Farmland real estate investment trust Farmland Partners has acquired a 2,400-acre timberland and quail plantation in Florida for conversion to row-crop and dairy production.
The land, acquired for $9.4 million, will undergo an 18-month redevelopment at an expected additional cost of $6.5 million, to begin producing forage for a nearby, large-scale dairy operation. The company estimates that the return on investment during the redevelopment phase will be between 4 and 4.5 percent. It will rise to 5.75 percent once the conversion is complete, according to Farmland Partners.
The deal was identified by the potential tenant, a dairy operation interested in insulating its input costs from the fluctuations in corn and other commodity grain prices, Farmland Partners chief executive Paul Pittman told Agri Investor.
“They identified the property and then came to us as a potential buyer,” said Pittman. “Our best deals are often the ones where operators come to us and we essentially act as a source of capital.”
The company will enter into a 10-year lease with the dairy operation on closing the deal, probably in the third quarter of 2016.
As prices for major grains fluctuate, they can drive farmers to shift production between forage crops and grains, leading to volatility on the open market for forage. The long-term lease offers Farmland Partners’ tenant a reliable source of forage unaffected by grain prices, said Pittman.
“There’s more volatility in the price of corn than there is for the inputs for forage production.”
The deal provides diversification for Farmland Partners’ commodity crop-heavy farmland portfolio.
“It’s a different sort of tenant than we tend to have, with different credit risk,” said Pittman. “If it doesn’t work out for some reason we still have a productive piece of land that can produce row crops.”
Farmland Partners holds 268 farms with an aggregate of 113,649 acres, including five farms totaling 2,975 acres under contract, in 14 US states, according to the company website.