Farmland: A New Kind of REIT

05/13/2016 7:00 am EST

Focus: REITS

Briton Ryle

Editor, The Wealth Advisory

Even during the financial crisis in 2008, farmland values barely stumbled while the market fell almost 40%, recalls Briton Ryle, editor of The Wealth Advisory.

The most straightforward way to invest in farmland is to go out and buy a farm.

However, there’s a relatively new asset class that will let you get in on the profits of farmland ownership and the lucrative rental income that goes along with it.

There is a new asset class in the REIT universe. It’s in the business of buying up quality farmland and renting it right back to the local farmers that best know how to maximize that property’s profit potential.

The oldest of these investment vehicles is about three years young, and there are only three to choose from. Wall Street executives run two of them — executives with absolutely no experience in farming or valuing farmland.

The third, our latest recommendation, is Farmland Partners (FPI). CEO, Paul Pittman, is a farm kid from Illinois who went to the University of Chicago and earned a bachelor’s degree in agriculture.

He then went to Wall Street and learned the ropes of corporate banking before returning to his roots and starting a farming and farmland investment company.

Farmland Partners tries to buy farmland from farmers who have fallen on hard times and are forced to sell his land or a family that has inherited a farm and is trying to unload an unwanted asset.

After making sure the land is arable and high quality, FPI purchases the property and, whenever possible, leases it back to the farmer who’s always tilled that patch of land.

Eventually, the company amassed a huge portfolio of active farms and decided to spin the properties off into a REIT that would rent the land back to the current farmers in order to generate revenue.

The company has grown very quickly over the past two years since its IPO in 2014. It currently owns 258 farms with an aggregate of 108,163 acres.

Since it’s a REIT, in order to keep that sweet tax exemption, the company has to disburse at least 90% of its income to shareholders each and every year — making for some pretty lucrative dividend payments.

Basically, FPI is a farmland REIT run by farmers. We’re getting in on the ground floor of what promises to be a profitable type of real estate investment.

So if you can’t go out and literally buy the farm, add shares of Farmland Partners to your portfolio for a limit entry price of $11 per share.

I’m not expecting astronomical growth this year, so the 12-month price target is $15.25, but keep in mind that this is an investment in the future, and what we really want is slow, steady growth and those sweet, sweet income payments as we wait.

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By Briton Ryle, Editor of The Wealth Advisory

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