Buy Land, They're Not Making Any More

Apr. 26, 2022 9:00 AM ETRYN, LAND, WY, FPI, EOG, CVX, PLD, O, NEM, FCX, DHI, JOE, VNQ, RQI, RNP, IYR, XLRE, RFI, KBWY, SCHH, NRO, FREL, SRVR, JRS, DRN, USRT, ICF, RWR, DRV, URE, SRS, SEVN, FRI, REK, PSR, BBRE, PPTY, VRAI, IARAX, NGT:CA48 Comments

Summary

  • "Buy Land, They're Not Making More of It." We've developed the "Landowner Portfolio" - a new custom strategy designed to capture the benefits and investment characteristics of land ownership.
  • The strategy targets exposure to publicly-traded companies that own or control significant acreage of land across North America, diversified across regions and across distinct productive uses.
  • This portfolio is comprised of 18 companies that collectively own or control over 50 million acres of land across the United States - larger than the entire landmass of New England.
  • Core holdings include Timber REITs, Farmland REITs, Ground Lease REITs, Triple Net Lease REITs, and substantially land-owning companies across the homebuilding, land development, agriculture, mining, and energy sectors.
  • Designed to "isolate" the benefits of land ownership, the portfolio has significant inflation-hedging characteristics, low correlations to stocks and bonds, and a healthy dividend yield of 2.4% with an evident "quality" tilt.
  • I do much more than just articles at Hoya Capital Income Builder: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Land for sale sign on empty land.

Techa Tungateja/iStock via Getty Images

This is an abridged version of the full report published on Hoya Capital Income Builder Marketplace on April 19th.

Introducing The "Landowner Portfolio"

"Buy land, they're not making any more of it." We've developed the "Landowner Portfolio" - a new custom strategy designed to capture the benefits and investment characteristics of land ownership. Inspired in part by the "How America Uses Its Land" series in Bloomberg and by feedback from our Income Builder members, the strategy targets exposure to publicly-traded companies that own or control significant acreage of land across North America, diversified across regions and across distinct productive uses.

land uses united states

Hoya Capital

The portfolio is currently comprised of 18 companies that collectively own or control nearly 60 million acres of land across the United States - larger than the entire landmass of New England. Through diversification across these different regions and uses, our goal was to "isolate" the benefits of land ownership from the sector-specific trends that affect individual companies, while also keeping the portfolio "focused" and accessible, as this type of diversified land-focused strategy is not available in any ETF or fund wrapper.

landowner portfolio

Hoya Capital

Holdings are split into five major categories: Land REITs & Agriculture, Major Landowning REITs, Mining & Mineral Resources, Energy Exploration & Production, and Land Development & Building. We rebalance and reconstitute the portfolio semi-annually in April and October. From a characteristics perspective, the portfolio is most aptly described as a "multi-cap blend" portfolio - comprised of a relatively balanced mix of small-caps, mid-caps, and large-caps. The portfolio has a dividend yield of roughly 2.4% with average dividend growth of 7% over the trailing three-year period.

landowner portfolio

Hoya Capital

Consistent with the characteristics of land ownership, the portfolio has significant inflation-hedging characteristics, low correlations to stocks and bonds, and an evident "quality" tilt. As a reminder, in our Risk Profile calculations, we expand the typical "Beta" calculation to other benchmarks to identify how stocks typically respond to certain market factors - including changes in interest rates (10-Year Treasury Index) and inflation expectations (10-Year Breakeven Inflation Index) - which is critical to effectively "hedging" out unwanted exposures to isolate the characteristics of land ownership.

land REITs

Hoya Capital

Meet The Constituents: Land REITs & Agriculture

At the core of the portfolio is land REITs - the most direct play on landownership through publicly-traded companies. Publicly-traded landowners - specifically timber and farmland REITs - have been among the best-performing real estate sectors this year amid concerns over persistent inflation and soaring commodities prices. The lack of investible companies, however, has pushed the values of several of these REITs to nosebleed levels, necessitating the construction of this more broadly-diversified portfolio. The Land REIT & Agriculture constituents in the Landowner Portfolio together own over 16 million acres of land in the United States and Canada.

farmland timber REIT land

Hoya Capital

Amid the ongoing conflict with Russia - which is among the world's largest exporters of agriculture, gasoline, and timber products - the importance and value of North American production in these key commodities will become especially evident. While the significance of Russian oil and natural gas production has been the key focus of politicians and consumers alike as gasoline prices soared to record-highs, Russia is also the world’s largest exporter of lumber - primarily softwoods - and the seventh-largest exporter of forestry products. Meanwhile, earning its name as the "Breadbasket of Europe," more than a quarter of the world’s wheat exports, a fifth of corn exports, and nearly 30% of barley exports come from Russia and Ukraine.

russia ukraine exports 2022

Hoya Capital

Below, we highlight several of the portfolio constituents.

Rayonier (RYN) is a timber REIT that owns or controls 2.7 million acres of timberlands located in the U.S. South, Northwest, and New Zealand. A more pure-play landowner than its peers, Rayonier's assets are located in some of the most productive softwood timber growing regions in the United States.

Gladstone Land (LAND) is a farmland REIT that owns 164 farms, comprised of over 113,000 acres in 15 different states - primarily permanent crop farmland - and 45,000 acre-feet of banked water in California.

Weyerhaeuser (WY) is a timber REIT that owns or controls 11 million acres of timberlands in the U.S. South and Northwest and manages an additional 14 million acres of timberlands under long-term licenses in Canada. WY is also the world's largest wood products producer, owning 35 manufacturing facilities.

Farmland Partners (FPI) is a farmland REIT that owns 160,000 acres in 17 states in the U.S. South and Midwest. This land is currently being farmed by over 100 tenants who grow 26 major commercial crops - primarily row crops.

Meet The Constituents: Energy & Exploration

The United States is the world's largest producer of oil and natural gas, ranking above Saudi Arabia, Russia, Canada, and China. As seen throughout the Russia/Ukraine conflict, despite the massive government and corporate investments in renewable energy over the past three decades, traditional fossil fuel energy sources continue to play a key role in the global economy. The top six primary energy-producing states — Texas, Pennsylvania, Wyoming, Oklahoma, West Virginia, and North Dakota — accounted for 55% of all of the primary energy produced in the United States. The Energy & Exploration constituents in the Landowner Portfolio together own or control nearly 19 million acres of land in the United States, Mexico, and Canada.

land ownership

Hoya Capital

Below, we highlight several of the portfolio constituents.

EOG Resources (EOG) is an energy exploration company focused on crude oil, natural gas, and natural gas liquids. EOG owns or controls 3.9 million acres of land in North America, primarily across South Texas, New Mexico, and the Rocky Mountain regions.

Chevron Corporation (CVX) is one of the world’s largest integrated energy companies. Chevron owns or controls approximately 11.6 million acres of land in North America including 2.2 million acres in the Permian, 1.8 million acres in the Midland, and 327,000 acres in Colorado.

Meet The Constituents: Major Landowning REITs

A balanced and diversified land ownership strategy must also include high-value land in major population centers. REITs, in general, are the most "land-rich" public companies aside from homebuilders, and these major landowning REITs, in particular, own substantial plots of high-value land across industrial and commercial uses. The Landowning REIT constituents in the Landowner Portfolio together own or control approximately 65,000 acres of land near major U.S. population centers, diversified across various property types.

Population density in US

Hoya Capital

Below, we highlight several of the portfolio constituents.

Prologis (PLD) is the largest industrial REIT that owns approximately 1.0 billion square feet of warehouse space - the vast majority of which is located in the United States. We estimate that Prologis owns approximately 35,000 acres of land in North America - the most among any non-agriculture REIT.

Realty Income (O) is the largest net lease REIT that owns over 11,100 individual properties comprised of 210 million square feet. We estimate that Realty Income owns approximately 15,000 acres of land - tied for the second most among non-agriculture REITs. Triple net leases are functionally similar to ground leases whereby tenants are responsible for nearly all operating expenses in the United States.

Meet The Constituents: Mining & Mineral Resources

The U.S. mining industry consists of the search for, extraction, beneficiation, and processing of naturally occurring solid minerals from the earth. These mined minerals include coal, metals such as iron, copper, or zinc, and industrial minerals such as potash, limestone, and other crushed rocks. The United States has nearly 500,000 active mines and is one of the world's top five producers of dozens of industrial and precious metals including gold, copper, platinum, zinc, limestone, lead, and salt. Primarily located in the Western U.S., Nevada accounts for roughly half of all active U.S. mines. The Mining & Mineral Resources constituents in the Landowner Portfolio together own or control 17.5 million acres of land in the United States and Mexico.

Mineral resources and mines

Hoya Capital

Below, we highlight several of the portfolio constituents.

Newmont (NEM) is the world's largest gold mining company and among the largest producers of copper, silver, zinc, and lead. Newmont owns or controls approximately 15.5 million acres of land in total - comprised of approximately 10.0 million acres of land in North America.

Freeport-McMoRan (FCX) is an American mining company that operates geographically diverse assets with significant proven and probable reserves of copper, gold, and molybdenum. We estimate that Freeport owns or controls approximately 7.5 million acres of land in North America.

Meet The Constituents: Land Developers & Builders

Surely one must not forget the highest-value land is that which we live on. This part of the portfolio targets land that has been zoned and permitted for residential uses - primarily in high-value suburban areas. These publicly-traded homebuilders and land developers are the single-largest non-commercial landowners in the United States, and a growing share of total lot ownership has accrued to the largest builders in the country due to the challenging economics of home construction and the critical importance of scale. The Land Developers & Builders constituents in the Landowner Portfolio together own or control nearly 500,000 acres of land in the United States.

homebuilder market share 2022 304

Hoya Capital

Below, we highlight several of the portfolio constituents.

D.R. Horton (DHI) is the largest homebuilder by volume in the United States. DHI owns or controls 551,400 residential lots in the United States. Using an average lot size of 1/3 acre, we estimate that DHI owns or controls approximately 165,000 acres of land in the United States.

St. Joe Company (JOE) is a real estate development, asset management, and operating company with real estate assets and operations in Northwest Florida. JOE owns 170,000 acres of land in Northwest Florida.

Takeaway: Introducing Landowner Portfolio

We've developed the “Landowner Portfolio" - a new custom strategy designed to capture the benefits and investment characteristics of land ownership. The strategy targets exposure to publicly-traded companies that own or control significant acreage of land across North America, diversified across regions and across distinct productive uses and is comprised of 18 companies that collectively own or control over 50 million acres of land across the United States - larger than the entire landmass of New England. Designed to "isolate" the benefits of land ownership, the portfolio has significant inflation-hedging characteristics, low correlations to stocks and bonds, and a healthy dividend yield.

Land uses in United States

Hoya Capital

For an in-depth analysis of all real estate sectors, be sure to check out all of our quarterly reports: Apartments, Homebuilders, Manufactured Housing, Student Housing, Single-Family Rentals, Cell Towers, Casinos, Industrial, Data Center, Malls, Healthcare, Net Lease, Shopping Centers, Hotels, Billboards, Office, Farmland, Storage, Timber, Mortgage, and Cannabis.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

high dividend yield index

Hoya Capital

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Disclosure: I/we have a beneficial long position in the shares of RIET, HOMZ, STOR, NLY, AGNC, SRC, BXMT, UBA, GTY, MGP, ACC, NNN, STWD, HIW, CCI, SPG, SBRA, DOC, ILPT, SUI, INVH, AMT, REG, DRE, CUBE, IIPR, ARE, FR, CPT, EQIX, APLE, MAA, PCH, PLD, DLR, LAMR, MDC, KRG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Hoya Capital Real Estate ("Hoya Capital") is a research-focused Registered Investment Advisor headquartered in Rowayton, Connecticut. Founded with a mission to make real estate more accessible to all investors, Hoya Capital specializes in managing institutional and individual portfolios of publicly traded real estate securities, focused on delivering sustainable income, diversification, and attractive total returns.

A complete discussion of important disclosures is available on our website (www.HoyaCapital.com) and on Hoya Capital's Seeking Alpha Profile Page. Nothing on this site nor any published commentary by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks.

Data quoted represents past performance, which is no guarantee of future results. It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Investing involves risk. Loss of principal is possible. Investments in companies involved in the real estate and housing industries involve unique risks, as do investments in ETFs, mutual funds, and other securities.

Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing. Hoya Capital, its affiliate, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and our published commentary. A complete list of holdings is available and updated at www.HoyaCapital.com.

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