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  1. #21
    On the doghouse
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    Quote Originally Posted by WAIKEN View Post

    I know a number of dairy farmers well. They have all made tens of millions in profits and capital gains over the past 30 years and expect to continue that wealth accumulation. They all have a problem of getting market value for their enterprises when wanting to retire.

    <snip>

    NZ has a growing population. Land is a scarce commodity.
    I believe this is a very clever structure which will give a good dividend return and excellent capital gains in the long run for those wanting a smaller slice of the rural money pot.
    I wonder if there is an expectation issue here?

    Could the reason that farmers are not getting the prices that they think their land is worth be because their land is not worth what they think it is?

    I know that farmers have done well with capital gains over the last 30 or so years. In fact those capital gains are really the reward for many farmers whose cumulative incomes over that period have been less than stellar.

    The banks are not prepared to lend on farm land acquisitions, because they cannot see the continuity of income that will support the current market price for farm land. So why should new equity investors in farm land today have a realistically different measuring stick on farm values?

    And why should farm values go up long term from here if the farm cannot generate the income to support those farm values?

    SNOOPY
    Last edited by Snoopy; 08-12-2020 at 07:24 AM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  2. #22
    Ignorant. Just ignorant.
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    Out of idle curiosity, would you sell Rural Equities (REL) on Unlisted to buy this?

  3. #23
    Guru
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    I was waiting for this
    No way
    Interesting RE was set up to bail out Sheep and Beef farms not dairy initially
    Way more successful I would have thought and no one clipping the ticket so much

  4. #24
    Hello
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    May 2017
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    Auckland, New Zealand
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    9

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    According to a REINZ press release in November 2020 “The median price per hectare for all farms sold in the three months to October 2020 was $28,399”* with the average dairy farm size being 133 hectares. If we ignore any costs NZRLC might incur to upgrade or get the property tenantable, our purchase price for the average Kiwi Dairy Farm is

    $ 3,777,067.00 NZD

    Income at stated lease yields of 4.5% $ 169,968.02 (gross p.a.)

    Less:
    Transaction Fee of 1.25%: $ 47,213.34
    Management Fee 0.5% (NAV) Annually: $ 18,885.34
    Lease Fee: $30,000.00

    Total Fees paid $96,098.67 (representing a total charge of 2.543%)

    NIBT $73,869.34

    This is clearly rough data but does provide you with an outline of what to expect from the company in the future, then consider they will also reap 10% of any capital gains in asset value, which over a 10-year lease period could be significant income for the management company annually.

  5. #25
    Junior Member
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    Aug 2017
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    Quote Originally Posted by SeanL View Post
    According to a REINZ press release in November 2020 “The median price per hectare for all farms sold in the three months to October 2020 was $28,399”* with the average dairy farm size being 133 hectares. If we ignore any costs NZRLC might incur to upgrade or get the property tenantable, our purchase price for the average Kiwi Dairy Farm is

    $ 3,777,067.00 NZD

    Income at stated lease yields of 4.5% $ 169,968.02 (gross p.a.)

    Less:
    Transaction Fee of 1.25%: $ 47,213.34
    Management Fee 0.5% (NAV) Annually: $ 18,885.34
    Lease Fee: $30,000.00

    Total Fees paid $96,098.67 (representing a total charge of 2.543%)

    NIBT $73,869.34

    This is clearly rough data but does provide you with an outline of what to expect from the company in the future, then consider they will also reap 10% of any capital gains in asset value, which over a 10-year lease period could be significant income for the management company annually.
    That would only be for the first year though? then all 9 years ( assuming its leased for the full 10 years ) would only incur the 0.5% fee plus any performance increases

  6. #26
    Hello
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    May 2017
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    Auckland, New Zealand
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    Quote Originally Posted by JoeM View Post
    That would only be for the first year though? then all 9 years ( assuming its leased for the full 10 years ) would only incur the 0.5% fee plus any performance increases
    Thats correct - i did do the math's using rural land prices over a 10 year historical growth and what that looks like if rural land increase along the same trend over a 10 year period (based on lease periods) as well but I just thought the first year snatch and grab was interesting

  7. #27
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    Jul 2015
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    ^ All interesting and have come to similar conclusions.

    Depending on where the purchases of land happen I would say your per Ha cost is too low, quality dairy land in the SI at scale is closer to the mid $30k s per Ha.

    Lease rental is then a lower %

    All parties require speculation on increased land value, unless they are dedicating capital investment/conversions (which they are not) given the market dynamics in the near-medium term, what is the likelihood of that happening? OIO, nor the banks have interest in loosening up.

  8. #28
    DFABPCLMB
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    Jul 2020
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    See post 8 for the average size of farm they are considering. It is closer to 486 hectares per farm based on 19 farms identified as acquisition targets, occupying a total of 9,239 hectares. It could be that the farms NZRLC is considering are significantly larger than the latest quarterly average you have seen, especially given that appetite for bank funding for dairy farms has diminished. That puts the larger farms out of reach.

    To your point of the first year being a cash grab - we all agree on that but the sting in tail for investors will be dilution by the Management Co after a number of farms are acquired at a value significantly under "market value", whatever that may be. Admittedly 90% of the gain is shared amongst the shareholders, not forgetting that would also include the Management Co.

  9. #29
    Legend
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    Dec 2009
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    Everywhere
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    Quote Originally Posted by kiora View Post
    If they are buying dairy farms why are they not putting on 50% sharemilkers.
    A far better return I would have thought?

    ALF's newly incarnated money generating satellite to make up for less bacon elsewhere may have invent another raft
    of ticket clipping if they did ..

  10. #30
    Hello
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    May 2017
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    Auckland, New Zealand
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    Quote Originally Posted by kiwidollabill View Post
    ^ All interesting and have come to similar conclusions.

    Depending on where the purchases of land happen I would say your per Ha cost is too low, quality dairy land in the SI at scale is closer to the mid $30k s per Ha.

    Lease rental is then a lower %

    All parties require speculation on increased land value, unless they are dedicating capital investment/conversions (which they are not) given the market dynamics in the near-medium term, what is the likelihood of that happening? OIO, nor the banks have interest in loosening up.
    speculation would be putting it lightly with this one considering the financial data the company is providing - next to none. would much rather see a private company like dairy holdings limited take itself to market.

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