Investment & Pensions Europe | 26 April 2016
Denmark's AP Pension to invest in Romanian farmland
By Rachel Fixsen
Denmark’s AP Pension is expanding its exposure to agricultural land in a proposed new deal to buy farmland in eastern Romania and lease it back to the Danish company operating farms on the land.
The DKK96bn (€12.9bn) commercial labour-market pension provider has signed a letter of intent as a first move to seal an agreement with Danish company FirstFarms to buy DKK375m of agricultural land.
Søren Dal Thomsen, chief executive at AP Pension, said: “We intend to purchase land in Romania, as we believe there is a large potential for increase in the value of the land.”
The plan is to buy extra land connected to this land, which will add value, he said.
“While working on this, we will get a continuous return in the form of land rent from FirstFarms,” he said.
Dal Thomsen said that, when the agreements were finally in place, it would be a long-term investment for AP Pension’s customers, and one the fund expected to provide an attractive risk-adjusted return.
FirstFarms is an investment company whose strategy is to buy, modernise and run farming companies and land in Eastern Europe.
Anders Nørgaard, chief executive at FirstFarms, said the agreement gave his company an even better opportunity to finance its strategic goal of further growth.
The deal is expected to be in place within 2-3 months once certain conditions have been met and due diligence completed satisfactorily, FirstFarms said.
Under the deal, FirstFarms will sell its company in eastern Romania with 3,000 hectares of agricultural land, grain storage and farm buildings to AP Pension.
It will keep the machine park, which will continue to be used for operation of the land.
Land and buildings will be rented by FirstFarms for a 10-year period with possibility of extending this, and FirstFarms will also have first right to buy the land back if the agreement comes to an end.
The company said the agreement was similar to deals AP Pension has already made with several Danish farmers.
Two years ago, AP Pension set up Dansk Farmland, a fund to invest DKK600m in Danish agricultural land and buildings, aiming to lease the farms back to farmers on long-term contracts.
Following on from the eastern Romanian land deal, FirstFarms and AP Pension said they would jointly identify more land, which could be included in the cooperation.
Dal Thomsen said FirstFarms had shown it could run a profitable operation in Romania, even in a year with difficult cultivation conditions.
He said land prices in the country could still rise from their current levels.
FirstFarms said land in other European countries cost seven to eight times as much, and that this price differential was far from justified by yield differences and climate conditions.