have begun 2024 with a focus on continuing the reduction in overhead expenses, lowering senior executive compensation and shrinking our board of directors,” he said.
“While we completed a large number of asset dispositions in 2023, which we do not expect to repeat in 2024, we continue to pursue opportunities to further enhance our farm portfolio, by acquiring complementary assets in strong regions and evaluating selected farm dispositions on assets with a less favorable long-term outlook for water availability and/or crop pricing.”
The company had total debt outstanding of US$383-million as of March 31, compared with US$363.1-million at Dec. 31, 2023.
FPI pays a quarterly cash dividend of 6 U.S. cents a share (24 U.S. cents a year) to yield 2.2 per cent at Friday’s closing price of US$10.81.
FPI’s recent performance is mediocre at best. The shares are down about 11 per cent over the past year. That’s not a surprise as most real estate companies were money-losers during that period as high rates pushed interest costs higher.
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Gladstone Land Corp. (LAND-Q)
Gladstone is a Virginia-based company that owns 168 farms in 15 states, with a fair value of approximately US$1.5-billion. Total acreage is about 112,000. Its farms are leased to 93 different, unrelated third-party tenants growing more than 60 different types of crops.
Gladstone Land acquires farmland that it rents to corporate and independent farmers on a triple-net lease basis, an arrangement under which the farmer maintains the property while paying rent to Gladstone.
The company reported first-quarter net income attributable to common stockholders of US$7.4-million (21 U.S. cents a share), compared with a net loss of US$4.3-million (a loss of 12 U.S. cents a share) in the prior-year quarter.
AFFO for the quarter was US$5.1-million (14 U.S. cents a share). That was down from US$5.9-million (17 U.S. cents a share) the year before.
“Results for the quarter were largely as expected but were slightly down from last year due to the lost revenue from a large farm in Florida that we sold during the quarter for a gain of $10.4-million,” said CEO David Gladstone. “We continue to work through issues with a few of our tenants. We currently have five properties (encompassing 15 of our 168 farms) that are either vacant or being direct-operated via agreements with third-party management groups. We continue to be in discussions with various groups to either buy or lease these farms, and we hope to have these situations resolved by the end of the year.
“Our balance sheet remains strong, with nearly 100 per cent of our borrowings at fixed rates, significantly limiting the impact of increased interest rates. However, the high borrowing costs continue to impact our ability to purchase new farms and lease them at high enough rates. As such, we have continued to focus our efforts on securing additional water rights for our farms in California by taking advantage of surplus water supplies and storing water for future use on our farms.”
Gladstone increased its monthly cash distributions by 0.22 per cent to 4.66 U.S. cents a share (55.92 U.S. cents a year), effective in April. It was the 34th distribution increase over the past 37 quarters, during which time the company increased the distribution run rate by 55.3 per cent. The shares yield 4.2 per cent at Friday’s closing price of US$13.26.
The shares are down 22 per cent year-to-date and are trading at about the same level as they were five years ago.
Although both these companies have been weak performers lately, we could see gains if U.S. interest rates are cut. In April, 2022, just prior to the start of the rising interest-rate cycle, LAND shares were trading in the US$36 range. FPI stock was trading at about US$15.
Anyone who is interested in this type of investment might consider taking a small position in Gladstone. The 4.2-per-cent yield ensures decent cash flow while you wait for falling interest rates to push the share price higher.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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