Blog by Andrew Watters
Shares, fixed interest, cash, real assets. These are the normal investment categories considered by investors and investment advisers.
Each of these sectors have advantages and disadvantages; typically real assets, such as property based assets, are considered for their rate of (cash) return and because their returns are uncorrelated with sharemarket and fixed interest returns. A negative aspect of real assets is that generally they are less 'liquid' - i.e. they are harder to get out of.
Permanent crop horticulture is driving a new generation of agricultural investments being offered by MyFarm. These investments are targeting cash returns of 7 – 10% p.a. and feature;
a passive lease-based model with quality orchard managers and post-harvest operators,
high quality well-located property with best of class orchard infrastructure and production capability
industries where there are limits or controls around supply growth and a focus on marketing. I.e. they are focusing on producing value add rather than commodity products.
An example of this new model is MyFarm's latest offer, El Dorado Orchards, a 14.2 cha Gold Kiwifruit orchard at Paengaroa in the heart of the Bay of Plenty. In this case, the property is in a prime location and has been developed to consistently produce 15,000 trays per hectare of gold kiwifruit. One quarter of the orchard is covered against the risk of hail.
The forecast cash return of 10% p.a. over the first five years is underwritten by a 6% p.a. lease with the remainder of the return being generated from proceeds from the 2018 harvest, plus an agreed profit share with the lessee.
This lease plus share of profit model is unique to MyFarm. In this case we are working with DMS, a significant orchard manager, lessee and post-harvest operator. They are able to leverage returns they achieve through their pack houses and cool stores to enter into very attractive lease terms for orchard owners. This sees a committed $60,000 per canopy hectare p.a. base lease plus 70% of orchard gate profits (after lease payments) being returned to investors.
Investors appear to like the fixed price which under-rights the investment, combined with receiving the majority of any potential upside.
With El Dorado, accessing high quality gold orchards has proved difficult with this just the second gold investment offer made by MyFarm. Typically, properties go to tender which makes it difficult to secure opportunities for syndication. In this case MyFarm has been able to negotiate a private treaty purchase, albeit with a short confirmation time of 14 February.
How about that acknowledged Real Assets weakness of a lack of liquidity? At MyFarm we are active in assisting investors to exit from investments. We list all investments on Syndex which is a information portal and share trading exchange. And we always have investors looking for a particular type of investment. In just one recent example, a repeat investor came into one of our vineyard investments late last year, and has had a change of heart. MyFarm has been able to find a replacement investor, all within just a few weeks!
To participate in these sorts of investments, you do need to qualify as an eligible or wholesale investor and be prepared to take up a minimum investment parcel of $100,000. But at times you may be able to pick up smaller parcels via Syndex.