Centuria buys Sundrop Farms from Morrison & Co for more than A$70m

ASX-listed asset manager Centuria Capital has bought controlled-environment tomato grower Sundrop Farms from infrastructure asset manager Morrison & Co for a sum exceeding A$70 million ($47 million; €44 million).

Centuria has paid A$70 million for Sundrop Farms’ property assets and has also acquired the operating company behind the business for an additional undisclosed sum. It represents the second agriculture asset for the firm’s open-ended, unlisted Centuria Agriculture Fund.

The firm had made more than one offer to Morrison to acquire Sundrop before the latest bid was accepted.

Sundrop Farms can produce approximately 17,000 tonnes of truss and baby plum tomatoes from four glasshouses, each of which cover five hectares, in Port Augusta, South Australia. The property assets are leased to the operating business under a 20-year triple-net lease with CPI-linked annual rental reviews.

The assets include a 1ML desalination plant that processes up to 600ML of seawater annually, a 1.4ML reverse osmosis plant, a 25ML storage dam, a packaging warehouse, and a 12.5ha Concentrated Solare Energy System that creates clean energy to power the site.

Sundrop Farms also has an exclusive offtake agreement in place with Coles Supermarkets, with the latter agreeing to take all the firm’s tomato crop that meets a certain specification, much of it at a fixed price. This agreement lasts 10 years and was signed in 2014, with Sundrop starting its supply of tomatoes to Coles in 2016.

Opportunistic acquisition

Speaking to Agri Investor, Morrison & Co investment director David McKinnon said his firm saw Sundrop as an opportunistic acquisition when it purchased it from KKR in 2019.

“It was EBITDA and cashflow-negative when we bought it, so it wasn’t a simple business to buy. We quite quickly turned it from negative EBITDA to positive, and then to cash break-even, then to cashflow-positive. We did simple things like shut down growth elements and focus on the assets we had,” he said.

“Truss tomatoes are quite commoditized and others are going into snacking tomatoes, so we introduced a new product in partnership with Cole’s, which was a premium, high-margin product for us. And there was some low-hanging fruit to augment the energy system – we introduced a standalone reverse osmosis unit, which allowed us to get largely away from buying mains water, and we replaced the existing diesel boiler with an LPG boiler, which led to carbon dioxide as a byproduct that could be used in the glasshouses.”

Morrison & Co owned Sundrop Farms via its Morrison & Co Growth Infrastructure Fund, a 12-year closed-end fund that reached a final close of approximately A$580 million in August 2020. McKinnon said the firm had considered other agriculture infrastructure opportunities but had been unable to find another that suited.

“We looked at assets like grain networks, or other assets that have a similar network effect, but they still had a high degree of weather and commodity risk because those siloes are either empty or full,” he said.

“Glasshouses are good in that sense, because you can mitigate weather risk to a large degree – and the sales contract with Coles meant we substantially got away from price risk as well. We will keep an eye out, but generally I think we would struggle to make lots of investments in the ag sector.”

Sundrop Farms becomes the second asset in the Centuria Agriculture Fund, after the A$177 million glasshouse estate in Warragul, Victoria formerly owned by Roc Partners’ Flavorite became the fund’s seed asset earlier this year. The deal for Sundrop takes Centuria’s total agriculture assets under management to A$421 million.

Centuria joint CEO Jason Huljich said in a statement: “We are pleased to partner with Sundrop who has developed world-first, integrated sustainable farming technology, resulting in more predictable volumes of produce arising from the protected nature of its farming activities. Centuria will continue to partner with experienced operators with a strong track record in agricultural innovation and this is one of a series of acquisitions we intend to deliver throughout FY23 and beyond, with the aim of growing CAF into one of Australia’s largest unlisted, sector-specific agriculture funds.”