Area One narrows strategy to close Fund V on C$310m

Founder Joelle Faulkner says the farmland manager dropped plans to raise a distinct vehicle for investments in Canadian provinces that restrict institutional capital.

Area One Farms has closed its fifth fund on C$310 million ($244.7 million; €213.7 million) after lowering its return target and abandoning plans for a separate vehicle for Canadian provinces that restrict institutional capital.

Joelle Faulkner, founder and chief executive of the Toronto-headquartered farmland manager, told Agri Investor Area One Farms Fund V drew on a similar network of mostly Canadian endowments, pension funds, high-net-worth individuals and insurance companies as its predecessor, which closed on C$130 million in 2017.

In May 2018, Faulkner said Area One planned to raise a distinct 10-year vehicle allowing for farmland investments within the letter and spirit of provincial restrictions on institutional investment in Manitoba and Saskatchewan. Upon the close of Fund V in early February this year, Faulkner told Agri Investor the firm has since combined what had been two vehicles into one.

“We decided we could accomplish what we want – which is to partner with Canadian farmers in their growth – in a single entity. It does come with geographic restrictions, but we decided that was okay,” Faulkner explained. “We wanted to make sure we got the right diversification for the investors, which we were unsure of by doing a separate, geographically specific account.”

Area One’s strategy focuses on land and infrastructure improvements to Canadian farmland, financed in partnership with producers who are given the option to purchase the firm’s stake back after a set period. The firm has established such partnerships with 25 farmers and has immediate plans to deploy an additional C$200 million through 20 additional partnerships supported by Fund V.

“Area One believes farmland ownership should remain with farmers and not investment companies,” the firm explained in a statement.

Whereas Area One had previously targeted low-teens returns for Fund V, Faulkner said the firm has adjusted return targets downward to high single-digits. Very few of the firm’s LPs, she added, have specific return targets for their investments with Area One and instead tend to focus on relatively low hurdle rates.

“We try for returns that are a little bit of a premium to a lease-back model and we are trying to create avenues for added value,” she said. “We’ve lowered and broadened the [returns] range, because we don’t know yet what added value pieces we can actually create.”

Canadian investors have been the focus of fundraising by Area One, which does also have US and UK-based LPs, according to Faulkner. Over the past five years, she added, instability elsewhere in the global economy has helped increase general interest in ag among investors.

“We see new entrants coming in and having new thoughts about how the best way to invest is, and probably being a little more socially minded in terms of what they are trying to achieve,” she said. “Agriculture – both on the business side and on the land side – is of interest to investors in a way that is probably more significant than it has been historically.”

Faulkner said while she has spent much of the past decade focused on finding the right producers and establishing the right forms of partnerships with them, Area One is now big enough that focus can shift toward increasing efficiency and profitability. She said it was too soon to say with certainty, but future iterations of Area One’s investments could come to include consumer brands or participation in carbon sequestration programs.

“Until you produce a lot of oats, you can’t think of whether you can produce a consumer product made of oats,” said Faulkner. “We’re hitting that scale to start achieving those things.”