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Marzipan is mightier than Merlot for land investors

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Bacchus beware – there is more money to be made in making marzipan than merlot.

At least, if the latest land purchase by Gladstone Land is anything to go by.

The Virginia-based land investor on Tuesday unveiled the purchase of 850 acres "mostly planted in wine grapes" in California for $19m, the equivalent of more than $22,000 per acre - only to reveal that the vines will be ripped out for replacing with almond trees.

This switching will cost an additional $8m.

"We expect the entire property will be planted with almonds soon," said Bill Reiman, the managing director of Gladstone Land's western division.

Raised prices

The deal comes at a time of elevated almond prices – thanks to drought in California, which is responsible for some 80% of world output of the nut.

Nuts per tree in California almond plantations "have declined slightly each season since 2011", as of last year, said the US Department of Agriculture, which estimated US farmgate almond prices at $3.50 per pound in 2014-15, "the highest recorded as far back as 1970".

The high prices have more than made up for production setbacks, and helped the west of the US prove the country's most buoyant land market by geography, according to the Ncreif real estate practitioners' institute.

By type, the value of farms planted with the likes of orchards and groves has since 2012 "had significantly higher returns" than that sown with annual crops such as corn and soybeans, Ncreif said earlier this year.

In Europe, prices of almonds have risen such that police in Spain, a large growing country, have unveiled a programme to prevent nut thefts, and were reported by Radio Granada this week to have arrested eight people for stealing nearly three tonnes of the crop.

According to the La Unió de Llauradors growers' union in Valencia, almond prices have risen by 44% year on year.

Deal terms

Gladstone Land said the property it had bought, in the south of the state, was "a location of proven, high-yield almond production", boasting "excellent groundwater resources".

The deal is being undertaken on a refinement of the group's usual model of leasing properties to tenant farmers - which sees it benefit from rents and capital growth, but does not expose it to changes in crop prices.

At the latest property, it will lease the land to a new tenant – which it described as a "farming family well known in the area", and "one of the most successful almond growers in California" – but with a revenue sharing rent deal kicking in after four years.

The group estimated annual rents at 8% of total costs, once the revenue-sharing part kicks in.

However, a minimum rental rate agreed as part of the revenue-sharing deal would mean that payments to Gladstone would "still sufficient so as to not impair our ability to meet future distributions" to shareholders.

"We believe the revenue-sharing component will add to our future profits, allowing us to increase our distributions," said David Gladstone, the Gladstone Land chief executive.

Shopping spree

The acquisition is the latest of a summer land-buying spree by Gladstone Land, even amid signs of a slowdown in the farm market.

The group has within four month announced $80.8m in deals on a total of 9,596 acres of land,

It said on Tuesday its portfolio has now reached 14,876 acres spread over six states, and valued at about $261m.

Unlike peer Farmland Partners, which has amassed a portfolio of 72,414 acres of largely corn, cotton and soybean land, Gladstone Land is focused on smaller farms growing higher-value crops such as fruit and vegetables.

Gladstone Land shares stood 1.7% higher at $9.24 in morning deals in New York.

By Mike Verdin

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