Owning farmland is like owning gold.
Farmland is a lot like gold because it's a nice hedge against inflation, but it's better than gold because farmland can also produce a very generous dividend. There's a number of companies that deal in land development but there are two that deal specifically in buying, selling and leasing farm land - Gladstone Land Corporation and Farmland Partners Inc.
Below are two companies that are accumulating farm land for the sole purpose of leasing it back to independent farmers and agribusinesses for cultivation. The idea behind the two companies is that the value of the land purchased will increase over time resulting in the value of the companies' stock also increasing over time. And while waiting for the land values to increase, the land is rented out. Those rents are then naturally distributed to the company's shareholder in the form of dividends. It seems like a no-brainer if held for an extended period of time.
In the short term the companies are dependent on the cost of money and the availability of good farm land with an acceptable amount of available water. These are also the same problems that every American farmer has faced every year since the first Europeans set foot on this continent. It's something to take into consideration when an investor starts a position in these companies.
Gladstone Land Corp
Gladstone Land Corporation (LAND), an agricultural real estate company, owns and leases farmland to both corporate and independent farmers in the US. It also leases a parcel on its farm near Oxnard, California to an oil company. The company leases farms that allow its tenants to grow row crops, such as berries and vegetables, as well as permanent crops, including blueberries. As of August 19, 2014, it owned 6,833 acres on 28 farms. The company was founded in 1997 and is based in McLean, Virginia. (Daily Chart) (Weekly Chart)
21 September 2014
1yr Target $15.30
1yr Cap Gain 21.33%
1yr Tot Return 24.18%
Market Cap $82.34 Mil
EPS (ttm) -$0.24
Payout Ratio N/A
EPS next yr $0.18
Forward P/E 72.06
Farmland Partners Inc
Farmland Partners Inc. (FPI), a real estate company that owns and seeks to acquire primary row crop farmland located in agricultural markets throughout North America. The substantial majority of the farms in our current portfolio are devoted to primary crops, such as corn, soybeans and wheat, As of June 23, 2014, its portfolio consisted of 40 farms with approximately 23,000 acres in Illinois, Nebraska, and Colorado. The company was founded in 2013 and is based in Westminster, Colorado (Daily Chart) (Weekly Chart)
21 September 2014
1yr Target $14.56
1yr Cap Gain 26.06%
1yr Tot Return 29.69%
Market Cap $89.28 Mil
EPS (ttm) -$0.19
Payout Raio N/A
EPS next yr $0.36
Forward P/E 31.82
Gladstone Land Corporation
The company currently own 21 farms: 8 in California, 6 in Florida, 4 in Michigan, 2 in Oregon and 1 in Arizona. They also own two cooler buildings and one box barn. These properties are currently leased to 16 separate tenants that are either corporate or independent farmers. They also lease a small parcel on their farm near Oxnard, California, to an oil company. Historically, their farmland has predominantly been concentrated in locations where tenants are able to grow annual row crops, such as certain types of berries, lettuce and other crops, which are planted and harvested annually or more frequently. However, during 2013, they began to diversify the variety of crops grown on their properties, and now own several farms with more permanent crops, such as blueberries, as well as a couple of farms that grow grains, such as corn and beans. While their focus remains on annual row crops, they may also acquire land with fruit or nut trees, bushes, wine berries and wine grapes, as well as land to grow grains. They may also acquire more property related to farming, such as storage facilities utilized for cooling crops, freezer buildings, facilities used for the storage and assembly of boxes for shipping produce (known as box barns), silos, storage facilities, green houses, processing plants, packaging buildings and distribution centers.
They lease their properties with triple-net leases, an arrangement under which the tenant maintains the property while paying the related taxes, maintenance and insurance costs, as well as rent to LAND. They may also sell farmland at certain times, such as when the land could be developed by others for urban or suburban uses. In addition, they may provide senior secured first lien mortgages to farmers for the purchase of farmland and farm-related properties.
They have recently been approved to conduct their business through a REIT structure in which their properties and any mortgage loans they make will be held directly or indirectly by Gladstone Land Limited Partnership. They are the manager and 100% owner of Gladstone Land Partners, LLC, which is the sole general partner of their Operating Partnership, and they currently hold, directly and indirectly through Land Partners, 100% of its outstanding limited partnership units.
Farmland Partners Inc.
The Company and the Operating Partnership commenced operations upon completion of the underwritten initial public offering of shares of the Company’s common stock on April 16, 2014. The IPO resulted in the sale of 3,800,000 shares of common stock at a price per share of $14.00 which generated net proceeds of approximately $48.0 Mil. The company then contributed the net proceeds from the IPO to the Operating Partnership in exchange for units of limited partnership interest in the Operating Partnership.
Concurrently with the completion of the IPO, the Company’s predecessor business, FP Land LLC, a Delaware limited liability company, merged into the Operating Partnership. The company then issued 1,945,000 OP Units to Pittman Hough Farms LLC which was the sole owner of FP Land and is 75% owned by Paul A. Pittman, the Company’s Executive Chairman, President and Chief Executive Officer. As a result of the FP Land Merger, the Operating Partnership succeeded to the business and operations of FP Land, including FP Land’s 100% fee simple interest in a portfolio of 38 farms and three grain storage facilities. Upon completion of the IPO and the FP Land Merger, the Company owned approximately 67.4% of the OP Units in the Operating Partnership.
The Company converted to a real estate investment trust (REIT) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its short taxable year ending December 31, 2014. All of the Company’s assets are held by, and its operations are primarily conducted through, the Operating Partnership. The Company is the sole member of the general partner of the Operating Partnership. The Company owned 67.4% of the OP Units at June 30, 2014.
As of June 30, 2014, the Company owned or had a controlling interest in a portfolio of 40 farms as well as three grain storage facilities.
I have already initiated a position in LAND and I intend to initiate a position in FPI over the next few weeks. I intend to invest in these companies with excess funds as they become available and then simply hold these stocks for years. I'll also use the dividends distributed by these companies to reinvest back into additional shares and then let these positions grow naturally. Hopefully in the years ahead I'll look back at these investments and smile. A lot!
"Tree Farms Are Farms Too", dated 24 September 2014.