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Forget Bitcoin: I'm Buying This Under-the-Radar REIT

By Matthew DiLallo – Jan 3, 2022 at 2:14AM

Key Points

  • Bitcoin is a very volatile inflation hedge.
  • Investing in farmland is a better inflationary hedge because it's less volatile and generates income.
  • Farmland REIT Gladstone Land is a good way to invest in farmland.

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This real estate investment trust offers similar benefits to investing in Bitcoin, with less volatility.

Like many people, I've been thinking about buying some Bitcoin (BTC 0.27%). The main reason is to hedge against inflation, which has been running hot this year. However, I haven't purchased any because it's so volatile. The cryptocurrency has had several large declines from its all-time high, including more than 50% earlier this year. 

Because of that, I've started looking elsewhere than cryptocurrency for an inflation hedge. While I also considered investing in gold, I've homed in on an under-the-radar real estate investment trust (REIT) that offers many of the same benefits to buying Bitcoin, plus some additional ones without the stomach-churning volatility.

That REIT is farmland-focused Gladstone Land (LAND 3.52%). Here's why I plan to buy it instead of Bitcoin as an inflation hedge.

A representation of Bitcoin on top of a chart.

Image source: Getty Images.

Why farmland?

Before we dig into Gladstone Land, I wanted to lay out the case for farmland as an investment. Since 1991, farmland has delivered higher cumulative returns than all other major asset classes except REITs. Further, farmland has produced those higher returns with less volatility than all but two major asset classes (CDs and AAA-rated bonds). In fact, since 1991, farmland hasn't had a single down year, whereas gold, the stock market, and Bitcoin have all experienced declines of more than 50% from their highs. 

Two factors drive farmland's ability to deliver attractive returns: annual cash rent and land value appreciation. Farmland generates an income yield for its investors, making it stand out from other inflationary hedges like gold and Bitcoin, which don't produce income. Meanwhile, farmland benefits from inflation because land values tend to rise by at least the inflation rate. These factors make farmland an excellent inflation hedge. 

Digging into Gladstone Land

Gladstone Land currently owns 164 farms comprising about 113,000 acres across 15 states. Its farms primarily grow fresh produce, like fruits and vegetables, or permanent crops, such as berries and nuts. These types of farms tend to be better investments than those that grow commodity crops (e.g., corn, wheat, and soy) because they experience less price volatility and government dependence, as well as lower storage costs.

Gladstone primarily leases its farms to farmers under long-term triple net leases, making the tenant responsible for insurance, maintenance, and real estate taxes. These leases typically include a fixed cash payment with annual escalations, upward market adjustments, or participation features, such as a percentage of the farm's gross revenue.

Those lease terms provide Gladstone Land with a nice inflation buffer. It typically ties annual rent escalations to the inflation rate. Meanwhile, participation features provide upside to higher prices, with fresh produce historically outpacing the historical inflation rate by 1.5 times since 1980. In addition to its inflation-protected lease income, Gladstone's farms benefit from rising land values, providing another layer of inflation protection.

However, Gladstone Land is more than an inflation hedge. The farmland REIT has a long history of growing value for shareholders by expanding its farm portfolio through acquisition. For example, it bought five new farms across three states and some additional water access for $62.3 million in the third quarter. Since its initial public offering (IPO) in 2013, Gladstone has grown its farm portfolio from less than $200 million to nearly $1.4 billion today.

Combined with rising lease income, its steady diet of acquisitions has enabled Gladstone to grow its cash flow per share and dividend at attractive rates. Gladstone has increased its monthly dividend 24 times in the last 27 quarters, raising it by 50.7% overall. It aims to continue expanding that payout in the future at a rate that outpaces inflation. Overall, Gladstone Land has delivered 14.6% compound annual total returns for its shareholders since its IPO.

All the benefits of Bitcoin (and more) -- without the volatility

One of the premises of investing in Bitcoin is it can be an inflation hedge. While the cryptocurrency's returns have certainly outpaced inflation over the years, they have been extremely volatile.

That's why I've decided to forget about using Bitcoin to hedge against inflation. Instead, I plan to invest in farmland through little-known REIT Gladstone Land. It has a long history of delivering inflation-beating returns with a lot less volatility than Bitcoin, which seems likely to continue in the future. 

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Gladstone Land. The Motley Fool has a disclosure policy.

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