When assessing new management farms, Peoples Company Land Managers seek to build farm-specific action plans to address each landowner’s goals, increasing long-term appreciation and maximizing annual cash yield.

In the fall of 2020, Peoples Company’s Capital Markets & Land Management divisions were engaged to complete diligence for an existing land management client on a new acquisition. The property was a 320-acre farm located in southern Iowa and a perfect example of realizing untapped potential. The farm featured a mix of pasture, row crop, timber, CRP, decrepit building site, and dated grain bins. Prior to purchase in 2020, the farm had been listed on the open market for approximately one year before selling, likely attributed to lower returns, the farm's inability to be split into smaller parcels, and COVID unrest.

At the time of purchase, the only annual revenue streams on the property were the cropland acres and CRP. During the diligence period, the Manager contacted local Operators to explore leasing options, determine a fair rental rate, and explore overlooked opportunities such as hunting, timber, etc.

After the sale was finalized, we got to work getting leases in place and putting our diligence findings into motion.

• The 179 cropland acres were turnkey aside from minor tree cleanup. A two-year lease was signed with a young, local operator for the 2021 and 2022 crop year. The two-year lease gave the operator flexibility to invest in fertility and learn the farm's capabilities. Since production and fertility history were limited, a flex lease was utilized to reduce the operator's downside risk, while leaving the landowner's upside wide open. The flex used on this farm established gross revenue triggers for corn and soybeans, and the actual yield was multiplied by the average cash price for that year. The amount over the gross revenue trigger was shared 35% owner, 65% operator. The Operator has paid a flex payment every year since purchase, further increasing returns. The operator also leased the existing grain bins on the property. Additionally, a CRP contract expired in the fall of 2022, and the Manager and Operator decided to remove some of the better-suited cropland acres from CRP, and renew the rest, decreasing CRP acres while increasing tillable acres with a higher rental rate.

• The 46 pasture acres were rented to a separate Operator since the cropland Operator does not have livestock. The fences were in desperate need of repair, several creek crossings needed to be installed, and the underbrush needed to be cleared. A three-year lease was signed with the pasture Operator on an escalating scale, where the landowner forwent a portion of the rent the first and second year, and the Operator used the retained rent for fence improvements, cleanup, and installing creek crossings. A stretch of fence was completely replaced in 2022, where the landowner provided the materials, and the Operator provided the labor.

• A lease was executed for the hunting rights on the property to generate additional revenue and help prevent trespassers from entering the property since the hunter is there often patrolling the grounds.

Below is a quick breakdown of the net capitalization rate (income – expenses / purchase price) at the time of the purchase compared to the 2023 crop year. While we saw a large runup in commodity prices and land values in that period of time, the rental rate has remained relatively unchanged, but flex payments have helped boost returns.

From the tables above, you can see an annual revenue increase of $24,066.67 (1.66% increase in the net capitalization rate) just by exploring all existing lease opportunities on the farm, and without any additional capital spent on improvements. Property taxes also increased in this period but were offset by the additional revenue streams.

An old grain bin and propane tank that were no longer in use were also sold, an overgrown fence line was cleaned up and the cost split with a neighbor, and the building site was cleaned up to make the property more visually appealing. Future projects are likely to include pattern-tiling the farm, managing wildlife, and improving soil health.

Before and After: An overgrown fencerow was cleaned up and the cost was shared with the neighboring landowner. Increasing yield, farmability, and curb appeal.

While the action plan outlined was achievable piece by piece, local boots on the ground management ensured it all came together. We were able to build the connections with local operators and contractors and provide that ongoing persistence to see the projects through to completion.

Land management is often a balancing act between optimizing annual returns (cash yield) and managing for sustainability and appreciation. This is just one example of the endless land management success stories. Those interested in learning more about how Peoples Company Land Management are encouraged to contact Peoples Company at 515.222.1347 or LandManagement@PeoplesCompany.com.