The rare investment opportunity ticking all the right boxes

The Centuria Agriculture Fund hunts for high-quality, sustainable, agricultural assets. It seems it has found one with Sundrop glasshouse.
Chris Conway

Livewire Markets

There are a handful of industries that are quintessentially ‘Australian’. These are industries upon the backs of which this great country was built. Mining is one. Construction is another. Healthcare in recent years as well, with world-renowned names like CSL and Cochlear.

There is, of course, one other cornerstone industry that is still critically important to Australia and that's agriculture.

Gone are the days, however, of the horse and plough, the stockman’s whip, and hand shears. Today our agriculture industry is powered by technology, little of which is understood by the public and perhaps even less is accessible as an investment opportunity. Until now.

The Centuria Agriculture Fund, through the assets it purchases, provides access to technologically advanced, sustainable, locally-based agriculture assets that offer potentially attractive returns for investors.

The Fund has recently been re-opened to both retail and wholesale investors, as there are new, high-quality assets that have been identified as suitable opportunities.

I recently sat down with Kelvin McKeown, Fund Manager at Centuria Agriculture Fund, to discuss the details of the opportunity, why the assets it is investing in are compelling, and why access to such assets is quite rare.

The Fund

Centuria Agriculture Fund is a new, open-ended investment fund that's targeting high-quality, sustainable agricultural assets. It is well positioned to benefit from the continued growing demand for fresh food produce and other essential agricultural products.

The Fund launched in July last year with the purchase of a 33-and-a-half-hectare glasshouse in Warragul. That glasshouse is leased to a multi-generational food producer named Flavorite. 

The Fund has since purchased another 20-hectare glasshouse, known as ‘Sundrop’, which is located in Port Augusta and Centuria is in the final stages of purchasing a third glasshouse. The Fund has been reopened to raise equity for the purchase of the second and third glasshouses.

After the acquisition of the third glasshouse, the Fund will be the largest glasshouse owner in Australia, with 73-and-a-half hectares under glass.

Kelvin McKeown, Centuria Agriculture Fund
Kelvin McKeown, Centuria Agriculture Fund

Wait, there’s money in glasshouses?

When McKeown started talking to me about glasshouses, I was thinking of the glasshouse my nanna had in the backyard to grow her vegetables when I was a kid.

Whilst that is the right principle, the scale – and the technology – were way off. Furthermore, these assets are rare. Glasshouses of suitable scale have high startup costs ($5-6 million per hectare) and high barriers to entry. There are only a limited number of people and organisations with the requisite skills and experience in Australia (and indeed the world), who can successfully build and maintain these assets.

It doesn’t stop there.

Even if you can source the capital and engage the right team, you then need to find the appropriate location, with the appropriate temperatures, soil characteristics and with access to secure, high-quality water. Appropriate infrastructure around the location is also important. 

Pardon the pun, but these locations don’t grow on trees.

These inputs are critically important, as we will learn, to increase yields, reduce inputs (e.g. water and fertiliser), and reduce waste. To say that finding assets the quality of Sundrop is challenging would be an understatement.

“There's definitely a limited number of large-scale glasshouses in Australia, but we're actively talking to most of the operators”, notes McKeown.

“Our philosophy is to partner with farmers who have developed market-leading integrated sustainable farming technology, which will ultimately result in more predictable volumes of produce arising from the protected nature of the farming activities”.

Centuria is not looking to take on any operational risk through the acquisition of Sundrop. Instead, they are partnering with the Sundrop management team, which Centuria rate as “strong operators that have extensive industry experience”.

“They [Sundrop management] have a unique set of skills due to the amount of technology required to run that asset. It's a very unique asset. That management team has been there since the facility was purchased and they have a great setup”, adds McKeown.

Production security

A by-product of finding the right location, supported by the right team, is the facilitation of what McKeown calls “protective agriculture”.

“When you think of Australian ag, you typically think of large sheep and cattle stations - the size of small European countries - or large, broadacre cropping, i.e., cereal crops, or cotton, etc. We're more focused on the protected agriculture path, which covers a wide range of assets”.

McKeown provides examples of an almond orchard, which is protected through its irrigation system, and, of course, glasshouses which have their own unique and highly valuable characteristics. Namely, the glasshouse protects the crops from all climatic risks – floods, fires, frost, and droughts. Not to mention the bugs!

Focus on technology

Laden with cutting-edge technology, McKeown affectionately says that Sundrop “is like a spaceship…comprising a world-first integration of sustainable and glasshouse technology”.

McKeown goes on to explain that the facility uses infrastructure taken from an old coal-fired power plant to suck salt water out of the Spencer Gulf. The saltwater is then used for two purposes. The first is to cool the glasshouse during the heat of the day – Port Augusta gets very hot - whilst the second use sees the water pumped through a desalination plant to provide fresh water for the tomatoes.

It doesn’t end there, however.

That desalination plant is powered by a solar energy system made up of 24,000 mirrors set up over 12-and-a-half hectares, that “mechanically follow the sun like a sunflower”, says McKeown.

“And they direct and focus all that sun's energy into one single point that's about 130 metres in the air. That superheats the water, the steam then spins a turbine, and the energy that’s produced then runs the desal plant”.

Finally, the hot water that comes from that process is then used to heat the glasshouse at night, to control the temperature inside the glasshouse when it cools down.

“In short, it's using the sun to heat the glasshouse, produce fresh water, produce tomatoes, and have very, very little impact on Australia's supply of fresh water”, says McKeown. 
The image above shows the scale of the operations at Sundrop… not quite nanna’s glasshouse in the backyard. 

The image above shows the scale of the operations at Sundrop… not quite nanna’s glasshouse in the backyard. 

The benefits of all that tech

Whilst the use of technology and integration of all the systems mentioned above sounds fascinating, there would be little point if they didn’t create some pretty significant efficiencies and opportunities for investors.

Firstly, the efficiencies.

“Some of the numbers comparing field-grown tomatoes to glasshouse-grown tomatoes, are really, really mind-blowing from both the production and sustainability perspective", says McKeown.

Prepare to be dazzled.

“ln the field you would typically produce around 69 tonnes to the hectare, whereas under the glass you'll produce 800 tonnes to a hectare”, says McKeown – a more than 11-fold increase.

But not only are the benefits seen on the production side, but also on the input side – with water savings significant.

“In the field you need around 116 litres of water to produce one kg of tomatoes, while in a glasshouse you only need 22 litres of water to produce one kg of tomatoes”.

Finally, there is the issue of waste. The glasshouse creates much less of it. “In a glasshouse you can essentially harvest each individual tomato when it's ripened, where in the field you go through and do a bulk harvest. 

The result of that, in the field, is around 30% of the crop or produce wasted. In the glasshouse, it's pretty much zero”.

A great story, but what does the investment opportunity look like?

The final piece of the puzzle, of course, is what the investment opportunity looks like. There is no use in having a great story that falls apart when it comes to the discussion of financials.

With regard to the Centuria Agriculture Fund, once the third glasshouse has been purchased the Fund will have a “very long, weighted average lease expiry (WALE) of approximately 18.2 years. They're all triple net leases, which means the operator is required to pay for all the outgoings, all the maintenance", notes McKeown. 

McKeown also points out that the lease rates are set to increase each year, with 50% of the rate increases fixed at 3% per annum, and the other 50% increase in line with CPI. "So when you get into year five, that compounding impact has really accelerated the return profile", adds McKeown. 

The Fund is currently paying monthly distributions at a rate of 5.25% per annum, which is also currently 100% tax deferred. As for the interest rates that Centuria is paying on the debt, McKeown shares that “currently around 60% of the Fund's debt is hedged out until 30 June 2026”.

The opportunity

In this round, the Centuria Agriculture Fund is seeking to raise $80 million to fund the two glasshouses and the opportunity is open to both retail and wholesale investors.

“This is one of the great things about this Fund. There's a number of large Australian agriculture funds that are well established, but this is one of the very few unlisted ag funds that provides exposure to not only protective cropping, but also provides retail investors with an exposure to Australian ag”.

The Centuria Agriculture Fund is aiming to become Australia’s leading agriculture real estate fund. 

To find out how you can participate in the current raise, please visit the Fund's landing page here. 

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Chris Conway
Managing Editor
Livewire Markets

My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...

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