AG PROPERTIES DST
The Delta Organic Ag Properties DST, a Delaware statutory trust formed in 2019, provides a socially responsible investment opportunity that includes 1,102 USDA certified organic acres located in the Mississippi River Delta region of southeast Arkansas. Of the 1,102 certified organic acres, 867 are tillable irrigated acres. In addition to adhering to organic farming practices, the farm property manager is focused on sustainable and renewable resource management and architecture to help ensure the best environmental positive practices at the lowest possible farming cost. The offering is currently operated through a long-term master tenant lease with a single farm operator. The organic production system on the farm will produce organic rice, wheat, soybeans, and corn. The farm utilizes a highly efficient irrigation system that captures and recycles natural rainwater to irrigate the crops as well as no emission power units.
The farm management practices focus on soil health and long-term sustainability to maintain and enhance the capital appreciation of the farm. Professional farm management services from Peoples Company are commissioned to ensure that farm operations will maximize annual revenue and long-term asset value. The organic production system provides significant investor value with organic crop prices typically 2-3 times conventional prices. A comprehensive asset management plan is being implemented to optimize the asset investment value:
+ DILIGENT USE OF FEDERAL CROP INSURANCE PROGRAM
To protect annual revenue
+ VALUE-ADDED CROP PRODUCTION, INCLUDING ORGANIC AND REGENERATIVE SYSTEMS
To improve net farm income and create opportunities for higher cash flow
+ VALUE-ADDED DIRECT CROP MARKETING
To increase crop value
+ TECHNOLOGY DRIVEN FARM MANAGEMENT PRACTICE OPTIMIZATION
To maximize crop yield and long-term asset value
+ FOCUS ON SUSTAINABILITY
To enhance long-term asset appreciation and access value-added markets
On March 27, 2019, Delta Organic Ag Properties DST (the “DST”) completed the $5.83MM purchase of the Pruess Farm, having 1,102 USDA certified organic acres and located in Chicot County, Arkansas. The purchase was funded using a combination of non-recourse senior debt in the amount of $2.9MM from Bank Iowa (4.05% fixed rate, five years interest only, with an adjustable-rate mortgage for an additional five years) and a non-interest bearing seller note, which has since been negotiated to a reduced amount of $2.5MM. The reduction in the seller note was due to the DST’s direct funding of the seller’s obligation to make certain irrigation improvements and was characterized as an adjustment to the purchase price of the property. The seller is to receive $1.5MM payment on the note from the offering proceeds, with the remaining $1.0MM to be paid upon sale of the property, subject to the disposition price.
At closing, a reserve account was funded by the seller for the professional management team to fund farm improvements, including approximately $400,000 for irrigation enhancements, $250,000 for soil improvement, and funding of reserve accounts for deferred maintenance, capital reserves, and farm expenses.
Organic Corn + Soybeans + Rice + Wheat
The DST signed a 10-year lease with the Master Tenant, Delta Organic Farm Management, to produce crops, including organic corn, soybeans, rice, and wheat on the property’s 867 tillable irrigated acres. The crop production plan has been structured to generate base rent annual returns of 3.5% to DST investors. In addition to base rent, bonus rent returns are projected to increase annual cash flow to investors by an additional 2% to 4.5% in years when crop prices rise and/or as per acre crop production increases. The farm was operated profitably in 2019, which included a federal crop insurance claim for organic corn.
In addition to annual investor income projections, the DST believes that the farm value could increase by 4% to 6% annually over the 7-year targeted term of the investment. This projection is based on standard industry assumptions, including the value created by organic farming practices, which increase per acre crop production over time, as well as the estimated historical 4% average annual increase in farmland values in Arkansas over the past 50 years.
Delta Organic Ag Properties DST is offering up to 100% of the beneficial interests in the Trust to both Section 1031 exchange investors as well as non-exchange investors. When the farmland property is sold, any capital distributions to exchange investors remain eligible for Section 1031 exchanges.
The minimum investment is $100,000 for all investors. An investment of $100,000 is approximately equal to a 3.77% beneficial interest in the DST.
The property is owned and professionally managed by the DST and is leased triple net to a single Master Tenant. Income can be distributed monthly, quarterly, or annually.
The target hold period is 7 years, with a 3.5% annual investment return (base rent) and the potential for annual bonus rent distributions based on pro forma yield and crop price projections. There is also the potential for material long-term capital appreciation.
The $2,915,250 non-recourse loan with senior lender is subject to a 10-year amortization and a 5-year fixed rate of 4.05%, with a 5-year interest-only payments due to the lender.
The Master Tenant of the DST will receive annual rental income, based on $270 per acre for the 867 tillable acres. Annual rental income will be used in part to satisfy the Farm’s annual operating expenses.
The property will be managed by Peoples Company, based on $8 per tillable acre. Peoples Company is a nationally recognized firm that offers land management, appraisal, brokerage, and investment services in 26 states across the country.