AGRICULTURAL asset manager Growth Farms Australia has launched a new $100 million investment trust, the Australian Agricultural Lease Fund, which will buy agricultural land and lease it to primary producers.
Growth Farms Australia’s managing director, David Sackett said the advantage of the leasing model is that it gives farmers an opportunity to expand their businesses without having to find the capital to buy more land.
“Many existing farms are subscale and capital constrained. Leasing overcomes this.”
The target size for each farm for the Australian Agricultural Lease Fund to be between $3 million and $8 million, which Growth Farms said provides the best lease returns.
It will acquire farmland and water rights, and lease them to third-party farming businesses, with a focus on higher rainfall regions, namely North Queensland, Northern New South Wales, the Southern Murray Darling Basin, Victoria and Tasmania and South.
Growth Farms forecasts the fund will produce an annual gross yield of 4.5%. Lease terms will be struck on initial three-year terms, with extensions of three and four years, and indexed to CPI and adjusted to land valuations at rollover.
The fund will have a maximum size of $100 million and maximum leverage of 30%, and is open to wholesale investors, with a minimum investment size of $100,000. It is a closed-end unit trust with a term of 10 years, although unitholders will have the opportunity to vote on continuing the fund or winding it up after five years.
The farm leasing model is widely model in the US and other markets.
“From an investor’s point of view, it provides a stable cash flow based on rental yield and avoids much of the volatility that comes with direct exposure to agricultural markets.”
Sackett said that similar to investment in a commercial property fund, investors receive income based on the rental yield and are exposed to the change in the asset’s capital value, not the value of the business using it.
Established in 1999, Growth Farms invests in Australian agriculture on behalf of institutional, family office and high net worth individuals through separately managed accounts and unlisted funds. Currently, it has more than $440 million of funds under management.
Picture - David Sackett, Growth Farms Australia