Agribusiness

Horticultural success generates 10% cash returns

gold kiwifruit

Investors in MyFarm syndicates are benefitting from the export success of New Zealand’s horticultural sectors, with strong cash returns in 2018/19.

MyFarm Investments has just released its first full year of financial results for horticultural and commercial property syndicates (please see graph below) . The aggregate result is an impressive 10% cash return in 2018/19. This covered nine MyFarm syndicates in the permanent crop space including vineyards, apple, kiwifruit, avocado orchards and two commercial properties.

MyFarm has established 17 permanent crop syndicates since 2015 as it has shifted from solely dairy focused to offering investors access to a wider range of exciting investment opportunities across the different New Zealand primary sectors. The 2018/19 financial results were taken from syndicates that are generating an income, while development properties that are forecast to generate income in later years were excluded.

MyFarm Head of Investment Research, Con Williams says the results reflect a focus on pulling together the right propositions. This includes investing in sectors and businesses that have bright prospects; buying into or developing high quality assets/orchards; and partnering with leading growers and exporters that bring the right management expertise, as well as access to specific intellectual property and high value markets.

Williams says the Bay of Plenty based SunGold kiwifruit orchard syndicates that MyFarm has formed show what can been achieved when all these factors are combined, generating cash returns of 14-26% in 2018/19. When the capital uplift in orchard values is included the overall result would be even more notable.

“Kiwifruit’s impressive run in 2018/19 was maintained as Zespri continued to deliver strong orchard-gate returns with exports to China and North America increasing, solid climatic conditions and first class management by the DMS Progrowers team producing good quality crops.”

In contrast he says the MyFarm apple, vineyards and commercial property investment syndicates generate solely lease based incomes and steady cash returns of 6-8%. However he points out that as production kicks in on the developing apple orchard, returns from the profit share arrangement with the lessee is forecast to generate double digit cash returns.

“These syndicates are obviously suited to investors looking for more stable cash returns, versus the extra risk of an investment based solely on the operating profit it generates.”

Williams also acknowledges risks such as occurred with an avocado investment in Northland which was hit by a series of harvest timing, pest and market access issues. Those aspects that are controllable have been addressed for the coming season and investors have since expanded their landholding to include a neighboring avocado orchard.

Other investments settled by MyFarm in 2017 and 2018 include investments in bareland developments in hop gardens, cherry orchards, manuka plantations and Rockit apple orchards. These have a period of no or low returns whilst the plants mature but with the advantage of having new improved plant varieties planted using modern planting formats and operated at scale. The earliest of these will start contributing cash returns in FY 2020.

my farm syndicate returns

Future looks bright.

Con Williams says overall the market value of the permanent crop sectors has grown about 10-12% per annum since 2012 and continues to grow.

“The blueprint of product uniqueness with trademarked IP; targeting affluent market segments; strong branding, stringent quality and food safety, and the application of best practice management and new innovations from orchard through to end customer all continue to deliver growth.”

He says MyFarm is excited about a range of investment opportunities across the primary sector. Many of these sectors require additional capital to fund expansion opportunities. For investors it’s a great time to fill this gap and access these attractive cash returns and a true diversification opportunity that has historically been lowly correlated with other types of real assets and financial market products.

Source: MyFarm Investments

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