Western Australia ‘like California 30 years ago’

Western Australia is home to several compelling investment opportunities and is attracting interest from North American institutional investors, the managing director of WA-based asset manager Alterra has told Agri Investor.

“Right now, generally in Australia we’re seeing more interest and activity from the North American funds, predominantly because they’ve already executed in the US and elsewhere at scale, and because they see Australia as attractive for geopolitical reasons and the counter-seasonal production nature of what sits here in Australia,” Alterra managing director Oliver Barnes said.

“And they have an interest in WA particularly because they see [the state] and its situation as like California was 30-odd years ago. It’s that development cycle that they’re particularly interested in participating in.”

Alterra was founded in 2008 as Carbon Conscious and was initially listed the Australian Securities Exchange to develop 18,000 hectares of dryland forestry in WA’s Wheatbelt on behalf of energy companies BP and Origin. The firm de-merged Carbon Conscious’ assets from the rest of its business in late 2018, freeing up Alterra to pursue growth investment opportunities distinct from the annuity-style income provided by the forestry assets.

The firm is still listed on the ASX but is now focused on sourcing and developing assets in WA through land-use change, using its own capital in the initial phase before working with private equity co-investors in the development phase. It will then typically look to marry the asset with an institutional counterparty for a sale in around year four or five.

The firm will focus primarily on developing assets with high-value horticulture and tree crops and their associated water rights.

“Institutions are increasingly looking for direct ownership in the sector on an asset-by-asset basis – in some cases together with their investment managers and in some cases on their own. But in all cases, they’re looking for an incumbent asset that’s well-positioned, that’s at the right stage in its development profile, and has a clear line of sight in terms of operating [revenues] going forward for the next 20-30 years,” Barnes said.

He described many institutions, including the large North American funds, as “deal-hungry.”

“They can see the opportunity to do piecemeal, deal-by-deal transactions, so they’ll bring that threshold right down and focus on a region to accumulate a portfolio over a couple of years,” he said.

Focus on the west

Alterra is able to invest across Australia and New Zealand but has been focusing on assets in WA because that is where it sees the “best opportunities,” Barnes said.

Water in particular offers an intriguing opportunity in the state, he added, thanks to the underdeveloped nature of the market there compared with more mature markets like the Murray-Darling Basin.

“Right now, water in WA is attached to land, and this is something the North American funds can hardly believe. Effectively, if you can demonstrate a use for that water, and in most cases that we’re looking at the water licenses are already attached to the land, the water is free – you just have to consider the economics of pumping the water and storing it,” Barnes said.

“We’re right at the early stages of the formation of something – what it ultimately evolves into and looks like will take time, but right now, by being in the function of developing assets for high-value tree crops with water attached to it, you’re effectively picking up a secondary asset class for nothing. And you’re monetising that asset class of water by the function of utilising the trees.

“It’s a great way to get early stage exposure to what I think will eventually evolve in that market,” he added.

Barnes said that Alterra is “not dependent” on a water market evolving in WA but that patient capital was in a good position to take advantage of the potential opportunities on offer.

The firm also announced this month that it has signed an exclusive technical partner agreement with Tyson Bennett, who Alterra described as “an expert specialising in the outperformance of high-value tree crops through the systematic enhancement of plant physiology and the use of plant growth regulators.”

Bennett is the principal of privately-owned Chemicals Direct, a Perth-based supplier of proprietary plant growth regulators, and will provide business development services to Alterra under the agreement.

WA has had a bumper wheat crop this year, in contrast to the eastern and southern states which have had tougher going thanks to ongoing dry conditions.

A major investment in the state was made earlier this year by Saudi Agricultural and Livestock Investment Company, when it bought the Baladjie aggregation from John Nicoletti for around A$70 million ($49 million; €43 million) in its first transaction Down Under.