Owning farmland is like owning gold.
Only better.
Only better.
It's been a while since I looked at Gladstone Land and Farmland Partners (see "Betting on the Farm", 22 September 2014) so I thought I'd do a little research and see how they stack up against each other today. I'm still a firm believer in both of these companies but they really are a long term investment. And although they both buy farmland, they each have their own kind of farmland that they specialize in (see descriptions below).
Buying farmland is a lot like buying gold. 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.
Another similarity to gold is that an investor buying farmland buys and holds this type of asset for the very long term. Its value is often thought to be in its ability to grow crops, and that's part of its value. But it can also become very valuable simply because of its location. And we all remember from our business courses that simple rule of supply and demand. In the case of land, the supply will remain constant as the demand continues to grow with the natural increase in the country's population. That increase will not only affect the inherent value of the land itself, it will increase the value of the products that are produced on that land.
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.
Another similarity to gold is that an investor buying farmland buys and holds this type of asset for the very long term. Its value is often thought to be in its ability to grow crops, and that's part of its value. But it can also become very valuable simply because of its location. And we all remember from our business courses that simple rule of supply and demand. In the case of land, the supply will remain constant as the demand continues to grow with the natural increase in the country's population. That increase will not only affect the inherent value of the land itself, it will increase the value of the products that are produced on that land.
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) 10 May 2015 Price $12.00 1yr Target $13.94 Analysts 4 1yr Cap Gain 16.16% Dividend $0.48 Yield 4.00% 1yr Tot Return 20.16% Market Cap $93.00 Mil Beta N/A EPS (ttm) -$0.02 Payout Ratio N/A EPS next yr -$0.01 P/E N/A PEG N/A Forward P/E N/A Debt/Equity 1.44 ROA -0.10% ROE -0.20% ROI 1.10% | 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) 10 May 2015 Price $11.35 1yr Target $13.56 Analysts 4 1yr Cap Gain 19.47% Dividend $0.46 Yield 4.05% 1yr Tot Return 23.52% Market Cap $87.74 Mil Beta N/A EPS (ttm) $-0.16 Payout Ratio N/A EPS next yr $0.50 P/E N/A PEG N/A Forward P/E 22.70 Debt/Equity 1.72 ROA -0.50% ROE -1.50% ROI 0.30% |
Gladstone Land Corporation
Gladstone Land Corporation is an externally managed, agricultural real estate company that was originally incorporated in California on June 14, 1997, and re-incorporated in Maryland on March 24, 2011, having been previously reincorporated in Delaware on May 25, 2004. The company exists primarily to own and lease farmland and the operations consist solely of leasing those farms to medium-sized, independent farming operations and larger, corporate farming operations. The business is managed by Gladstone Management Corporation and after the initial public offering (IPO) on January 29, 2013 the shares of common stock began trading on the NASDAQ Global Market under the symbol “LAND”.
The company currently owns 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.
Gladstone Land Corporation is an externally managed, agricultural real estate company that was originally incorporated in California on June 14, 1997, and re-incorporated in Maryland on March 24, 2011, having been previously reincorporated in Delaware on May 25, 2004. The company exists primarily to own and lease farmland and the operations consist solely of leasing those farms to medium-sized, independent farming operations and larger, corporate farming operations. The business is managed by Gladstone Management Corporation and after the initial public offering (IPO) on January 29, 2013 the shares of common stock began trading on the NASDAQ Global Market under the symbol “LAND”.
The company currently owns 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.
Farmland Partners Inc. is an internally managed real estate company that owns and seeks to acquire high-quality primary row crop farmland located in agricultural markets throughout North America. The Company was incorporated in Maryland on September 27, 2013 and is the sole member of the general partner of Farmland Partners Operating Partnership, LP, which was formed in Delaware on September 27, 2013. The operations of the Company are carried on primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership.
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.
Farmland Partners Inc. is an internally managed real estate company that owns and seeks to acquire high-quality primary row crop farmland located in agricultural markets throughout North America. The Company was incorporated in Maryland on September 27, 2013 and is the sole member of the general partner of Farmland Partners Operating Partnership, LP, which was formed in Delaware on September 27, 2013. The operations of the Company are carried on primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership.
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.
Conclusion
I am completely convinced that any investment in either one of these companies has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter time horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Land traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's farm land, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the stock (land) to increase, each of these companies is throwing off a very generous dividend.
I have initiated positions in both LAND and FPI and continue to add to those position through additional purchases and dividend reinvestment. I intend to continue to invest in these companies and then simply hold these stocks for years. Hopefully in the years ahead I'll look back at these investments and smile. A lot!
I am completely convinced that any investment in either one of these companies has to be entered into as a long term investment. And by long term I mean years, not months. Anyone with a shorter time horizon will most likely become disillusioned and/or disappointed in the short term. That said, this may just be one of the best investments of the decade if executed correctly (a big if!). Land traditionally increases in value at a rate similar to the inflation rate so it's a great preserver of purchasing power over time, much like gold is. In addition, as population encroaches on today's farm land, the value of the land increases almost exponentially as its use in converted into lots for homes, businesses, golf courses, etc. And while an investor waits for the value of the stock (land) to increase, each of these companies is throwing off a very generous dividend.
I have initiated positions in both LAND and FPI and continue to add to those position through additional purchases and dividend reinvestment. I intend to continue to invest in these companies and then simply hold these stocks for years. Hopefully in the years ahead I'll look back at these investments and smile. A lot!
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