AP Pension has bought its first farmland investment after setting up a specialist investment fund called Danish Farmland. The new fund will focus exclusively on investing in Danish farms and is targeting €80 million to start with, according to Søren Dal Thomsen, chief executive officer of the fund.
The fund’s first purchase is a 190-acre farm located on Zealand, Denmark’s largest and most populous island. The deal completed at the end of January.
Danish Farmland will operate a buy-and-leaseback investment model, acquiring farmland and farm buildings but leasing the properties back to the farmer under a 10-year lease agreement. The farmer will take responsibility for all the costs of keeping livestock and maintaining machinery.
At the end of the 10-year period, the farmer will have the option to buy the farm on previously agreed terms. This model enables young farmers, that are starting to take over the industry, to build equity over the 10 years – he will also receive 20 percent of the upside in the value of the property – making it easier for him or her to accumulate enough financial reserves to be able to purchase the farm when the agreement expires, according to Thomsen.
“Young Danish farmers are having extreme difficulty getting financing from the banks,” he said. “Under our scheme the farmer should receive a decent income to have some savings, plus the upside in the value of the land over the 10-year term, meaning he will have some equity to go to the bank with. His farming track record will also look good to the banks. If they still do not lend to him, then we will still be in financial crisis!”
Agreements could be renegotiated after the 10-years for another term, he added. “Why should farmers wait until they are old to get rich? They could cash in their upside and we could pay them a lump sum when they are in their 30s, and do another 10-years together,” said Thomsen.
AP Pension expects to buy a further 10 farms. It expects to return at least seven percent on each investment before tax, according to a statement on the fund’s website. The farmland fund represents 0.5 percent of the overall portfolio.
AP Pension is the result of a merger between two Danish pension funds, AP Pension and Finanssektorens (FSP), which took place in 2012. It currently has around €16 billion of assets under management according to Thomsen.
Additional reporting by Louisa Burwood-Taylor.