AP Pension, the €16 billion Danish pension fund, has now invested Kr300 million ($53 million; €40 million) into local farms representing half of its farmland allocation for the year, according to Peter Olsson, head of property.
The capital was invested via buy-and-leaseback investment strategies across six farms, with the last of the transactions still awaiting completion. AP Pension hopes to deploy the remaining Kr300 million by the end of the year but, despite having a good pipeline of deals, could be delayed.
“We are not trading farmland like a bond, it takes a lot of time,” Olsson told Agri Investor. “The execution is slow, as is the case with real estate more generally, and it takes time to line up the banks involved.”
Banks are often involved in the acquisition process because in many cases they own a portion of the farms for sale due to previous loans and debt woes of the selling farmers, according to Olsson. AP Pension’s model is to target young farmers that are starting to take over the industry from the previous generation but are unable to get financing from the banks for improvements and expansion.
The model enables them to build equity over the 10-year lease term – they will also receive 20 percent of the upside in the value of the property – making it easier for them to accumulate enough financial reserves to be able to buy back the farms when the agreement expires.
AP Pension uses Danish Farm Management, part of Danish Farm Design the agriculture consulting and planning firm, to help source and manage the investments. “They know the right people to talk to and with the use of other consultants can help with due diligence and the legal side of things,” said Olsson. “They also manage the lease and collect the rent.”
AP Pension will continue to focus its agri investment efforts domestically. “We will not consider overseas investments when we are doing this at home,” he said. “It is transparent and cost efficient at home,” he said.
The farm investments are made via AP Pension’s specialist investment fund called Danish Farmland. It expects to return at least 7 percent on each investment before tax, according to a statement on the fund’s website.