Sector profitability driving rise in de-aggregation of institutional farmland portfolios

UNPRECEDENTED profitability across the agriculture sector is driving a notable rise in the number of institutional farmland aggregations being deconstructed and sold back to family enterprises well-positioned to pay premium rates to expand their own portfolios.


The trend, which has grown in prevalence over the past five years, has been evidenced by a number of recent sales in which investment funds have moved away from offloading as a single asset and instead opted for muti-contract divestment to capture greatest return.


LAWD Senior Director, Col Medway, said in these instances, and in the current environment of outstanding commodity prices, low interest rates and intergenerational business growth, de-aggregation had met the objectives of both institutional vendors and family farm businesses.


“What we have seen is a number of transactions where funds have done their jobs and aggregated properties to grow efficiencies and, when those funds have come to the end of their life, some of these aggregations have been broken up and sold back to multiple local producers,” Mr Medway said.


“There is clearly less transactional risk and complexity with one contract, however funds are now happy to take on multiples because it is delivering the highest sale price and return for their investors. They will then use these sales as evidence of the success of their strategy for capital deployment to raise more for re-entry to the market.


“Buying institutionally owned assets is also a positive for local enterprises because one of the things funds do not lack is capital, very often invested at pace, for asset development. In many cases, there has been a lot spent on soil amelioration, water infrastructure, fencing and other operational improvements, meaning the properties are in better order and far more productive than when they were first aggregated.


“I think much of the escalation of prices and strong appreciation of land values over recent times has been driven by Australian farmer buyers.”


A recent example is Proterra Investment Partners-owned Black River Agriculture Fund 2’s divestment of its Corinella portfolio of 49 farms covering 22,386 ha in Victoria and South Australia for $370 million to 27 individual buyers.  


Generational succession and the renewed confidence of younger family members to return to the farm business is also having a significant influence on farmland values and emboldening family-owned enterprises to draw on equity and reinvest.


However, Mr Medway emphasised the selling decisions of vendors were multifactorial with many transactions of large aggregations still best suited to complete asset transactions, citing the $580 million sale of Macquarie Asset Management’s 103,006 ha cropping aggregation, Lawson Grains, to Alberta Investment Management Corporation (AIMCo).


“This is an example where we had an immense amount of local enquiry on individual properties in both New South Wales and Western Australia, however the most efficient transaction for the vendor in this case was to go with another institution,” Mr Medway said.


“The key point to make here, though, is that family and local enterprises had every chance to participate in that sales process and had a genuine opportunity to compete.


“Our strong advice to all of our vendors in this current climate is they would be mad to exclude any part of the market as potential buyers.”


Mr Medway said he did not foresee imminent interest rate rises having a bearing on family business’ appetite for expansion or ability to be competitive in the market.


“We are likely going to see a rate increase of 25 to 50 base points over the next period but, really, all good businesses should be able to withstand a rise of 300 points. We also know banks are already stress testing loans at a rate higher than is currently applicable,” he said.


“I don’t think interest rate rises are going to stop people purchasing land because they remain historically low.”