Weekly Property Reports

Weekly property review: Foreign owners selling their Australian cattle assets? Stop the presses!

Property editor Linda Rowley, 04/05/2016

WHILE all the momentum in discussion in rural property matters over the past few months has been on the pros and cons of foreign investment in Australian-owned cattle land assets, behind the scenes another smaller but significant property ownership trend has quietly emerged.

A surprising number of foreign-owned cattle stations have hit the property market recently. Some agents claim the trend is simply a coincidence, but one Queensland real estate agent is attributing the sales to a more considered economic approach.

With just a couple of calls and little difficulty, Beef Central has identified eight large foreign-owned properties currently listed for sale, or under contract, across three states and territories. The total land area represented is about 1.1 million ha. It’s something of a juxtaposition alongside all of the recent dialogue about Australians ‘selling the farm’ to foreign interests, and serves to illustrate the ebbs and flows in foreign ownership that have happened for a century or more.

The current foreign-owned listings include:

Northern Territory

  • 332,000ha Kiana Station (Indonesian-owned Oceanic Multitrading). For Sale/Lease
  • 500,000ha Riveren and Inverway (recently sold by Santori, a subsidiary of the large Indonesian agribusiness Japfa group) Under Contract
  • 139,200ha Conways (privately owned by a consortium of three New Zealand farming families). For Sale

Queensland

  • 100,000ha Portland Downs and 7400ha Cotswold near Blackall (owned by Argentinian group Salentein). For Sale
  • 14,700ha Strathmere – Beardie aggregation (owned by Malaysia’s Sarawak Economic Development Corporation). Under Contract

New South Wales

  • Moree district’s Koramba irrigation farm, cotton gin and grazing assets, owned by Dean Phillips from the United States. For Sale

One of the reasons why some foreign buyers could be moving to sell assets currently could be because they are speculative investors, and sense an opportunity, property market contacts suggest.

Japfa Santori, a major Indonesian agri-business, is selling its Victoria River District cattle stations Riveren and Inverway for more than $60 million. The company purchased the 500,000ha holdings in 2013 for $39 million. It begs the questions: Has confidence in the live cattle market taken a significant check, given recent events? Was the original purchase opportunistic – i.e. without any intention of long-term investment? Has the cattle market/property cycle turned?

Tom Warriner is a senior manager at CBRE. He believes Japfa made a very good business decision to purchase the properties back in 2013, taking into consideration the underlying value of the land component alone.

“The company was lucky enough to purchase the property when cattle and export prices were low, following the 2011 market closure. It traded through the growth of that market and has sold at a time when cattle prices dropped just below historical highs, and subsequently made a good capital gain on the increase.”

Mr Warriner said many other foreign buyers had invested for the long-term, citing Rosewood Station on the NT/WA border. Malaysia’s Sarawak Economic Development Corporation has owned and operated that property for the past 35 years.

Others, however, have had a shorter-term investment horizon.

SEDC recently off-loaded its 14,700ha South-West Queensland property Strathmere – Beardie Aggregation, which it purchased in 2007. Mr Warriner said SEDC may have purchased the property with a long term view, but saw an opportunity when one presented itself.

The overseas purchases have left some people wondering if foreign owners can come into Australia and make more money out of foreign currency movements, as distinct from the changes in inherent land/cattle value themselves.

One celebrated case was US investment group backed, Texas-based Tejas Land & Cattle Co, which made a series of large property acquisitions in the Northern Territory from the late-1990s to early 2000s, at a time when the A$ was worth only US55-60c.

The group bought Montejinni for $7.57m in 1998, and added properties including Delemere, purchased in 2002 for $15.2m.

At one point Tejas’s property portfolio including Camfield, Montejini, Delemere and Moroak in the NT ran about 100,000 cattle, including 65,000 breeders.

Tejas sold most of its northern Australian cattle investments in 2004, making a very substantial profit – not only on increases in property value as northern live exports started to gather momentum, but also in US$ terms as the A$ currency rose more than 30pc in value from the time of purchase, to +US77c.

In what was one of the largest-ever property deals seen in the NT to that point, the  Australian Agricultural Co paid $80 million in December 2004 for Tejas’s Victoria River District breeding properties Delamere, Montejinni and Camfield, totalling some 900,000ha.

While Tejas was always portrayed as a ‘short-term, strategic’ investor in Australia, the company at the time of the sale said the currency movement was a central part of its decision to sell.

CBRE’s Tom Warriner said it was unlikely that foreign investors today took possible currency movement into account in grazing land investment in Australia.

“The underlying decision to purchase a property is based on a business that is trading profitably, rather than relying on foreign exchange. Cattle properties, especially large scale ones, are in an illiquid asset class.”

It is interesting to note that recently, a number of foreign-owned properties have been repatriated into Australian hands. These include two of the property assets mentioned above:

  • The 500,000ha VRD Riverin and Inverway Stations, owned by Santori, a subsidiary of the large Indonesian agribusiness Japfa group, are under contract to the Australian-based investment fund Archipelago Investment Trust.
  • The 14,700ha south-west Queensland Strathmere – Beardie Aggregation, owned by Malaysia’s Sarawak Economic Development Corporation, is being sold to an Australian group.

According to Mr Warriner, more and more locals are turning up to auctions of larger cattle assets.

The 19,229ha North Queensland property Albinia, owned by Clermont cattle producer Dale Appleton, was recently purchased by Eddie Dennis and family of Old Twin Hills, Clermont, for $11.5 million.

“Currently, there are more domestic bidders than there are foreigners for larger northern cattle assets. Large-scale buyers including Gina Rinehart, Andrew Forrest, Kerry Stokes and Brett Blundy, are paying good money for large Australian assets. The investment requirement is far larger for international groups and maybe it’s not economical for foreign buyers to operate in the smaller bracket,” he said.

As reported on Beef Central on Friday, Federal Treasurer Scott Morrison has now all-but vetoed the sale of S. Kidman to a Chinese-led buyer consortium.

Mr Warriner expressed concern about the length and difficulties surrounding the sale process. “Over the past 12 months, it has given rise to concern among off-shore parties about the difficulty of doing business in Australia. It is not giving great market sentiment to international buyers.”

He admitted some foreign property owners and investors also could be uneasy about a change of government in the upcoming Federal election and a subsequent change to foreign investment rules.

“Changing government always brings about uncertainty, and that’s not just in Australia, that’s globally,” he said.

Despite that, Mr Warriner said it was a good time to be exploring the beef market because land values traditionally followed the cycle of commodity prices.

“Obviously, we have seen historically high cattle prices in the past 12 months, both livex and domestic, and that has resulted in increased interest from large property buyers.”

He said had there been a decent summer wet season across more of the north, more properties would have inevitably hit the market.

“It is tough for de-stocked properties to sell when a nearby fully-stocked property is offering a cash flow in the first year. Regardless of the dry conditions, the increase in commodity prices has certainly brought about interest from a broad range of buyers.”

Mr Warriner believes a northern grazing property market peak is very close, if it has not already passed.

“It really depends on cattle prices. If there’s a fantastic wet season towards the end of this year, demand for restocker cattle would rise, and so would prices. However, there would be a flood of properties hitting the market too. If that was the case, it would be tough for land values to follow cattle prices in the short to medium term.”

 

 

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  1. Michael Vail, 04/05/2016

    The ‘smart’ money, which looks at a Return on Invested Capital, and Return on Equity metrics, will always look at the underlying value of the business operation, and the economics surrounding the business.

    I sense that these Foreign Investors are sniffing the winds, especially in the North for live-ex trade going to Indonesia and Philippines, and seeing more competition from Brazil and India into these markets.

    Recent behaviour in Indonesia, as reported on Beef Central, has shown there is sovereign, political, and legal risk in these markets too.

    There is also push-back on price in China and Vietnam.

    Beef is arguably not a commodity where large off-take agreements are in place from source, direct to distribution networks; but prices are dropping from market highs, and to the extent beef price influences the underlying land price of an operation that is a going concern, the market has peaked.

    Some investors, now and in the recent past, may have paid too much, especially if the debt burden is greater than 25% of Invested Capital.

    Corporates may then ‘impair’ the asset, and write-off tens if millions of dollars; going back to their investors for more capital in more favourable times. Smaller and Family operations do not usually have the luxury of such deep pickets, willing bankers, and access to public capital; equity or debt.

    This is why it is very important to take a long-term view of prices when valuing the going concern grazing asset, and not a peak-price.

    All very well in hindsight, when vision is 40 x 40, but true nevertheless!

    The economics of the business must stack-up, and pastoral properties should be valued by investors and all stakeholders involved, on a going concern, WIWO value with all things necessary to operate the business, and where the land component, like Equity, is a residual asset value.

    Comparable Sales Analysis, as practised by most Valuers, is mere Appraisal; and you may ask any number of Real Estate Agents (who coincidentally work for the Vendor) what the market price of an upcoming parcel of land may be worth, and it is like the old Italian phrase which translates as, “If you ask the Water-Seller is the water fresh, what do you think he will say?”

    Valuers are trained to value the underlying asset and then look to where market price sits relative to value; so the client may understand whether they are a Buyer or Seller, today.

    Valuers should use these skills to encourage a more informed market; and in that way be Professionals and professional.

    Else, they are mere Appraisers.

    Just saying.

    Feedback is welcome.

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