The listed farmland real estate investment trust (REIT) Farmland Partners will lease a portion of its North Carolina farmland to ESA Renewables for solar energy production at more than two and a half times the usual rental rate.
The agreement will allow ESA to build and operate a photovoltaic solar power generation facility on 50 acres of farmland for a term of at least 15 years. The company will pay the REIT an initial rent of $750 per acre, with 1 percent annual increases throughout the term of the lease. The current tenant pays around $280 per acre on the 1,400 acre farm. The deal will therefore increase the cap rate for the entire farm to 5.3 percent from 5 percent for the entire farm, according to Farmland Partners’ chief financial officer, Luca Fabbri.
“This North Carolina solar lease further demonstrates the additional upside rent potential we have on our farms,” said Farmland Partners chief executive Paul Pittman. “We continue to focus on developing supplemental revenue streams for the farms we own in order to increase returns for our stockholders.”
The agreement marks the second time Farmland Partners has leased out farmland for renewable energy. In October last year, the REIT entered a 25-year agreement with Spain-based Iberdrola Renewables to host a wind farm on 28 acres of farmland, also in North Carolina.
Fabbri told Agri Investor he has seen increasing interest from renewable energy companies looking to lease farmland for wind and solar production.
“We’ve seen a very significant uptick in that kind of opportunity for revenue enhancement,” he said.
Although the REIT actively pursues such opportunities on an individual level, Fabbri said they are not a significant factor in the company’s overall investment strategy.
“When we buy a farm, we don’t attribute any value to those kind of revenue enhancements,” he said. “We chase [those deals] whenever we can, because it’s pretty much free money.”
As previously reported by Agri Investor, falling commodity prices are expected to push rents for US farmland downward in 2016. However, Fabbri said concerns about falling rents are not a factor in the company’s pursuit of additional revenue streams, adding the REIT’s preference for fixed cash-rent leases insulates it from some of the volatility of commodity prices.
Farmland Partners went public through a $50 million IPO in 2014. The publicly traded REIT controls 107,888 acres across 257 farms, primarily focused on major grain production.