Farmland REITs Harvest Surging Returns as Food Prices Skyrocket
Land, healthcare and self-storage REITs topped the leaderboard in March as 18 of 19 sectors had healthy yields.
After a shaky across-the-board start to the year, REITs rebounded sharply in March, with 18 of 19 property types yielding positive returns that outperformed broader markets.
The top-performing REITs in March may surprise you: they don’t have many buildings on them, other than silos.
Turbocharged by skyrocketing food prices, two REITs that specialize in farmland—Gladstone Land and Farmland Partners—notched returns of 22% and 18.3%, respectively, in March, according to data from S&P.
Despite the continuing woes of the third REIT in the land sector, ground lease REIT Safehold (-9.3%), land REITs still topped the leaderboard with average returns of 10.3% in March.
The land sector was followed on the REIT growth list for March by the surging sectors of healthcare, which averaged 9.3%, and self-storage, which notched an 8% return. REITs that focus on shopping centers (7.6%), data centers (6.3%), industrial (6.3%) and SFR (6%) also posted strong returns in March.
Hotel and office REITs maintained their lead in average Q1 returns, at 7.1% and 5.3%, respectively, but the March averages—3.6% for the office sector and 2% for hotels—may signal weakening momentum.
The one downer on the March list is the sector that has fared the worst during the pandemic: mall REITs, which were down -4.4% in March and -14.5% overall during the first quarter.
Gladstone Land, which has increased its dividend throughout the pandemic, focuses on fresh produce, fruits and nuts, which tend to be less impacted by commodity price shifts than grains.
Farmland Partners recently announced plans to broaden its portfolio to include an array of farmland services, including brokerage and management services, as well as leased farmland.
Two factors, one long-term and the other (hopefully) short-term, are likely to increase the value of the farmland REITs: the increasing scarcity of available farmland and the war in Ukraine.
Despite the increase in population since 1960, the estimated amount of farmland per capita has dropped from 1.1 acres in 1960 to 0.5 acres in 2020 as decades of encroaching urban development has seen farmland converted to other uses.
Russia’s invasion of Ukraine, the eighth-largest wheat producer in the world with an annual output of more than 25M tons, is pushing wheat prices up. Ukraine recently said its farmers will be planting crops this year despite the war, but the siege of the Black Sea port of Mariupol has blocked its primary export route.