FIGURES disclosed in the recent sale and leaseback deal involving JBS Australia’s feedlots and grainfed cattle secured by Rural Funds Management should not be interpreted as representing the full commercial value of the feedlot assets.
JBS Prime City feedlot
A significant number of grainfed industry stakeholders contacted Beef Central following the announcement, trying to understand what the figures meant.
At face value, the 12 July announcement led to some stakeholders to make the interpretation that JBS had sold its five large commercial feedyards with capacity of around 150,000 head, for just $53 million – or about $400/beast area.
That figure looked way too low, many said, in a thinly-traded feedlot property market where commercial yards on a per-head basis are often priced at $800-$1500/head, depending on the standard of improvements.
Beef Central contacted RFM and JBS for clarification.
We were told the figure should not be interpreted as full commercial sale value for the five JBS yards across Queensland and NSW, but was part of a sale and leaseback deal, focused on “selected assets and land, used as a level of security.”
The agreement, described as a ‘put-and-call deal’, also reflected the option that JBS has to buy the assets back, any time after year five.
It’s understood that the $53 million asset value implied in the sale (with cattle finance value quoted separately at $250 million, in a total package worth +$300m), identified specific land and infrastructure value to give RFM the “confidence to raise the funds to fund the deal.”
The sale and leaseback model agreed to by JBS and RFM is common practice in industrial and commercial property, but rarely seen at this stage in agricultural infrastructure assets like feedlots.
Not a Beast Area Value at $400!
A Beast Area Value is the amount of land that will sustainably support one beast for a year, looking through the cycle.
In a feedlot valuation it is so much per head of licensed capacity: say $400 (as mentioned).
That number does seem low yet it might just be that some assets in the portfolio are ‘old’ and some are premium and this is just an ‘average’ number …
What is the real long-term range of value per licensed head in the feedlot space? Is it AUD$400 to AUD$1,000, depending on the stage of the commodity cycle?
It depends …
Thanks for your comment Michael. We were using the term ‘beast area’ in a colloquial sense, i.e. the valuation on a per beast basis, based on the number of cattle a yard would run under commercial conditions. At this point we’re not aware of any popularly-used industry term that describes this. Apologies if any readers have misunderstood. Editor