LAND VALUES & EXPANSION OPPORTUNITIES Will Gurry Associate - - PDF document

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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

• f 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

$0 $100 $200 $300 $400 $500 $600 $700 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ per DSE

Western Victoria Pastoral Sales

Average Sales

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Northern Australian Beef Sector

MARKET DRIVERS & TRENDS

100 200 300 400 500 $0 $400 $800 $1,200 $1,600 $2,000 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 ¢ per kg $ per AE

Northern Territory Pastoral Sales

Average (LHS) EYCI (RHS) Individual Sales (LHS)

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The source of funds for foreign investment are typically;

• 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.

• 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.

• 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.

• 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.

FOREIGN INVESTMENT

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• 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.

• (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.

• 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

• nly 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 will.gurry@cbre.com.au

For more information regarding this presentation please contact: Will Gurry

Associate Director