Farmland Fund Update
Updated: Jan 7, 2020
Our farm manager has continued to deliver stable positive returns in the third quarter at a time when volatility significantly increased for both stocks and bonds. As of September 30, they have had net returns of 0.72% for the quarter and 2.61% for the year-to-date despite low grain prices and continued trade conflicts with China. Our manager's annualized net returns for three, five and ten years are 3.3%, 4.9% and 10%, respectively. The Fund had assets of $730 million as of quarter-end. Property holdings consist of 372 farms totaling 112,812 acres with an average market value of $5,672 per total acre or $6,350 per tillable acre adjusting for irrigation equipment, buildings and timber.
Third Quarter Purchases
During the third quarter, the portfolio management team evaluated 76 properties (55 auctions, 21 private) and contracted privately to purchase four farms. The four new farms are all in the Midwest, totaling 753 acres, for $3.22 million or $4,275 per acre (see Table below). Our manager will generate current income of 5.24% on these farms without taking into consideration other potential opportunities for additional income (i.e. timber, minerals, solar, etc.). These farms will be leased by three existing tenants and one new pipeline tenant with flex leases that provide additional rental income as grain prices increase.
Chamberlain Farm: This farm consists of 362 total acres with 297 tillable acres in Gibson County, IN. The farm was sourced by an existing tenant who was leasing it from a neighbor. Our tenant wanted to continue farming the property but did not have the capital to purchase it himself, so he brought it to our farm manager. The seller valued a private transaction that could be executed quickly. Since our manager already owns 320 acres in the area, so they were able to expedite the lease. The Chamberlain farm was purchased significantly below appraisals of similar farms in the area, and well-below recent auction transactions. Additionally, the fund acquired all mineral rights for this farm in an area of active oil and gas production. This farm will yield 5.23% at purchase and over 6.5% if corn recovers to $5 based on our flex lease that provides additional revenue as grain prices rise.
Sisson Farm: The Sisson Farm is in Isabella County, Michigan and contains 107 acres. Isabella County sits in central Michigan, just west of Saginaw. This is a new area for our farm manager and our northern most farm in Michigan, but we have evaluated farms in this region since 2014. Our tenant operates a 1,600-cow dairy near the farm and is excited to gain more acres close to his home operation. The proximity of this farm to the dairy operation will allow him to apply manure to our manager's field as part of a nutrient management program that will maintain and increase soil fertility in a sustainable manner. The farm also has buildings that the tenant will rent. Rental income from the land and buildings will produce a current yield of 5.48%. This farm and tenant will serve as an anchor in this area that we will look to expand with additional acquisitions.
The Fund is fully-invested, and additional capital committed to the strategy could be easily invested in highly-attractive farm purchases. As mentioned previously, the portfolio management team is negotiating purchases on several large private transactions in the Midwest. These transactions total nearly 15,000 acres and over $75 million in value. We expect that these properties can be purchased well-above our 5% current income target. In addition, we have 60 public auctions on the fall pipeline calendar that total over 16,000 acres and $80+ million in value. While our success rate of purchases at public auction is typically 1 out of 10, we feel that we will have the opportunity to invest a significant amount of capital in attractively-priced deals during the 4th quarter if we have the required capital.