AP Pension hands over the reins of a large agricultural portfolio
BY CASPER NØRREGAARD, DORTE STENBÆK BRO
The capital fund Erhvervsinvest takes over the formal role as investment advisor in the company formerly known as Dansk Farmland, which has now become Erhvervsinvest Farmland.
Thus, AP Pension passes on control of agricultural investments totalling almost DKK 700 million. A series of investments in agriculture that never became as large for the pension company as originally intended, but which caused considerable attention and something close to an outcry when the ambition to acquire and run agriculture was launched back in 2013.
With this also comes a farewell to both the management and board of directors, all of whom have been replaced by the company EIK Farmland Aps, which covers the private equity fund Erhvervsinvest's managing partner, Thomas Marstrand.
However, these are mostly technicalities as part of the agreement between Erhvervsinvest and AP Pension, he says.
"AP Pension is still an investor in Farmland, and this will not change even if Erhvervsinvest takes over the administration," says Thomas Marstrand.
Capital fund partners co-invest
In addition to the administration, Erhvervsinvest also invests and gets "a minor ownership stake" in Farmland in connection with the entry, where Thomas Marstrand and the other partners in Erhvervsinvest put money into the company themselves. He does not want to disclose anything about the size of the investment.
In addition to a possible return on the investment in the future, the private equity fund will receive an income from the management agreement itself - just as is usually the case in such agreements.
AgriWatch has spoken to Povl Fritzner, the former chairman of the board of directors of Dansk Farmland, as well as the former CEO Hans Christian Jørgensen, who has been in charge of the practical administration of purchased farms and screening of potential acquisitions.
None of them wish to comment on what has happened in the companies, other than to confirm that they have resigned.
However, Thomas Marstrand says that Povl Fritzner, Lars Langhoff and AP Pension's property director Peter Olsson, who made up the previous board, will join an advisory board that will help the private equity fund make decisions about future investments.
When AP Pension founded the company Dansk Farmland in 2013 with the purpose of investing in agriculture, it caused quite a stir.
Critics feared that AP Pension's many pension funds would put farmers at a disadvantage when it came to buying land and farms - and that the much-praised self-ownership in the industry would be lost. Proponents, on the other hand, argued that the industry was facing a massive need to raise capital - and that the agricultural sector itself could not solve the problem of generational change from a large number of older farmers to a new generation.
In the first few years, AP Pension bought a small number of farms and the original DKK 500 million was put to work. In 2015, the amount for which AP Pension could buy farms was further increased by DKK 700 million. However, Dansk Farmland has not come close to investing this amount.
According to the latest financial statements, the company Dansk Farmland had equity investments, receivables and loans totalling almost DKK 700 million in 2022. The company owns 12 subsidiaries that operate a number of farms.
The model does not change
The business model of Dansk Farmland, now Erhvervsinvest Farmland, is that the company buys the farm and the farmer then leases the farm in return for an annual rent.
Initially, AP Pension's required rate of return from investments in land and buildings was 5.2 and 6.5 per cent, respectively. However, after a few years of operation - and also a number of bankruptcies among the tenants - AP Pension had to adjust the required rate of return downwards.
The farmer owns animals and machinery. He also receives the ongoing profit from the actual operation of the property. After ten years of operation, the farmer has the right of first refusal on the property - with a 20 per cent "discount" on the increase. "discount" on the increase that may have occurred in land prices. If, on the other hand, the land price has fallen, it is the pension company that would take the loss. According to AgriWatch, the first ten-year contract between the tenant farmer and Dansk Farmland expires next year.
Thomas Marstrand says that this model will not change under Erhvervsinvest's administration.
"The agreements and terms will not change, but we will be responsible for the development of the portfolio, just as new investment opportunities may arise," says Thomas Marstrand.
Today, AP Pension has acquired farms with a total of 13 tenants, several of which have multiple operating units.
No new acquisitions on the horizon
However, there are no plans to acquire new farms and put them under the Farmland umbrella.
"Our initial focus is on further developing the current portfolio," he says.
He does not want to comment on the individual development and investment plans for the farms, but says that it could be, for example, an expansion of production or the purchase of more land on the individual farm. However, he also states that it is not about the land or others or the individual farm, but rather that Erhvervsinvest sees agriculture and food production in general as a solid and less cyclical investment.
"We like investments that are stable in the long term, which is also why we have invested in companies related to agriculture in the past. This is something that is always needed," says Thomas Marstrand.
The private equity fund owns, among others, the companies Bogballe and Bredal, which were recently merged by the fund and both produce fertiliser spreaders, as well as the machine manufacturer Agrometer.
