The Avenue Living Agricultural Land Trust has ballooned in the past two years to include more than 25,145 acres in assets with a value of about $32 million and a strategy to aggressively expand in the near future.
All of the Land Trust’s land holdings are currently in Saskatchewan. It is a closed end mutual fund trust that invests in Canadian farm land. The business model involves investing in farm land and leasing it back to farm operators for cash rent.
The Land Trust was founded in the latter part of 2016 and bought its first farm land in March 2017. Today, its holdings include about 20 properties located primarily in the south eastern part of Saskatchewan.
“We’re opportunistic. We buy properties where the land quality meets our criteria and the local leasing demand results in us achieving the rents we require for our model,” said Leif Snethun, Chief Executive Officer of the Land Trust.
“It provides an opportunity to invest in a very safe place to put your money . Unlike other real estate investments there are little to no maintenance costs. Farm tenants are naturally motivated to treat land as their own – violating best practices would only hurt crop yields. The Trust’s business model is setup to ensure we collect 100% of rent every year, with crop insurance as a safeguard. This expectation has been met in the Trust’s two years history. In 2018, one of our tenants experienced a crop failure due to extreme drought, but his crop insurance was activated and our rent was paid. A wet September last year has replenished the soil moisture and he is keen to seed again this spring. We are excited about growing the Trust. In 2019, we would like to be into the 40,000 acre range of AUM. It would be great to get to 50,000.”
At the end of February, the Land Trust will close on additional 3,637 acres of land in the western part of southern Saskatchewan.
The Land Trust has raised just over $10 million of capital for investment, and aims to drive long term capital growth for unitholders. Land values are projected to grow through increasing rents and capital improvements to the land.
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 and sets it apart from its peers.
“It’s a mixed bag. Sometimes it’s a farmer owner that might not be selling all his land but may be liquidating a portion to do some family planning or address some cash needs and he might be renting that back,” said Snethun. “In other cases, it’s people that are retiring and have no family members that want to take on the farm so they’re looking for a complete exit.
“Any land that comes up . . . it’s all snapped up – often times before we get a chance to bid on it. People are always looking to expand their operations. Given high costs these days, renting land is not an unattractive solution versus having to come up with the capital or going into debt to purchase land.”
Snethun said the Land Trust leases land to local farm operators for cash rents. It works with tenants to identify land improvement / reclamation projects, which not only increases farmable acres but also improves farming efficiencies. Both positively impact achievable rents.
There is significant capital required to manage farm real estate. By removing that financial stress through the rental model, operators can focus on what they do best – farming and producing our global food supply. The Land Trust ensures that tenants use best practices in farming, to maintain productivity of the land for future generations.
