20/04/2016 Proadvice Autumn Update 20 & 21 April 2016 LAND VALUES & EXPANSION OPPORTUNITIES Will Gurry Associate Director, CBRE Agribusiness Valuations and Advisory Services CBRE AGRIBUSINESS The CBRE Team 40 Staff, Valuers, Real Estate Agents & Support Staff Melbourne, Sydney, Brisbane, Perth, Adelaide, Christchurch and Tamworth Will Gurry – Rural Valuer Associate Director, CBRE Agribusiness Lv 5, 151 Pirie Street, Adelaide 0488 553 988 2 1
20/04/2016 MARKET VALUE DEFINITION "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." 3 MARKET UPDATE Western District Colac-Otway, Corangamite, Moyne, Ararat, Southern Grampians and Glenelg Shires South East Grant, Wattle Range, Naracoorte and Lucindale, Robe, Kingston and Tatiara District Councils 4 2
20/04/2016 MARKET UPDATE Market Segments 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 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 5 MARKET UPDATE Institutional Large Scale Family Farm Segment Trends 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 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 6 3
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View Green Triangle Forestry Region 7 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View Let’s Consider Highest and Best Use 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 8 4
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View The Opportunity Areas 9 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Assessment Methodology – The Cost Approach Agricultural Land Value For the Region Discount For Rehabilitation Costs Discount For Profit & Risk (inc Time) Bid Price 10 5
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View Timber Removal Techniques – Cut Over Land 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. 11 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View Timber Removal Techniques – Abandoned Plantations 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). The Next Steps Ground levelling and removal of debris Fencing Livestock water system Pasture establishment (inc any break crops) 12 6
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP One Persons View Total Cost of Rehabilitation 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 13 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach What is the Market Indicating 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 14 7
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach What is the Market Indicating 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 15 property – There is no apparent correlation between discounts implied and climatic region in which the property is located FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach What is the Market Indicating 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 16 – Again, there is no apparent correlation between discounts implied and climatic region in which the property is located 8
20/04/2016 FORESTRY CONVERSION – OPPORTUNTIY OR TRAP The Market Approach What is the Analysis Telling Us 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 17 MARKET DRIVERS & TRENDS Western District Production Based Analysis Western Victoria Pastoral Sales $700 $600 $500 $ per DSE $400 $300 $200 $100 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 18 Average Sales 9
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