global thoughts - nuveen

IntroductionBy Martin Davies Westchester President and CEO

At the time of writing this introduction we are living through a very difficult time for society and our economies. The COVID-19 pandemic has left no one

untouched. The virus is not only claiming human lives, it is subjecting individual countries and the global political order to extraordinary stress rarely seen in peacetime.

First and foremost, I would like to thank all of our staff, tenants, crop managers and businesses who support Westchester for what you have done already to weather this crisis and to get us prepared to cope as we emerge from this situation. Our staff moving to homeworking has been seamless and their commitment makes all the difference.

The lock down has reminded us that we have forgotten a lot of obvious truths in our drive to consume unimportant items and dash about for no particular purpose. A rediscovery of the “basics of home” such as family, cooking, baking, gardening and a closer connection between health and nutrition has accompanied a significant increase in grocery demand. Information Resources Inc (IRI) consumer spending tracker from February 3rd 2020 to May 3rd 2020 reported significant year on year growth across all grocery sectors, more than offsetting the decrease in food services and restaurant trade.

This crisis has highlighted the importance to society of basic industries such as agriculture. Farmland returns historically have shown low volatility and strong performance during a downturn in the economy. This is driven by the essentiality of food to the survival of a growing population, supplied by a limited land resource base. Stable supply-demand dynamics for agricultural produce in the current pandemic

leads to the conclusion that farmland will be a reliable store of value through this time of economic tumult, as it has been in the past.

Food and agriculture remains an essential function in all countries around the world, and these industries were excluded from lockdown measures. In the US, the corn and soybean crop has been established well ahead of the 5 year average, testimony to the dynamic nature and resilience of our tenants’ businesses. We have seen similar progress in establishment of the winter crops in Australia.

Certain events from the pandemic may lead to food shortages and a return to an inflationary environment. Just in time delivery has been exposed by the crisis and we have witnessed food security driven export restrictions as Ukraine, Russia and Vietnam limit wheat and rice exports. The inflation hedge characteristics of farmland could become increasingly relevant. For example, last year China saw consumer inflation at a 7 year high due to the impact African Swine Fever had on pork availability, which saw pork prices increase by over 100%.

How will the pandemic shape the future of agriculture?• We have seen heightened awareness of the sustainability and quality

of food production, which was also experienced in the SARS and MERS pandemics. Tastewise, an artificial intelligence platform that analyzes billions of food and beverage data points, reported a 27% increase in food searches related to immunity in February and March 2020.

• Continued farmland consolidation will occur as producers continue to expand their operational footprint but it will be in a more nationalistic, food security orientated environment, where there is increased focus on resilience and combating climate change.

• We expect increased reliance on technology at all levels, with the labor challenges experienced in certain agricultural sectors driving automation and robotics. Moreover, we expect collaboration between researchers, agribusiness and farmers to shorten supply chains, which will be facilitated by technology, are less vulnerable to disruption and return value to farmers and workers.

Our priorities remain the safety of our staff, tenants and crop managers and serving our clients. I am proud of how the Westchester team has risen to the challenge and continues to show commitment during these uncertain times. At Westchester, we hope that you and your families remain safe and healthy.

Spring 2020

Global Thoughts

Columbia Orchards: a portfolio diversification exampleBy Carole Fornoff, Horitculture Investment Manager, and Mark Coelho, CEO of Horticulture

Over the years, most horticulture properties under Westchester’s management have been operated under a “custom farming” structure, whereby the property owner takes on the risks associated with growing and marketing the crop. The objective of this structure is to maximize income returns commensurate with the associated production and market risk. Leasing represents an alternative operating structure that generally shifts primary production and marketing risks from the property owner to the tenant under a long-term lease arrangement. Westchester has selectively implemented such alternative operating structures to allow its funds to diversify into new crops and geographies while generating attractive risk adjusted returns.

An example of a property operated under a relatively low risk leasing structure is Westchester’s largest permanent crop investment in the state of Washington – Columbia Orchards. The Columbia Orchards investment consists of three distinct properties planted to approximately 676 hectares of apples and 145 hectares of cherries and includes extensive cold storage facilities.

Apples and cherries feature a higher risk profile compared with other, less perishable horticultural crops given the weather risks and labor-intensive nature of fresh fruit production. Regular orchard redevelopment requirements resulting from constantly evolving consumer demands for new varieties present an added challenge. Recognizing these risks, Westchester opted to enter a long-term lease of the assets with one of the largest apple and cherry grower, packer and shippers in Washington.

Proper lease structure and tenant selection are critical to ensuring investment success when implementing leasing strategies. Working with a scaled, vertically integrated, and financially strong tenant, Westchester’s investors benefit from a reliable annual lease income while gaining exposure to crop types with relatively volatile production characteristics. In addition, the long-term nature of the lease allows the tenant to add value to the property by pursing orchard redevelopments and cold storage improvements.

Westchester was also very careful to select a tenant with an impeccable reputation and shared commitment to sustainability. One example of this commitment is the fact that approximately 70% of the apples grown on Columbia Orchards are produced organically.

Columbia Orchards is an example of Westchester’s ongoing efforts to provide its investors with customized solutions to optimize risk-adjusted returns and increase portfolio diversity through exposure to new geographies, industries and crop types.

Apples in Columbia Orchards

Westchester | Global Thoughts | Spring 2020 2

Renewable energy opportunities in Polish farmlandBy Marcin Wielgosz, Poland Country Manager

Given agricultural land is a finite resource, the competition among alternative uses of land has become a real challenge - but also an opportunity. Competition for land takes place when different alternative uses (e.g. agriculture, forestry, renewable energy) are being considered as options for the same piece of property. As a result decisions have to be made on the use which is the most efficient and sustainable in the long term.

Steadily increasing demand for renewable energy (RE) creates new opportunities for agricultural land use in Poland. The country has the ambition to increase the capacity of installed RE sources in order to grow its share in total energy production from 11% today to 21% within the next 20 years. The growth is expected to mainly come from new photovoltaic (PV) farms; from 2 gigawatts (GW) in 2020 to 16 GW in 2040. With advances in PV technology, the farms can be installed in all geographies (not necessarily the typical areas with a high number of sunny days) and the key determinant for their success are primarily access to the local energy market, grid infrastructure and suitable land.

Westchester-managed portfolios in Poland fit well with these criteria and are complementary with PV developer’s requirements, as they are interested in small areas of lower quality land. There are typically no costs resulting from the exclusion of this land from active agricultural production, and farming tenants are inclined to part with this lower quality land. As a result, the tenant’s weighted-average quality of

the farmland improves and simultaneously creates an interesting alternative use and income opportunity for the landlord.

A landlord can expect to generate income from a PV installation lease that is 7-8x higher than a regular agricultural lease, which improves the landlord’s revenue and diversification. Additional positive effects include:

• Reduced nutrient run-off: by improving the average soil quality farmed leads to more efficient use of fertilizers. Higher quality soils retain fertilizer nutrients are less prone to leaching.

• Contributing to lower CO2 emissions: PV creates around 50 grams of CO2 per kWh over its lifetime (upfront production generation amortized over lifetime of panel and its maintenance) whereas coal generates around 975 grams of CO2 per kWh. One hectare of land used for PV panels saves around 555 metric tonnes of CO2 emissions annually.

• Additional carbon sequestration: is a result of the low-intensity cover crop used underneath and between the PV panels, which may be combined with wild flowers providing pollen and nectar for insects.

Westchester has been implementing a renewable energy strategy over the last twelve months, with the Polish team signing more than 20 optional PV lease agreements covering more than 1,800 hectares of land, which are in various stages of obtaining permits and concessions. The lease income yield for PV projects is 25% on the agricultural land value, compared to a 4% lease income yield for agricultural activities. Additionally, early estimates indicate a threefold increase in the value of the land as a result of reclassification from agricultural to a long-term developed energy production property.

Example of PV farm installation


Leading Harvest: the launch of a new farmland sustainability certificationBy Andre Chaves, Director of Sustainability

A rising number of investors are demanding asset managers provide increased transparency in their responsible investment offerings, while consumers react instantly to news about the sustainability credentials of an industry’s supply chain. As it relates to farmland, how can the industry provide transparency to investors and consumers without a common standard to measure against? Those who want to find a solution believe that a certification system could be the answer. There are plenty of certification examples in the industry, but they are all crop specific, such as the UTZ certification for responsible coffee, the Round Table for Responsible Soybeans (RTRS) and BONSUCRO for responsible sugarcane production.

Westchester has been part of a working group of eight peers and two nonprofit organizations on a two-year multi-stakeholder process for developing the first certification standard for farmland management. In 2012, Westchester had roughly 308,000 hectares of farmland under management when it joined with several other investors to develop and endorse the Principles for Responsible Investment (UNPRI) in Farmland. At that time, Westchester pioneered the development of a commitment to integrate social and environmental practices into farmland management. Today, the number of hectares under management has tripled and we are moving from a commitment based approach to the development of an independent performance based standard, showing another mature step towards embedding sustainability in the industry. Named Leading Harvest, the independent standard defines and measures adherence to sustainable farming practices. It has thirteen specific operational objectives and was conceived to be the first of a kind to work across multiple crops, production models and geographies. The standard attests, for example, to the existence of practices for maintaining or enhancing natural capital such as soil, water and the biodiversity necessary for a healthy ecosystem. The certification has comprehensive sections on health and safety, fair compensation and training for staff. These are some examples of what is behind the Leading Harvest certification. Find more about it here, https://www.leadingharvest.org.

This new standard was launched in April 2020, and Westchester is pleased to have played a leading in role in enhancing sustainability transparency in the farmland asset management industry.

Westchester’s Corporate Social Responsibility PolicyBy Andre Chaves, Director of Sustainability

In 2019, Westchester developed a Corporate Social Responsibility (CSR) policy with the objective to guide the business on how to foster positive societal change in the regions where we invest and operate. The document defines different CSR approaches available, including: charitable donations, event sponsorships and social engagement projects. It established a process for CSR project submissions at Westchester, which align with our ESG goals and United Nations Sustainable Development Goals (UN SDGs). In parallel with this policy, investors across various structures managed by Westchester agreed an annual budget to fund such projects. Westchester also contributes to the CSR budget. These actions highlight that positive interactions with society can contribute to our performance, alongside helping to foster a healthier environment to operate in today and in the future.

Suscol Creek Restoration ProjectBy Eric Pooler, Agronomist/VP of Winery Relations

Suscol Creek meanders gently between the highly acclaimed Suscol Mountain and Sugarloaf vineyards in Napa County, California. The Suscol Creek watershed has served as a vital community resource throughout history. The Patwin Native American Tribe found sustenance hunting and foraging within the watershed, and early settlers found the alluvial soils optimal to support livestock and cultivate a wide variety of crops.Today the headwaters of Suscol Creek lay within a large parcel of land located just above two Westchester managed vineyards, Suscol Mountain and Sugarloaf. This parcel of land is owned by the Napa County Regional Park & Open Space District, who currently have plans to develop a network of hiking and mountain biking trails, known as the Napa-Solano Ridge Trail. Outdoor enthusiasts will soon flock to the park to enjoy its natural splendor.

Suscol Creek supports an intricate web of biology, which includes the threatened native fish species Steelhead trout (Oncorhynchus mykiss). Steelhead populations in Suscol Creek have steadily declined over the past century due to the influence of the exotic weed, Himalayan blackberry (Rubus armeniacus).

Originating in Armenia and Iran, Himalayan blackberry was introduced into North America in 1885. Initially cultivated as a fruit crop and appreciated for its inherent adaptability, the aggressive shrub quickly escaped captivity. Shifting swiftly from potential agricultural crop to invasive weed. Thickets established around waterways throughout the Pacific Northwest, abruptly displacing native species.


Over time, ecological succession along the banks of the creek has allowed Himalayan blackberry to take over. Tall tree seedlings have been smothered beneath rapidly growing blackberry thickets, creating gaps within the canopy architecture along the creek. Increased sunlight penetration has elevated water temperatures in certain parts of the creek beyond the optimal range for Steelhead trout. Fish populations have waned, and without intervention further decline is expected.

Life within the creek corridor is interconnected with the life in the surrounding vineyards, and Himalayan blackberry hosts a bacterial pathogen which is detrimental to the health of vineyards. Pierce’s Disease (Xyllela fastidiosa) can be transferred from blackberries to grapevines by a resident insect vector, the Bluegreen sharpshooter (Graphocephala atropuntata). Once grapevines have been infected with Pierce’s disease their productivity rapidly decreases. Over the course of several seasons infected vines die completely.

There is hope for the for the Suscol Creek ecosystem however. Through generous funding via the CSR program, Westchester’s vineyard-focused business unit headquartered in Napa has spearheaded an effort to remove the noxious blackberries and restore ecological balance along the creek. The project will kick-off in late summer 2020, in collaboration with local, regional and state level governmental agencies, and a prominent environmentally focused non-profit organization.

The removal process will begin with Geographic Information Systems (GIS) mapping of Himalayan blackberry populations. Removal efforts will begin upstream as plant tissue and seeds are distributed downstream by creek currents. Utilizing precise geo-referenced maps to locate thickets, a wildland remediation contractor will mechanically masticate berry vines to below root level. Hand crews will follow to clear any berry vines missed by the masticator, and to protect exposed areas of dirt from erosion.

After the first rains in the fall have moistened creek banks, hand crews will return to plant cuttings from native tree species such as Arroyo Willow (Salix lasiolepis), California Buckeye (Aesculus californica) and White Alder (Alnus rhombifolia) in accordance with recommendations from a botany consultant who specializes in the restoration of native plant species. Native plantings will be nurtured to maturity and ongoing maintenance efforts will prevent blackberries from reestablishing.

The mitigation process will continue in 2021 and 2022, until Himalayan blackberries are eradicated. Restoring ecological balance will enhance native Steelhead populations while satisfying the interests of a diverse group of stakeholders and ensuring the economic viability of nearby vineyards. The Suscol Creek Restoration Project will serve as an exemplary case study for triple bottom line success.

Eric Pooler inspecting Suscol Creek


Himalayan blackberry near Suscol Creek

Over time, ecological succession along the banks of the creek has allowed Himalayan blackberry to take over. Tall tree seedlings have been smothered beneath rapidly growing blackberry thickets, creating gaps within the canopy architecture along the creek.


There is hope for the for the Suscol Creek ecosystem however. Through generous funding via the CSR program, Westchester’s vineyard-focused business unit headquartered in Napa has spearheaded an effort to remove the noxious blackberries and restore ecological balance along the creek.


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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.Nuveen provides investment advisory solutions through its investment specialists.As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.

LOCATIONS:

United StatesMidwest333 W. Wacker Drive, Chicago, IL 60606

2004 Fox Drive, Suite L, Champaign, IL 61820

South1207 Cardinal Circle, Indianola, MS 38751

West6715 N. Palm Avenue, Suite 101, Fresno, CA 93704

855 Bordeaux Way, Suite 100, Napa, CA 94558

AustraliaSuite 3, Level 3, 76 Morgan Street, Wagga Wagga, NSW 2650

United Kingdom201 Bishopsgate, London, EC2M3BN

PolandGrojecka 208, 02-390, Warsaw

5th Floor, Alchemia, Aurum, 411 Aleja Grundwaldzka, 80 – 411 Gdansk

Brazil1327 Presidente Juscelino Kubitschek Ave, Vila Nova Conceição, 04.543-011 São Paulo, SP, Brazil

955, Cezira Giovanoni Moretti Street, Loteamento Santa Rosa, Piracicaba, SP, Brazil 13.414-157

ChileBadajoz 130, Oficina 1502, Las Condes, Santiago, Chile

RomaniaFloreasca Business Park, Building A, 5th Floor, Calea Floreasca 169-A, Sector 1, Bucharest, Romania

The NetherlandsParnassusweg 819, 1082 LZ, Amsterdam


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