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Weekly property review: To lease or not to lease, that is the question

by Property editor Linda Rowley, 19 April 2017
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Australian Country Choice is one of the larger lessees of pastoral land in Australia, with non-owned lands accounting for 176,000 hectares

Australian Country Choice is one of the larger lessees of pastoral land in Australia, with non-owned lands accounting for 176,000 hectares

 

QUEENSLAND grazing country is increasingly being leased as graziers and corporate owners alike seek to leverage their investment without taking on additional debt.

So, is it just the smart money moving to lease arrangements, or can this business approach be used profitably across the grazing industry?

Longreach stock and property agent Tom McLeish from TopX has experience in leasing country both personally and professionally. He said most beef producers tended to lease country because they did not want to go into more debt to purchase additional land, or they did not have access to enough capital.

“Leasing is an effective way of controlling X amount of hectares to run your enterprise. You don’t have to come up with $4 million to purchase a property (the average price of a family- living area Queensland cattle operation in the region), you only need as much as it costs per year to service the lease fee.”

Mr McLeish said from a stock and station agency point of view, there was a significant amount of inquiry coming from people wanting to lease country.

“Sometimes it is seasonal, but mostly it is from graziers seeking expansion and younger people looking for entry-level lease deals that can run run 200-300 head.”

Mr McLeish said there were three types of people looking at leasing:

  • Starters – those who have no significant capital to purchase a property, but might own their own stock, and want to get a foot-hold.
  • Middle-aged people who own an existing cattle operation who need more land because their operation is growing.
  • Bigger operators – companies that already own large amounts of land and require more, but are happy to lease or agist rather than buy.

Herron Todd White valuer Roger Hill said widespread drought in Queensland had forced many graziers to lease grassed country – sometimes locally, sometimes many hundreds of kilometres away from their home property.

“I have seen graziers from North Queensland lease country in the Northern Territory, Southern Queensland and also in South Australia. There may be an increase in demand for agistment and leasing if it doesn’t rain or remains patchy this year. Supply will be determined by how this season plays out in the next couple of months,” he said.

Mr Hill attributes the trend to an emerging and evolving investor market last year that is now established. He said there are currently two levels of investment grade assets:

  • Short term leases for up to 5000 AE to help graziers get through the drought.
  • Long term tenancy arrangements for larger investment vehicles (such as trusts and companies) with herds above 5000 AE.

Mr Hill said there were flip-sides to either side of the arrangement.

  • Passive – the landlord who is seeking to retain ownership
  • Active – the tenant who has the grazing or farming business

Australian Country Choice is a group of agribusiness companies controlled by the Lee family. As one of Australia’s largest privately-owned land and cattle owners, with extensive beef breeding, growing, farming, lotfeeding and vertically integrated processing interests in Queensland servicing the beef needs of the Coles Supermarket chain, ACC can be classed as a long-term tenant of leasing.

Managing director David Foote said the company had been leasing land across Queensland for nearly 20 years.

Currently the ACC group (including Australian Cattle & Beef Holdings JV) has 2.35 million hectares of owned, leased, managed agistment and casual agistment areas in Central Queensland and the Maranoa-Warrego.

Non-owned lands of the ACC- ACBH group accounted for 176,000 hectares, Mr Foote said.

He said there were a number of reasons why ACC engages in leasing:

  • Minimising seasonal disruption.
  • Improving supply chain coordination into ACC feedlots
  • Providing access to increased cattle grazing capabilities without requiring capital investment
  • Providing location flexibility to optimise seasons or cattle flow
  • Achieving cattle herd growth not restricted to owned land holdings
  • Providing ‘try before you buy’ opportunities.

Demand

TopX’s Tom McLeish said demand for lease or long-term agistment country was increasing in his region, because property prices are rising.

“Today, cattle enterprises on any scale at all cost millions of dollars, not hundreds of thousands of dollars. Some people who can’t afford to purchase land or don’t want to go into so much debt are happy to buy stock and lease country.”

Mr McLeish said while enquiry was strong for lease or long-term agistment country, there was little available due to lack of summer rain in large parts of western Queensland.

“Stock owners are keen to secure country, however Western Queensland and even Central Queensland – up until this last cyclone – have been very dry. Grass levels in the west are still very light on and only 50 percent stocked in some areas. There’s a lot of country that is not being utilised and therefore not available for stocking whether graziers own, lease or agist it,” he said.

Mr McLeish said leasing demand was coming from everywhere, as long as it was ‘good, healthy country.’

Benefits

According to HTW’s Roger Hill, there were a number of benefits of leasing.

  • It gives people an entry-level opportunity to start a grazing business.
  • It gives people an opportunity to expand their grazing interest.
  • It is an avenue for short term tenancy to move animals for the duration of a drought.

Mr Hill said there were also a number of benefits for landlords (former graziers) to rent out their country.

A low risk passive and regular income stream – For example, a family may consider renting out their property as part of an exit strategy when they don’t have the money to restock or they are becoming aged and are seeking to wind down their level of lifestyle activity.

For the benefit of succession family planning – the mechanisms of a lease or a tenancy agreement could allow family members to establish their own enterprise and rent the family land asset. Also as a strategy for beneficiaries of a will to rent out in the case of a death of a family member (the grazier). Where the beneficiaries have established lives elsewhere, leasing allows them to retain their interest in the estate in the passive form.

Asset protection measure – the succession plan would incorporate correct legal procedures if there was an issue between the owners of the business and the tenant, protecting the underlying asset.

Exit strategy – As a first step, the property may be leased allowing someone else to take over the business and grow the enterprise. The leasee may have the option of purchasing the property in five or ten years’ time.

Mr Hill said grazing lease agreements also benefited the tenant.

“Perhaps they have no interest in owning or investing in the underlying land asset; or they may not be able to afford to acquire the land; or might not want to own that much land. The tenant can keep their capital active by growing their business and returning a higher yield,” he said.

 

Next week: We look at the reasons why legal advice should be sought before entering into a lease agreement.

 



Reader's Comments


Comment
  • Peter Honnef April 20, 2017

    Great article and comments!
    The recent and highly reported S.Kidman & Co sale process uncovered a general misconception about land tenure in Australia. Most of the large area pastoral land is Crown Lease (state government leased land) via term or perpetual leases. The lessees (property owners) merely have the right to use the grass and water on the land for pastoral purposes. Over time, sufficient confidence in the tenure’s security has developed, that leased-pastoral land is held in the same light as is freehold-pastoral land. Pastoral leases are commonly used as security for bank mortgages and achieve similar value levels to freehold, rural land in the market place. Further, Crown leased land can be “Sub-Leased” to other parties, subject to ministerial approval and as per the article, is becoming more common in the current market where values appear to be reaching a peak.

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