The Avenue Living Agricultural Land Trust is a closed end mutual fund trust that invests in Canadian farmland, leasing the land to farmers. Founded on its first purchase in 2017, the Land Trust continues to build its asset base and will surpass 40,000 acres in 2020.
“We’re slowly building the fund with a steady stream of opportunities coming to our attention,” says Leif Snethun, Chief Executive Officer of the Land Trust. “Acres are at about 36,300 right now and I’ve got another 800 closing in January.”
All the properties are in Saskatchewan, with a total value of more than $50 million.
For farmers in western Canada it has been a challenging year. This fall saw early snow, rain and then more snow, which has dragged the harvest into December. Many people had to combine their grain with a high moisture content. This grain had to be subsequently put through dryers adding another grain handling process and hence time, to the harvest.
Other challenges have included lower commodity prices, the CN rail strike and the federal carbon tax. The carbon tax is particularly galling to farmers as it is being applied to the fuel (natural gas or propane) used for drying grain.
What is it that Snethun looks for in a property when he goes searching to buy for the Land Trust?
“There are many factors other than sticker price. For instance, there’s a deal right now that I could step into, negotiated by the potential tenant. This tenant is willing to pay me the rent I need to make my target returns. However, the soil quality is at the lower end of the farming spectrum. I don’t believe that this quality of soil will appreciate over time as much as some of the available higher quality dirt, so I am going to pass” he says.”
Snethun says his primary target is land that is actively being used for cereal or oilseed growth, but pasture land also has potential.
“Every quarter section of land in Saskatchewan has been analyzed and that data is available. If pasture land comes up, I won’t immediately dismiss it I’ll take a more in-depth look at the soil reports and see if it has farming potential,” he says.
The Land Trust leases land to local farm operators for cash rent. It works with tenants to identify land improvement and reclamation projects. These projects increase farmable acres and concurrently improve farming efficiencies. Both positively impact achievable rents.
Without the intense capital requirements in managing real estate, farm operators can focus on what they do best – producing the global food supply. The Land Trust ensures that tenants use best practices in farming, to maintain productivity of the land for future generations.
The Land Trust purchases farmland under metrics that make sense in terms of achievable rent versus acquisition costs. Investor capital is leveraged through mortgage financing, which enhances returns. The use of leverage sets it apart from its peers.
Snethun says the Land Trust is open to buying farm land in other provinces. So far the higher cost of land outside of Saskatchewan relative to its revenue potential has not attracted any of the Trust investment dollars.
The Land Trust aims to drive long term capital growth to unitholders. Value growth will not just be passive appreciation. Improvements to the land and hence farming efficiencies will attract increasing rents.
Snethun says a significant portion of the farmers who are selling their properties to the Trust are those who are retiring. Many of them don’t have anyone to take over the family farm operation.
“Approximately one in four farmers have grown-up children working with them. These are the families that are expanding their farm operations and look to leasing land as a component of their farm footprint. Three out of four are looking to exit, because no family member wishes to take over the family farm.”