The Importance of an American Farmland IPO
Food shortages are a major worry for global policymakers, but an upcoming IPO by the American Farmland Co. may be a step in the right direction. The American Farmland IPO is a commercial venture, yes. But its implications for preventing food shortages shouldn’t be underestimated.
By contrast, traditional activism is overrated. I’m skeptical of protestors’ ability to achieve real results. Standing outside a building with picket signs, chanting pithy slogans, and feeling self-satisfied is just narcissism wrapped in an altruism-flavoured coating.
Elon Musk has done more for the environmental movement than Greenpeace.
Through SolarCity Corporation (NASDAQ:SCTY) and Tesla Motors, Inc. (NASDAQ:TSLA), Musk convinces people to reduce their carbon footprint without lecturing them.
They buy electric cars and solar panels for their house because it makes sense for them, not because they were swayed by an abstract moral argument. Therein lies the difference.
It’s easier to change the world when you find a business model that makes your vision possible. The American Farmland IPO is based on that principle.
American Farmland is One Upcoming IPO to Watch
The structure of American Farmland’s revenue is fairly simple. The company is effectively a real estate income trust, or REIT. It owns a broad portfolio of mortgages and collects the payments into a large pool before passing the income through to investors.
Rather than buying a house themselves, many investors just put their money into REITs. You get the exposure to rising real estate prices without the upfront costs associated with buying a mortgage.
No down payment, no closing costs. Just a little corner of your portfolio and you’ll see a regular flow of cash. That sounds like a great trade-off to me.
Likewise, the American Farmland IPO would give investors exposure to farmland and agricultural profits. There’s no need to go out and actually buy a farm and tractors, you can support the agricultural revolution from the comfort of your living room!
The American Farmland IPO price is fairly reasonable too, with an expected range of $8.50 to $10.50. Using a midpoint value of $9.50, the 12 million shares up for grabs could raise about $114 million. (Source: American Farmland Co. S-11/A Filing, Securities & Exchange Commission, October 6, 2015.)
However, the American Farmland valuation could wind up as high as $144.9 million if investors paid the upper limit and the company exercised the option for an extra 1.8 million shares. Even at $10.50, American Farmland Co. would be a steal.
Could American Farmland IPO Prevent Food Shortages
I’m guessing the American Farmland IPO will stir some controversy.
Some people will call it “feudal capitalism,” a return to the age when farmers were just renters on the land they worked. They’ll say the barons and lords of ancient feudalism would be replaced by corporate masters. That criticism is incredibly misguided.
There’s a low ceiling to what farmers can achieve if their output is limited to what they can finance themselves or what they can raise independently. Corporate farmers are the opposite end of the spectrum, where they only operate for profit incentives.
An American Farmland IPO would connect regular investors with regular farmers. The company rents out its land to ordinary farmers, passing through the rental income.
Farmers will have less of a cost burden because they don’t own the land and there’s no single entity dictating their farming choices. REITs are legally bound to pass through their proceeds, meaning investors have all the power.
And that power is distributed across a broad base of investors, meaning no single entity can dictate terms. The firm must exist by maintaining a win-win scenario.
That may sound alien to activists, but to me, this kind of business is the absolute best capitalism has to offer: a smart commercial venture with good intentions at its core.
American Farmland IPO: Here’s What You Need to Know
American Farmland is an exciting upcoming IPO which investors should keep an eye on. American Farmland’s IPO date is scheduled for October 16th under the symbol “AFCO” on the New York Stock Exchange. If management is successful in drumming up business, American Farmland’s IPO price is expected to come in between $8.50 to $10.50 per share, valuing the issue at $144.9 million. (Source: NASDAQ Upcoming IPOs, NASDAQ.com, last accessed October 8, 2015.)