Nzrlc

Has anyone read the IM from the NZ Rural Land Co? Slated to list mid next year...


Essentially a property speculation play on the price of dairy land, it 'should' just trade at NTA but who knows these days...

Does none of the operation by itself, just owns the land and generates lease income.... 0.5% management fee, 10% growth performance fee, claiming ~3.5% pre tax divvy.

Interested in how it goes but a few things which flag to me....

0.25% of asset value dedicated to maintainence to me seems low, their terms throw alot of it onto the leasee but this looks light.

They put little weight on environmental regulation risk

Lease terms are 10 years, assets are valued annually. Seems like incentive to inflate the asset value (which has null immediate effect on income), lul the shareholders into feeling smart and strip the cash from it.

They've kinda got a circular argument going on.... land values are subdued because few able to buy, but then spec on value rise, who can they liquidate the assets to?

But I am feeling cynical at the moment so happy to be proven wrong...

I think you've covered everything nicely.

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Originally Posted by kiwidollabill

They've kinda got a circular argument going on.... land values are subdued because few able to buy, but then spec on value rise, who can they liquidate the assets to?

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I am uncomfortable about the decoupling of the farm income from the annual 'lease payment' to reward the land bank investors. Traditionally in a bad year farmers can draw down their mortgages to get them through bad times. But if their income is less than their cost of production in a bad year, how are farmers going to satisfy land investors who demand a 'lease dividend' even in a bad year? Mind you the dividend yield is quite low for an agricultural investment - about 3% IIRC. That in itself is a red flag to me. It would be easy to get a 6% yield though, a figure I would think more appropriate for agricultural land. All you have to do is halve the value of the underlying land (i.e. halve the share price)! That could be the fate that awaits investors who put up money at the IPO.

SNOOPY

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Originally Posted by Snoopy

I am uncomfortable about the decoupling of the farm income from the annual 'lease payment' to reward the land bank investors. Traditionally in a bad year farmers can draw down their mortgages to get them through bad times. But if their income is less than their cost of production in a bad year, how are farmers going to satisfy land investors who demand a 'lease dividend' even in a bad year? Mind you the dividend yield is quite low for an agricultural investment - about 3% IIRC. That in itself is a red flag to me. It would be easy to get a 6% yield though, a figure I would think more appropriate for agricultural land. All you have to do is halve the value of the underlying land (i.e. halve the share price)! That could be the fate that awaits investors who put up money at the IPO.

SNOOPY

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Agree... In normal times there are a few close to certain ways this would trade. However these are uncertain times.... alot of $$ looking to find a home, and alot more retail traders around. Pension funds been picking up some large holdings in Australia over the last years (Auscott Divestment) and I see the Canadians have purchased some of Dairy Holdings.

Either investors are going to get burned or become lucky monkeys....

Also, with us being negative on NZRLC, has their ever been a public dairy investment vehicle which has panned out well? I had a discussion with one of the 'Dairy Brands' directors a few years back, said they were essentially speculating on land values based on water access for production/conversion.

I'm not sure these macro effects are playing into their hands.

https://www.interest.co.nz/property/...sales-building

Better options for global funds in Australia who dont have same OIO rules, but they have been burnt recently....

This will make it a bit more interesting....

https://www.nbr.co.nz/story/rural-la...plans-150m-ipo

This 10% growth performance fee worries me. What happens when value of land goes down? Nothing ofcourse. So then it goes up again and that's another 10% performance fee. Rinse and repeat as they say. Something to prevent this should be spelt out.
I suppose it could be said don't worry about values going down but no one planned for negative interest rates either.