The first ever sustainable farmland investment trust

It has been a quiet year for investment trust IPOs, but the launch of the Sustainable Farmland Trust (LON: AGRI) is hoping to buck the trend. The new fund is aiming to raise gross proceeds of £200m to invest in a portfolio of performing farmland and related agriculture assets that are predominantly located in the US.

Returns from farmland have tended to be negatively correlated to equity market movements, with a positive correlation to inflation, hence the timing. Once fully invested it will target NAV total returns of seven to nine percent per annum and an annual dividend of at least 4.5% based on the initial issue price of a pound a share.

The exposure will be achieved by investing in the IFC Core Farmland Fund LP, an existing private fund that is run by the IFC’s investment management team that will make up 50% to 60% of the assets. This will be complemented by direct farming and agricultural supply chain holdings, as well as the related infrastructure, which are referred to as ‘core plus assets’.

Existing portfolio

The IFC Core Farmland Fund has a net asset value of $233m and has produced an internal rate of return of 10.6% from inception in October 2019 to the end of June. Its portfolio consists of 11 properties with over 30,000 gross acres of land located in seven US states, producing 20 different crop types. An additional pipeline of $2.7bn of opportunities that fit the core fund’s strategy and $270m of potential core plus assets have also been identified.

AGRI will be run by International Farming Investment Management, which is based in the US and is solely focussed on agricultural assets with over $2.2bn in AUM. It has built up a decent track record since its inception in 2009 and owns or manages around 420,000 farmland and ranch land acres across 18 US states, as well as land in Australia and Chile, cultivating more than 80 types of crops.

The manager seeks to promote sustainability by delivering a secure and reliable food supply with an investment process that considers key environmental factors to “leave the land better than we found it”. They have a workforce of more than 50 professionals working across the firm on its investments, data sciences and agricultural services.

Investment case

The US farmland market is undercapitalised with few institutional investors, yet it offers a stable income with low or negative correlation to traditional asset classes. History suggests that investments in this area can provide favourable risk-adjusted real returns even during periods of high inflation as we have now.

IFC believes it has several key competitive advantages in the sector, including: its professionals’ extensive industry experience and farming operations backgrounds; a focus on data analytics and technology; as well as the ability to source opportunities off-market. The fact that it operates on such a large scale enables it to generate higher returns.

These sorts of illiquid assets are ideal for a closed-ended fund like an investment trust, yet there is really nothing like it on the market at the moment. This makes it a bit of a leap in the dark for prospective investors, although the timing seems ideal. Trading is due to start on the twelfth of October.