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20/04/2016
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LAND VALUES & EXPANSION OPPORTUNITIES
Proadvice Autumn Update
20 & 21 April 2016
Will Gurry
Associate Director, CBRE Agribusiness
Valuations and Advisory Services
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40 Staff, Valuers, Real Estate Agents & Support Staff
Melbourne, Sydney, Brisbane, Perth, Adelaide, Christchurch and Tamworth
The CBRE Team
CBRE AGRIBUSINESS
Will Gurry – Rural Valuer
Associate Director, CBRE Agribusiness
Lv 5, 151 Pirie Street, Adelaide
0488 553 988
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"The estimated amount for which an asset or liability should exchange on the
date of valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently, and without compulsion."
MARKET VALUE DEFINITION
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Colac-Otway, Corangamite, Moyne, Ararat, Southern Grampians and Glenelg Shires
Western District
MARKET UPDATE
South East Grant, Wattle Range, Naracoorte and Lucindale, Robe, Kingston and Tatiara District
Councils
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Institutional Large Scale Family Farm – Transactions above $5 million
Typical Family Farm – Transactions of $1.5 million to $5 million
Smaller Scale and Segregated Holdings - Transactions of less than $1.5 million
Market Segments
MARKET UPDATE
General Market Trends
Increased favouritism for livestock properties – the return of the mixed farm
Most distressed assets have now worked their way through the market
Positive sentiment, increasing demand and improved lending environment
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Corporates showing interest and see value in the Western District and South East however are starved for the scale required for their business model
Marketing periods decreasing and some noticeable evidence of an increase in value
Institutional Large Scale Family Farm Segment Trends
MARKET UPDATE
Typical Family Farm
An improving sentiment with families looking to expand but with cautious confidence
Increased focus on mixed farming and adequate facilities to support a range of enterprises
Smaller Scale
Increase in segregated property (not the primary property within the business) transactions
Mixed demand in the market primarily, based around quality
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Green Triangle Forestry Region
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
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The highest and best use of property can generally be defined as “that reasonable and probable use that will support the highest present value of the property as at the date of valuation. The opinion of such use may be based upon the highest and most probable use of the property as at the date of valuation or the use likely to be in demand within the reasonably near future.”
Determining Highest and Best Use is the first step in the valuation (or due diligence) equation
Why would you undertake forestry conversion?
– Because you believe the alternate use (grazing) to be a higher and better use and it is worth the time, effort and risk involved in the rehabilitation process
– It may be a low cost entry point to the market
– It may provide you scale in an area where it is otherwise unachievable
– It’s a play against your positive view on the future land price trends
Let’s Consider Highest and Best Use
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
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The Opportunity Areas
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
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Agricultural Land Value For the Region
Discount For Rehabilitation Costs
Discount For Profit & Risk (inc Time)
Bid Price
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Assessment Methodology – The Cost Approach
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Stump Grinding – Grinding stumps to (or up to 300mm below) ground level, significantly reducing the likelihood of coppicing and allowing that portion of the stump and roots below ground to “rot-out” over time.
Hoop Bar – Stumps are removed with a “hoop” bar (typically attached to the rear of a bulldozer) which cuts through the root zone of the stump.
Front (V) Shear – Stumps are removed with a blade or “V” shear mounted to the front of a bulldozer which cuts the stump off at ground level.
Ripping, Chaining & Windrowing – Stumps are dislodged by the ripper tyne of a bulldozer, then chained to completely disconnect the stump from the ground.
Stump Plucking – Use of an excavator to remove stumps, one at a time, via a “plucking” action.
Timber Removal Techniques – Cut Over Land
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
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Chaining – Removes standing timber by dragging a chain between two bulldozers. The method is employed when a mature plantation comprising timber which has not developed to a commercial volume (i.e. >4years old but lacking in diameter) is abandoned
Mulching – Involves mulching trees and stumps to (or up to 150mm below) ground level (consistent with the approach for stumps). The method is employed when an immature plantation comprising timber without commercial potential is abandoned (i.e. <4years old).
Timber Removal Techniques – Abandoned Plantations
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
Ground levelling and removal of debris
Fencing
Livestock water system
Pasture establishment (inc any break crops)
The Next Steps
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Our research indicates a range of:
– $900 to $1,100 per hectare to a lifestyle level
– $1,350 to $1,800 per hectare to standard grazing
– $1,900 to $2,300 per hectare to a dairy production standard
Total Cost of Rehabilitation
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View
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We have identified 29 sales of “cut-over” and abandoned forestry land in Tasmania and Victoria. Analysed against our view of the agricultural rate applicable to each property the data indicates:
– Nil to $3,579 per hectare across all sales analysed; or
– Nil to 61% across all sales analysed
What is the Market Indicating
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach
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The Tasmanian sales in isolation:
– Discount rates of $1,080 to $2,324 per hectare across the 12 sales analysed
– 1 of the 12 sales analysed display implied discount rates greater than $2,000 per hectare
– 4 of the 12 sales (33%) analysed display implied discount rates between $1,500 and $2,000 per hectare
– The majority of the sales analysed (7 of 12 sales – 58%) display implied discount rates between $1,000 and $1,500 per hectare
– These same sales show a range of 15% to 56% discount indicating little correlation between implied discount and underlying land value
– There is no apparent correlation between discounts implied to “cut over” land and abandoned forestry land
– There is no apparent correlation between discounts implied and location of the property
– There is no apparent correlation between discounts implied and climatic region in which the property is located
What is the Market Indicating
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach
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The Victorian sales in isolation:
– Discount rates of Nil to $3,579 per hectare across the 17 sales analysed
– 2 of the 17 sales (12%) analysed display implied discount rates greater than $2,000 per hectare
– 1 of the 17 sales analysed display implied discount rates between $1,500 and $2,000 per hectare
– 5 of 17 display implied discount rates between $1,000 and $1,500 per hectare
– The majority of the sales analysed (9 of 17 sales – 53%) display implied discount rates between $500 and $2,000 per hectare
– These same sales show a range of 12% to 39% discount indicating little correlation between implied discount and underlying land value
– Again, there is no apparent correlation between discounts implied and location of the property
– Again, there is no apparent correlation between discounts implied and climatic region in which the property is located
What is the Market Indicating
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach
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The Victorian sales in isolation:
– Purchasers of land for forestry rehabilitation tend to a discount which is something less than the cost of rehabilitation. Why?
– The land is a strategic gain for their business that provides above Market Value benefits (Eg; Its next door and I can’t miss the opportunity)
– The purchaser believes they can undertake the rehabilitation at a discounted costs (Eg; Access to cheaper labour or lower cost plant)
– Investment write off benefits for the purchaser
What is the Analysis Telling Us
FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach
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Western District Production Based Analysis
MARKET DRIVERS & TRENDS
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Western Victoria Pastoral Sales
Average Sales
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Northern Australian Beef Sector
MARKET DRIVERS & TRENDS
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Northern Territory Pastoral Sales
Average (LHS) EYCI (RHS) Individual Sales (LHS)
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The source of funds for foreign investment are typically;
o Pension Funds
• Example: TIAA-CREF (invest in Australia through Westchester Agricultural Asset Management). TIAA-CREF is a >$500 billion US Pension Fund which has pioneered direct farmland investment.
o Insurance Funds
• Example: Adveq (Swiss) – purchased Olam’s Almond orchards (sale and leaseback).
• Example: Growth Farms Australia Fund 1 (GFAF1) – seeded with a $30 million investment by a UK Insurance company via CBRE Global Investors. Seeking mixed farms in the sub $10 million bracket.
o Endowment Funds
• Example: Harvard Management Company (HMC). HMC is a >$30 billion Endowment Fund which provides financial returns for the Harvard University. Major investor in Riverina, NSW, and NT.
o Sovereign Wealth Funds
• Example: AP Funds (Swedish Buffer Funds).
• Hold substantial investments in Australia in grazing land, timberlands and dairy farms.
• Own 11 dairy farms leased to Murray Goulburn under the Murray Goulburn Partnership Program.
• Also own several forestry, grazing, and cropping properties in NSW, VIC and SA.
o (U)HNWs / Family Offices
o Trading Houses and Corporates
The source of funds for domestic corporate investment are typically;
o ASX listed agribusinesses
o (U)HNWs/Family Offices
FOREIGN INVESTMENT
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o Sovereign Wealth Funds
• Example: AP Funds (Swedish Buffer Funds). Hold substantial investments in Australia in grazing land, timberlands and dairy farms. Own 11 dairy farms leased to Murray Goulburn under the Murray Goulburn Partnership Program. Also own several forestry, grazing, and cropping properties in NSW, VIC and SA.
o (U)HNWs / Family Offices
• Example: Sir Michael Hintze: invests with Asset Manager, Growth Farms. Purchases include ‘Gunedra’ & ‘Redcamp’ – Wee Waa, ‘Warrane’ – Armidale, ‘Mourabie’, ‘West Mourabie’ and ‘Bynia’ – Walget and ‘Rippling Waters’ – Jingelic.
o Trading Houses and Corporates
• Foreign Examples: Shandong RuYi – ‘Larundel’, Meredith, Rifa Group – ‘Blackwood’, Penshurst, Tianyu Wool – ‘Lal Lal’, Ballarat, Dutch Mill Co – Direct dairy investments, Yo You Dairy/Ningbo Dairy – Direct dairy investments, New Hope Group/Perich Group - Moxey Farms
• Domestic Examples: Select Harvest – Existing and greenfield almond properties, Costa Group – Strategic assets in key categories, Webters Australia – Kooba Group, Bengerang Ltd, Tandou Ltd
FOREIGN INVESTMENT
Data Rich Assets – long run production AND financial records
Scale Assets
High quality properties that typically do not require further development capital. Albeit there are now an increasing number of investors with an appetite for development exposure
Sound counterparties (lessees, managers or co-investors)
Experienced Country / Asset Managers
If seeking production exposure;
investors are drawn to experienced management and stable workforces
properties that enjoy strong paths to market (i.e. contracts with processors or supermarkets)
WHAT ARE THEY LOOKING FOR?
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Become Investment Ready:
Structure
Governance
Management
Selling to foreign or corporate purchasers
Does the property fit their investment profile?
Is that market two-tiered?
ATTRACTING FOREIGN CAPITAL
New FIRB rules
• $15 million (cumulative) threshold
• Application costs – new fees
IMPEDIMENTS TO NEW FOREIGN INVESTMENT
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The information set out in this document has been prepared using information derived from a variety of external sources and is intended as a guide
only and may be subject to change. CBRE does not warrant the accuracy of any of the information and does not accept legal liability or responsibility
for any injury, loss or damage incurred by the use of, reliance on, or interpretation of the information contained herein. This confidential document is for
the sole use of persons directly provided with it by CBRE and it is not to be resupplied to any other person without the prior written consent of CBRE.
Use by, or reliance upon this document by any other person is not authorised by CBRE and without limitation to the above disclaimers, CBRE are not
liable for any loss arising from such unauthorised use or reliance.
DISCLAIMER
M +61 488 553 988
For more information regarding this presentation please contact: Will Gurry Associate Director
