A farmland investment company managed by New York retirement fund manager TIAA-CREF agreed last week to purchase 30,959 acres of farmland in Hendry County, Fla. from Alico Inc. for $91,436,000.

Alico is one of Florida’s largest private landowners with 130,720 acres in six counties and produces citrus, sugarcane and cattle. The sale, which is expected to close in November, follows the Fort Myers-based company’s decision in May to exit the sugarcane farming business.

The sale includes 19,181 net cane acres, suggesting a price of $4,767 per plantable acre. TIAA-CREF is purchasing the land through Terra Land Company, an affiliate of its Westchester Agriculture Asset Management unit. Alico plans to structure the sale to allow for a Section 1031 tax-free exchange.

TIAA-CREF's Westchester Agriculture Asset Management unit is buying 30,959 acres of sandy sugarcane land and pasture from Alico in Hendry County Florida.

Under terms of the deal, Alico will lease the sugarcane acreage back from TIAA-CREF for 10 years at an annual rent equal to approximately 5% of the purchase price, or $4,571,800. (That works out to a rental rate of $238 per plantable acre).

Alico has in turn leased the same sugarcane land to U.S. Sugar Corp., a local Clewiston-based sugar mill that has purchased all Alico’s sugarcane since it began growing the crop in 1988. U.S. Sugar will lease the land for 10 years at an annual base rate of $185 per net cane acre or $3,548,485.  (A 4,561-plantable-acre tract known as “Hill Grade” is limited to a five-year initial term.) The lease includes an additional rent provision if U.S. Sugar’s year-end average net selling price per hundred weight is greater or equal to $28. The sugar price would have to average at least $34 for Alico to net any profit between its lease to U.S. Sugar and its annual rent payment to TIAA-CREF.

U.S. Sugar will also reimburse Alico $11 million of the $13.3 million Alico spent to develop and plant its sugarcane acreage and to purchase rolling stock Alico used in its sugarcane farming operation. Alico took a $2.3 million charge in the quarter ended June 30th for the shortfall.

The sale is notable for both its scale and relatively attractive initial 5% income yield. TIAA-CREF is under pressure to put cash to work after having raised $2 billion in May 2012 for TIAA-CREF Global Agriculture LLC., an investment company assembling a portfolio of farmland in the U.S., Australia and Brazil. At the close of 2013, we estimate Global Agriculture held $1.3 billion in net assets. Late last month, TIAA-CREF disclosed in a securities filing that it has raised $1.4 billion from three non-U.S. investors for TIAA-CREF Global Agriculture II, a second global farmland investment company.

Also in July, an entity affiliated with TIAA-CREF’s Westchester unit agreed to pay $4,748 per acre ($8,754,861) for 1,844 acres in Mer Rouge Parish, La. At an estimated 2015 rent of $195 per acre, the farm would generate a 3.9% initial rent yield. USDA’s latest farmland value and cash rent survey estimates that average rent income yields for U.S. cropland fell to 3.4% this year, from 3.6% a year ago.

For Alico, the land sale is the biggest move by new management since heirs of the founding Ben Hill Griffin, Jr. family sold a 50.5% controlling stake in November 2013 to 734 Investors for $138 million. 734 Investors is a co-investment of New York hedge fund manager Remy W. Trafelet, and Arlon Group, a private equity unit of Continental Grain. In late 2012, 734 Investors purchased 7,185 acres of citrus and pasture in Collier, Hardee, Hendry, Highlands, Martin, Osceola, and Polk counties from Latt Maxcy Corp., Frostproof, Fla., for an estimated $45.7 million.

Alico noted in a securities filing that the sale will reduce its operational and production risks and eliminate large capital expenditures for sugarcane planting and equipment at a time of unstable sugar prices. For the nine months ended June 30, Alico received an average $29.55 per Net Standard Ton of sugar from its cane fields. That is down from $36.86 in fiscal year 2013, $41.09 in 2012 and $36.91 in 2011. To make up the annual $1 million-plus gap between the annual rent Alico owes TIAA-CREF and the base rent it will receive from U.S. Sugar, Alico managers are betting sugar prices will recover and trigger the lease’s additional rent provision.

The sale/lease arrangement will also increase Alico’s free cash flow while maintaining its operating income and reducing depreciation expense

The Hendry County land sale price is subject to adjustment if the net farmable acres or net support acres vary by 1% or more. Alico also noted that the land sale excludes oil and gas rights and a 200-acre railroad related tract. ■

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