RBS Invest director Paul Schuler, Cambridge, says this scheme differs from typical farm equity investment schemes in several respects. Ownership of the land by investors is to be fully funded, with no reliance on debt by the investment group, and the property is held separately from livestock, plant and dairy company shares.
RBS Invest’s first foray sees it seeking investors and farm operators for two Otago dairy properties.
The investors in the land company receive a return from the lease, typically based on a percentage of the milksolids income relative to the land’s productive capacity and payout. It will typically equate to a return of 4-5% a year, received as a steady cash return paid monthly.
A farmer operator signing onto an RBS Invest property will own the livestock, plant and shares required, and pay a lease to the land investors. They will also progressively buy out the investors’ ownership of the land, ultimately owning the property themselves, typically in about 10 years.
Schuler says the scheme differs from most existing equity ventures where the operator owns a share of the entire business including the land from the outset, and carries significant debt levels to do so.
“The problem we have been seeing is the development of a progression bottleneck. Those operating partners wanting to get ahead in such ventures are unable to go forward, but are also unable to get out of the arrangement, often due to those big debt constraints.”
The first two farms offered for syndication by RBS Invest are near Milton, Otago. ‘Circle Hill’ is 205ha dairy unit with a 119ha support block; the other, ‘Clarendon Farm’, is a 249ha dairy unit nearby.
Schuler says part of the motivation for setting up the investment model was recognition by the RBS Invest board that the usual pathway to dairy farm ownership through 50:50 sharemilking was rapidly drying up. Sharemilking positions are estimated to have decreased by 1000 in the past decade.
Schuler says there is no ‘rocket science’ in the scheme, one that is not unusual in many family farming operations. It allows the operator to progress to whole-farm ownership – “ultimately what motivates anyone who goes farming.”
The company’s modelling indicates an operator with about 20% equity share in the farm business could achieve sole ownership in about 10 years.
“For that operator, it also enables him or her to choose their own management system, company structure and operation style. They stand alone within the business, subject of course to performance reviews every year.”
The company calculates that after 10 years an operator on one of the Otago properties, starting off with $2 million equity, could expect to have doubled that equity, and be able to shoulder the debt required to buy the entire operation.
Unlike some schemes, RBS Invest does not impute capital gains into returns, and leaves that to individual investors to determine when assessing the farm investments.
RBS was set up in 2006 by Duncan Coull, the 2000 Taranaki Sharemilker of the Year. Other partners include Dave Kilbride, Schuler and Rob Macnab. All have worked in banking and the dairy industry, and own farms.
