Experts say low demand, high prices scuttle REIT

By MATEUSZ PERKOWSKI

Capital Press

A company has scrapped its proposal to launch a publicly traded real estate investment trust aimed at taking over farmland.

The Gladstone Land Corp. has withdrawn a regulatory filing that sought to raise nearly $223 million by selling its shares to the public.

The company planned to use the net proceeds from the initial public offering to buy up farmland and to make loans to growers, with farmland serving as collateral.

David Gladstone, the firm's CEO, simply said the offering "is not in the best interest of the company at this time" in his withdrawal letter to the U.S. Securities and Exchange Commission.

Capital Press was unable to reach Gladstone for comment.

Experts say the company likely backed away from the plan due to the challenges of starting a new type of real estate investment trust, or REIT, at a time when the demand for such stock offerings isn't strong.

"It's probably not the best time to be experimenting in the marketplace," said Gino Bianchini, a tax attorney specializing in such investment vehicles.

Other REIT stock offerings have not performed well in the stock market during the past year, said James Croker, an attorney specializing in REITs. "At this point, the pricing isn't particularly attractive."

Companies that qualify as REITs are generally able to forgo paying corporate taxes as long as they pass through their profits to shareholders and most of their income and assets are related to real estate.

Revenues are typically earned from rents. Apartments, office buildings, health care facilities and shopping centers are the most common types of real estate owned by REITs, but several major timberland owners also qualify.

"Nobody has done a farmland REIT, as far as I know," Bianchini said.

The Gladstone Land Corp. owned nearly 1,000 acres of farmland in California and planned to buy additional parcels at the time of its regulatory filing in 2010.

However, the company stated in its filing that it had not reached any final agreements and "there is no guarantee that we will be able to acquire any of them."

Investors are often wary of putting up money unless a company already has commitments in the pipeline, Bianchini said.

"The market wants to see that you already have things lined up," he said.

Convincing farmers to sell their land and then lease it back -- as Gladstone proposed to do -- may have proven difficult as well, Bianchini said.

Many farm families have seen their land appreciate in value, which could equate to a large tax bill after the sale, he said.

Though farmers could technically become part owners in a REIT, many probably wouldn't want to exchange their land for such partnership interest, Bianchini said. "You have to trust that they will operate that business in your best interest."

Farmland prices in some areas have risen so much that it's hard for investors to earn a good return, and the availability of parcels is limited, said Jim Farrell, CEO of the Farmers National Co., which manages farmland across the U.S.

"There's not an abundance of land out there for sale," he said.

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