Investors offered rural exposure – without the risk
A new investment offer aims to turn a foreign buyer ban, reluctant banks and negative sentiment about the rural sector into an advantage for investors.
Tuesday, June 16th 2020, 6:19AM
Chris Swasbrook
The New Zealand Rural Land Company (NZRLC) is seeking to raise between $100 million and $300 million from investors to invest in rural land.
It will purchase agricultural land and lease it to “high quality operators” for a minimum term of 10 years. Rather than buying the land and then finding tenants, tenants will initially do due diligence with the company and provide an amount they could pay for a lease, based on their production and systems.
NZRLC will then acquire the land, aiming for an investment yield of 3.5% before tax, as well as long-term capital gains for investors. It expected upside range of 38% to 49% in dairy farm prices by 2029.
Founding directors Chris Swasbrook and Richard Milsom, of Elevation Capital, and Hayden Dillon said the land they would buy would be purchased at 26% to 38% discounts on 2017 prices, which they said was the last time rural land had traded freely – without the foreign buyer ban or bank restrictions on rural lending. Farm sales numbers had dropped by 30% compared to 2016, NZRLC said.
Swasbrook said credit had been withdrawn from the rural sector – in part because of banks facing increased capital requirements – and NZRLC was coming in to fill that vacuum. That would provide a platform for rural businesses to grow and give investors exposure to land, which had traditionally been the best performing agriculture asset.
Investors would invest solely in the land without any exposure to the operational risk that had traditionally existed with similar agriculture business investments, he said.
The investment is a wholesale offer but Swasbrook said that the company was happy to work with advisers whose clients met the wholesale investor definition.
The minimum investment sought is $75 million, which with a maximum leverage of 30% would give the company $100 million-odd to invest.
The offer closes on July 31 and the company has pledged to list, subject to regulatory approval, by June 30 next year.
Milsom said the company would invest in the sort of assets that traditionally bypassed local investors because they were out of their reach.
NZRLC is focusing initially on dairy land because it was seen as an attractive asset class due to global demand.
The management fee is 0.5% of assets plus 10% of any increase in net asset value, subject to a high water mark and with 50% escrowed for five years.
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