Tuesday, September 13th 2016
Farmland Partners Inc. CEO Paul Pittman created shockwaves with the purchase of 22,300 acres of Illinois farmland earlier this year, the state's largest single purchase ever. The institutional investor's spree in U.S. farmland continued Monday, as Pittman's company announced it was merging rival American Farmland Company (NYSE: AFCO) into its cropland kingdom. When the deal is completed later this year, the combined entity will own $850 million of prime U.S. farmland assets spanning 133,000 acres spread over 16 states and 25 major crop types. Gladstone Land (Nasdaq: LAND), with a value of about $350 million, is next in line, but both REITs are dwarfed by mutual fund companies like TIAA-CREF and insurance companies like Prudential who manage billions of dollars of U.S. farmland for investors. Farmland Partners' latest move represents $500 million in farm real estate acquisitions in the past 12 months. The firm expects to continue its rapid pace of growth, in part because it needs a multi-billion scale to carry the overhead of a publicly-traded firm. It also has been successful in attracting farmland owners who are willing to trade their land for stock in the company, receiving tax benefits and diversifying their geography in the process. Such trades mean cash doesn't need to trade hands. Outside of agriculture, REITs have become a fixture of real estate investing during the past 20 years. It's a way to bundle trillions of dollars in apartment complexes, shopping centers and commercial real estate and pay public investors a share of rents. By law, REITs must distribute 90% of their earnings to shareholders. On average, that's meant dividends of about 4% lately, not counting appreciation in the overall stocks. However, as the Federal Reserve raises interest rates, many market analysts expect REITs' attraction to slide. Agriculture's economic slump also poses a threat to farmland REITs, as some tenants will have significantly reduced resources to pay rents after three years of losses. According to USDA, corn revenues have plunged 38% since 2012.