Properties added to the National Council of Real Estate Investment Fiduciaries’ US Farmland Index before the second-quarter reading, released in July, could provide an indication of the portfolio of US farmland assets an investment vehicle connected to Bill and Melinda Gates is thought to have purchased last year from the Canada Pension Plan Investment Board.
In July, NCREIF reported that its second-quarter index reflected data submitted by the seven managers of 796 investment-grade farm properties with a total market value of $9.2 billion.
The previous iteration of the report, which was released in May and reflected results for the first quarter of 2018, was said to be based on performance data for 735 investment-grade properties totaling $8.7 billion in market value. The first-quarter index did not specify the names or number of firms submitting data to the index.
Each report detailed the current number of both annual- and permanent-crop properties in the index and also contained a regional breakdown of the farmland assets examined.
When compared, the indexes suggest that the 61 properties, valued at approximately $500 million, that were added to the index before the second quarter included 20 properties in the Corn Belt; 17 farms located in Delta States; five properties in both the Lake States and Pacific West regions; four farms located in Mountain States; two properties in the Southeast and a single farm in the Pacific Northwest.
In November, the C$366.3 billion ($278.5 billion; €240.5 billion) Canada Pension Plan Investment Board announced that it had sold $520 million in US farmland assets in a single transaction constituting an effective divestment from the market contemplated since 2016. CPPIB said the assets had been assembled into an entity called Agriculture Company of America between 2013 and 2016 but declined to provide details about the properties.
Market sources told Agri Investor at the time that the assets had been offered for sale only as a single block and that the buyer was widely believed to be an entity related to Microsoft founder Bill Gates.
In September, three sources involved in US farmland markets told Agri Investor that the properties added to the NCREIF Farmland Index before the second quarter were likely, at least in part, a result of the CPPIB transaction.
“From what I’ve heard, that was the bulk of it,” one source said of the regional breakdown suggested by the comparison of NCREIF’s Q1 and Q2 indexes, stressing that they had no first-hand information on the deal.
The source suggested that some of the assets Cottonwood purchased were rapidly sold on to other investors.
“I heard that the Delta portfolio was purchased by TIAA-CREF and was a pretty large portfolio. Cottonwood then sold some of those assets, I don’t know if they bought everything and some of that stuff they turned around and sold themselves.”
The source added that their general impression is that TIAA dominates submissions to the index, which limits how direct a connection can be made between the CPPIB / Cottonwood deal and the changes reflected in the Q2 NCREIF report.
“Hancock has been buying and selling, TIAA has been net buying, so I would imagine there could be some noise in those numbers because those others are pretty big and participate in the index so some of those adds could be reflected in the numbers,” the source explained.
A representative of Cottonwood Ag Management, a farmland manager connected to Bill and Melinda Gates Investments that is among the seven firms contributing the index, declined to comment.
Other firms contributing data to NCREIF include Gladstone Land Corporation, Hancock Agricultural Investment Group, Prudential Agricultural Investments, UBS Farmland Investors, US Agriculture and Westchester Group Investment Management, an affiliate of TIAA.
The index integrity perspective
NCREIF president Dan Dierking told Agri Investor that because the organization uses the ending market value from the previous quarter as the beginning value from which it compares farmland performance, for a new property to be included in the index, it must have reported two quarters worth of data. Members are required to contribute data on all of their properties, Dierking said.
“We don’t want managers saying ‘Well, I’m only going to contribute my best properties or maybe just contribute my worst.’ From an index integrity perspective, we want to make sure we get all those properties.”
Dierking said there shouldn’t be any lag between a manager acquiring a large portfolio of assets and that portfolio being reflected in the index after two quarters have passed.
“There shouldn’t be, as long as they are up and operating.”
University of Illinois professor Bruce Sherrick, who was part of the academic team that validated the index’s initial release and currently serves as a voluntary academic member on its committees, told Agri Investor that despite suggestions by some in the market that managers exercise wide discretion in what data they submit to NCREIF, it remains the most uniform set of submissions to any farmland index currently in existence.
Though there have been some challenges incorporating data as more managers have joined, and existing managers have raised questions about how to incorporate new properties, Sherrick said those concerns vary between small and large managers and are somewhat inevitable for such a nascent measurement of an opaque market.
“Clearly, at this point in its life, individual members don’t want their properties identified in terms of scale,” said Sherrick. “The goal is to get it [the NCREIF index] big enough that you don’t notice the addition of new members of new reporting groups.”
‘Everybody hears different rumors’
A farmland manager familiar with the index told Agri Investor that not being sure of what is included in NCREIF’s dataset makes it difficult to draw any connections between changes in the index’s readings and sales reported in the market. The fact that contributing firms are unlikely to know definitively what has been purchased by their peers and when, the manager said, limits the NCREIF index’s ability to help managers understand past or current market conditions.
“You just don’t know when stuff is being brought in,” the manager said. “It’s not like we sit around at the meeting and they are telling us ‘Okay, this quarter we bought this and added it in,’ it’s just not that kind of conversation we have. Everybody hears rumors outside, but everybody hears different rumors so I don’t know what is and what isn’t going in there.”