Question 1

What am I investing in when I invest with Farmland Capital?

Accepted Answer

Farmland Capital gives accredited investors the opportunity to invest alongside farmers in farmland across the United States. Investors can access opportunities in America’s heartland: our corn, wheat, and soybean farms that feed the country (and the world) farming the crops that comprise around 80% of all crop production in the U.S.

As a part of the Farmers Business Network (FBN), investors in the Farmland Capital platform gain access to a pipeline of differentiated opportunities that are normally never available on the open market. Investors invest in a minority portion of the equity of farm's value and provide much needed financing to farmers for new land purchases, to refinance their capital structures, or to invest in their operations.

Question 2

What differentiates the opportunities in your pipeline?

Accepted Answer

Most farmland investors compete for a small portion of the farms that are transacted in the open market every year. We believe the farmland assets on the public land market are often of lower quality because when farmers need to sell off a piece of their land to finance their operations, they are unlikely to part with their highest-quality parcels.

We partner with farmers to finance their land, meaning investors and farmers don’t need to compete for the same land. In this way, we tap into the equity of 9x the value of US farmland transacted on an annual basis, in a way that traditional institutional investors cannot, including owner-operated farms, sales among family members, land in states with corporate ownership restrictions, and the large refinancing market.

Our pipeline is therefore larger and higher quality than the overall institutional market, creating greater opportunity to choose the best investments, for better outcomes.

Question 3

How does the structure work?

Accepted Answer

As a co-investment, both the investors and the farmer participate in the upside, creating shared incentives that lead to long-term value creation.

Farmers usually have only two options to finance their land, operations, or capital expenses: loans (where the farmer takes out debt) or sale-leaseback transactions (where the farmer sells their land to a landlord and then pays rent to operate that land).

Farmland Capital's innovative structure allows for a third option where the farmer retains ownership, preserves annual operating profits and cash flows, and receives a cash payment in the form of a co-investment.

Question 4

What are the details of the co-investment structure?

Accepted Answer

Farmland Capital is a co-investment alongside family farmers in the equity value of their land. We invest 10-25% of farmland value, allowing farmers to control more land and/or make necessary investments in their businesses. The farmer then agrees to buy back the co-investment portion or sell the farm before the expiration of the contract term (10 years). The option-holder has a choice to extend by up to 3 years, depending on market conditions.

In this structure, the farmer owns the majority of the farm equity and manages the property, which lowers management costs, aligns incentives with investors, and keeps rural land ownership in the hands of farmers. Investors do not participate in annual cash flows and, as a result, receive appreciation/depreciation alongside the farmer on an accelerated basis. The mechanism by which this occurs is through an option structure. You can learn more about the structure in our deep dive.(https://www.farmlandcapital.fbn.com/post/investment-structure-deep-dive)

Question 5

What returns can I expect?

Accepted Answer

In our models and based on historical appreciation, investments through our platform result in annual returns of ~10-12% and ~3x return on invested capital based on the maximum ten year hold period. Farmers historically refinance their capital structures every five to six years. In these cases, returns would be higher.

As an investor, you do need to build your own view on the long-term attractiveness of farmland, as the gain comes solely from the property's appreciation.

Question 6

Why do farmers need capital/liquidity?

Accepted Answer

Farming is a capital-intensive business with thin margins. Farmers face a choice to either buy land with a large investment or rent land without certainty that the lease won't be terminated or that rent won't go up.

For these reasons, farmers value land ownership over renting, and maximizing cash flows over capital appreciation. However, access to capital (to minimize rent or interest payments) is a major issue as banks will typically only lend up to 60% of a farm’s value, with the farmer required to put 40% down.

Farmland Capital aims to solve farmers’ pain points while optimizing returns, leading to aligned incentives that maximize value for everyone.

Question 7

What if farmland values decline?

Accepted Answer

The long-term investment thesis in the farmland asset class is very strong, as it's a simple equation of supply and demand. Amidst an increasing need for more food (more people worldwide with more money demand higher calorie diets, especially meat), farmland is declining at a very rapid rate (~2,000 acres every day). We believe high-quality, productive farmland will continue to be in strong demand, despite how the broader market performs.

In fact, this is exactly what we've seen in the last 4 recessions. While the S&P has declined through each recession, farmland has held its value. There have been very few periods of sustained declines in farmland value, with the main exceptional period during the 1980s. There are many structural differences between the 1980s and today (namely farmers’ capital structures).You can read more on this topic here.(https://etrack.farmersbusinessnetwork.com/t/104121/c/3d99bc30-4ef9-463e-999a-f9e21a99430e/NB2HI4DTHIXS6ZDSNF3GKLTHN5XWO3DFFZRW63JPMZUWYZJPMQXTCLLMJRDTGR3IIJAUO5CDJYWV64SXMMZXSQLLMZXE25DEOVBWC2KWF53GSZLX/drive-google-com-file-d-1-llg3ghbagtcn-_rwc3yakfnmtducaiv-view)

Question 8

Why is Farmers Business Network (FBN), a company that services farmers, offering this?

Accepted Answer

We are in a unique position to meet the needs of both farmers and investors and are deeply committed to building a platform that works for both sides of this equation.

FBN has a network of almost 50,000 progressive farmers operating ~20% of U.S. cropland. These farmers bring co-investment deals to the platform with high-quality asset bases and perfectly aligned incentives. FBN is committed to the long-term viability of family farms, which means maintaining ownership of the farm by the farmer and disintermediating landlords from the financing equation. As a non-debt financing option, equity is a crucial portion of a farmer's capital structure that eliminates the need to pay off interest/principal, optimizing annual farmer cash flows.

At the same time, a strong base of investors allows us to deepen our impact with farmers and finance more operations. As part of FBN, our investors gain access to this unique subset of high-quality investment opportunities.

Question 9

If I want to invest in farmland, why should I choose to partner with FBN?

Accepted Answer

The biggest differentiator of FBN’s offering is that the farmer retains ownership of their land. This leads to higher returns for the investor and farmer overall, as both parties share incentives to maintain and create value over time. All other farmland investment options available today are structured as a sale-leaseback, meaning the farmer has become a tenant and is usually operating the farm under 1-3 year leases. One can imagine the different management practices and sustainability measures a farmer may take in a scenario where they operate land to pass on to the next generation.

Our platform is built on the strength of FBN. We are an eight-year-old company valued at almost $4bn, with backing from investors such as Fidelity, BlackRock, T. Rowe Price, and Google Ventures. We have over 1,000 employees and an unmatched member network that views us as a trusted advisor, given the impact we have on their day-to-day operations and overall profitability. While we are a startup in meaningful ways that allow us to provide meaningful solutions and disrupt the industry, we are also a group of experienced and dedicated investors, loan advisors, underwriters, data scientists, and economists.

The team specifically dedicated to farmland investing includes Melissa Bermudez (https://www.linkedin.com/in/melissa-bermudez-78b13135/)(Director of Platform Services & IR) and Pepo Peschiera (https://www.linkedin.com/in/pepo-peschiera-9189151/)(Managing Director of Equity Investments). Learn more about the team here.(https://www.farmlandcapital.fbn.com/post/meet-the-team)

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