“…agricultural land market has a good potential to have greater representation in the capital market…”
Bernardo Arruda Reis is the head of agriculture at 051 Capital, graduated in veterinary medicine from the Federal University of Minas Gerais, with an MBA from Fundação Dom Cabral and XP Educação.
AgriBrasilis – Why is the farmland market still not well exploited in the capital market?
Bernardo Reis – The agricultural land market has a good potential to have greater representation in the capital market. Currently, we believe that there is a lack of knowledge on the part of both investors and landowners regarding the possibility of investing or paying their assets in FIAGROs FII [investment funds focused on the real estate sector linked to agribusiness].
A challenge to the growth of this movement is the fact that it is a long-term investment. As the agricultural business is cyclical, the favorable exit window for the sale of real estate to provide an Internal Rate of Return (IRR) above 20% may take a few years to be achieved.
Today at B3 we have numerous FIAGROs FII listed. Most of them are structured credit operations, either through CRA or Sales & LeaseBack operations. In all these cases, the investor is borrowing or buying land, with the seller having the option to repurchase at a predefined rate.
In the case of 051 Capital’s FIAGROs, all of them are FIAGROs FII of equity. It means that they are funds that own agricultural land leased to an agricultural operator, which in this case is SLC Agrícola. The investment thesis is based on 3 value generation levers:
- Indexed annual lease on soybean bags
- Discount on the purchase of the property
- Real Estate Appreciation over the years
The fund has an indefinite term, but it is likely that someday the assets will be sold, realizing the real estate gain.
“A challenge to the growth of this movement is the fact that it is a long-term investment.”
AgriBrasilis – What strategies does the company use for farmland acquisition?
Bernardo Reis – Regarding asset origination, we have an internal team that receives several asset offerings on a weekly basis, which are incorporated into our database. We also have a network of business prospectors in the main agricultural regions of Brazil.
We seek to invest in agricultural frontier regions, because we believe that these regions have a greater potential for real estate appreciation due to a consolidation of agribusiness chains, in addition to logistical investments that will improve the competitiveness of local production. We are also looking for a minimum size of 3 thousand ha of productive area and an operator with a high degree of credibility in the market.