Milltrust Agricultural Investments (MAI), an affiliate of the international Milltrust funds management firm, is scoping out the possibility of launching an Australian-REIT to house Australian and New Zealand farm assets.
MAI already manages diversified farmland portfolios in Australasia. The REIT structure would use the existing investment process and networks of the group to deploy further assets in the region on behalf of different categories of institutional investors.
Simon Hopkins, the chief executive of Milltrust International, who is based in Singapore, and Griff Williams, the chief executive of the agribusiness company, MAI, spoke of their plans in Sydney last week.
Both have family farming connections in Australia and New Zealand. While Hopkins grew up on a farm in England, his family bought a property in Queensland in the first half of the last century. He has spent his whole working career, however, in the finance industry. The family of Williams, a Kiwi, still has extensive rural interests in New Zealand.
“We’ve been through various iterations with both Australian super funds and UK and European funds with agribusiness strategies,” Hopkins says. “We recognise that you need an appropriate vehicle to suit the unique characteristics of farmland. Our current structure in Australia and New Zealand is very well suited to our pension fund investors, however, we are open to other possibilities, favouring an Australian REIT focusing on agriculture to reach a wider investor base.… And we want as little operational risk as possible. Australia has some of the best operators in the world.”
The properties, especially the smaller ones which aim to take advantage of scale from amalgamation of various functions of the agricultural business, will tend to be lease-backs to the former owners or operators or incentivized new professional management where appropriate. This gets around one of the traditional problems with acquiring farmland in Australia, and probably elsewhere, whereby families are loath to part with a property because of sons and daughters who want to continue their way of life.
Williams said that investors liked the idea of agriculture, but liking something and knowing all about it were not always the same thing. “They’d like to get exposure to the farmland asset class without too much volatility to the business operation. They also like a consistent income stream, which means diversification,” he said. “This is being set up with institutions in mind. They like diversification and investments with low correlations to other parts of their portfolios.”
A listed trust would be able to distribute most of its income to unit-holders tax free, which super funds like because of their favoured tax status.
The AREIT would also be able to invest across the southern hemisphere. The funds will be based in Australia and New Zealand, however. Milltrust is looking to raise at least A$250 million on listing Milltrust already manages around $80m of agricultural assets.
“Our strategy [for the new properties] is to find good quality land with quality lessees,” Williams said. “And we want to try to spread out our footprints to enable improved economies of scale. Farmers tend to be asset rich and cash poor.”
MAI also offers the potential of new markets. For instance, its citrus operation in Sunraysia, which spans the border between north-west Victoria and south-west NSW, sells a lot of its output via close distributor relationships, directly to China.
Meanwhile, the Australian Government announced last week a parliamentary inquiry into whether there are barriers to entry for investors in the agricultural sector. The inquiry – ‘Superannuation Investment in Agriculture’ is being headed by Rick Wilson, the chair of the House Committee Standing Committee on Agriculture and Water Resources.
He said in a statement that the agricultural sector needed more investment if it wanted to remain competitive and the super industry was an obvious potential source for that investment.
Greg Bright is publisher of Investor Strategy News (Australia)