Farmland Partners: raising rent prices with improvements

Farmland Partners president Paul Pittman says incremental improvements can increase returns for US farmland owners.

“A lot of people ask us how [we are], in a somewhat challenging farm economy, maintaining rent growth and profitability on assets we already own,” Pittman said in an earnings call on Tuesday, adding that the firm had made or was making a little over $10 million of investments in individual farms.

In Illinois, where Farmland Partners has almost half of its properties, per-acre cash rents for Farmland Partners land increased from $292 to $293, despite a two-year run of rent decreases in the state overall.

Pittman credited asset improvements – mostly the installation and improvement of drainage tiles, grain bins and irrigation systems – with maintaining cash rents and building farmland value.

Expected returns on improvement projects range between 5 percent and 7 percent, according to an earnings supplement provided by the company.

“We will make virtually any capital improvement that a farmer asks us to make, assuming that he will pay an increased rent,” he said, adding that the overall value of the land was also strengthened this way.

In some cases, where tenants paid share rents, the company increased total rent received as well as the percentage of revenue paid to the real estate investment trust by farmers, in exchange for improvements.

However, the company is not looking to involve itself in farmland conversion or development projects.

“We don’t buy a farm that isn’t a farm and take the zero cashflow for a few years or even negative cashflow to turn it around, because we think on a risk-adjusted basis it’s hard to get a fair return doing that,” said Pittman.

Farmland Partners more than doubled its acreage, from 49,000 to 107,000, between the first quarter of 2015 and the same quarter this year.