V18885.02 - Miamba Vineyard, Miamba Road, LYNDOCH, SA - JAS … · 2015-04-21 · 2 Valuation...

Valuation Report Miamba Vineyard Miamba Road LYNDOCH SA 5351

December 2010

Under Instructions from:

Regenal Investments Pty Ltd

Reference: V18885.02 Level 25, 91 King William Street Adelaide SA 5000 T + 61 (0) 8233 5222 F + 61 (0) 8231 0122 GPO BOX 167, Adelaide SA 5001 www.knightfrank.com.au Valuation Services (SA) Pty Ltd ABN 86 087 710 192, trading under licence as Knight Frank Valuations, is independently owned and operated, is not a member of and does not act as agent for the Knight Frank Group. ™Trademark of the Knight Frank Group used under licence.

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Valuation Summary Property Address: Miamba Vineyard, Miamba Road, Lyndoch, SA 5351 Description: The property comprises four (4) individual parcels with a total land area of

204.38 hectares. The four properties can be described as Miamba Vineyard, Chaff Mill Vineyard, Filsell Vineyard and Cameron Vale Vineyard, collectively known as the Miamba Vineyard. The total planted area of the four (4) vineyards is approximately 130.77 hectares with a total additional plantable land being 27.1 hectares with the balance of the land comprising headlands, tracks and some grazing land. The property is situated approximately 3.5 kilometres south of the Township of Lyndoch within the Barossa Valley Wine District and is surrounded by a number of other vineyards and rural living properties within the district. The property is subject to a formal lease agreement to Grant Burge Wines which commenced on 17 August 2007 for an eight (8) year period expiring on the 16 August 2015. The lease has three (3) further rights of renewal of four (4) years each, and has a passing annual rental of $1,292,004 p.a.

Discounted Cash Flow Approach: Derived Value “subject to Lease Agreement” $10,100,000 Initial Yield: 12.79% Rate per hectare: $77,237/ha Date of Inspection: 11 November 2010 Date of Valuation: 31 December 2010 Client: Regenal Investments Pty Ltd as nominee of CK Life Sciences Int’l (Holdings) Inc C/- Thomsons Lawyers Level 25, 264 George Street SYDNEY NSW 2000 Attn Ms Bonita Ho Instructions: To assess the market value of the subject property, assuming a sale of the

freehold interest, subject to the existing lease, as detailed herein, with continuation of existing use, relevant to prevailing levels of value as at the date of inspection for major transaction purposes.

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Further Consultancy

Nil

Verifiable Assumptions

Section 2.7 Environmental Considerations Section 2.8 Native Title Claims Section 5.2 Passing Rent $1,292,004 p.a. as at 17 August 2010

Opinion

Section 6.2 Market Position of Property Section 7 Risk Analysis Section 8 Valuation Rationale Section 11 Valuation Certification

Valuation: Subject to the overriding stipulations contained within the body of this report, we

are of the opinion that the market value of the subject property, assuming a sale of the freehold interest, subject to the lease, as detailed herein, with continuation of existing use, excluding all plant and machinery, but including irrigation Water Licence No: 4035-2, and all irrigation fixtures such as underground pipelines and drippers, storage tanks and pumps etc., relevant to prevailing levels of value as at the 31 December 2010 for major transaction purposes was:

Market Value

(Subject to existing lease, inclusive of Water Licence No 4035-2) $10,100,000 exclusive GST

(Ten Million One Hundred Thousand Dollars)

Knight Frank Valuations SA JASON OSTER B. Bus. Prop. (Val.) A.A.P.I. Dip. App. Sc. (Farm Management) Associate Director – Agribusiness Specialised Water Valuer & CERTIFIED PRACTISING VALUER

This valuation has been prepared in accordance with the Australian Property Institute and International Valuation standard instructions. The information in this summary is derived from and should be read in conjunction with the full context of our valuation report contained herein.

Contents

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1. Introduction 6 1.1. Instructions 6 1.2. Basis of Valuation 6 1.3. Date of Inspection 6 1.4. Date of Valuation 7 1.5. Market Value Definition 7 1.6 Pecuniary Interest Declaration 7 1.7 Qualifications 7 1.8 Goods and Services Tax 9

2. Property Search Details 10 2.1. Registered Proprietor 10 2.2. Title Description 10 2.3. Identification 11 2.4. Easements and Encumbrances 11 2.5. Local Authority 12 2.6. Existing Council Zoning 12 2.7. Environmental Considerations 12 2.8. Native Title Claims 14

3. Land and Locality 15 3.1. Location 15 3.2. Site Area 16 3.3. Road Systems and Access 17 3.4. Services and Amenities 17

4. Improvements 18 4.1. General Description 18 4.2. Vineyard Improvements 18 4.3. Topography & Soils 22 4.4. Water Supply and Climate 22 4.5. Historical Production Levels 23 4.6. Grape Supply Contract 24 4.7. Building Improvements 24 4.8. Condition and Repair 26

5. Occupancy 27 5.1. Statutory Assessments 27 5.2. Current Passing and Market Income 27 5.3. Previous Sale of The Subject Property 28

6. Market Overview 29 6.1. Rural Overview 29 6.2. Market Position of Property 33 6.3. Sales Evidence 34

7. Risk Analysis 37 7.1 SWOT Analysis 37 7.2 Purchaser Profile 38

8. Valuation Rationale 39 8.1. Valuation Methodology and Considerations 39 8.2. Discounted Cash Flow Approach, subject to the existing lease agreement 39 8.3. Capitalisation Approach, subject to the existing lease agreement 41

9. Valuation Certification 43

Contents

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Appendices

I. Letter of Instruction II. Photographs

III. Copy of Certificates of Title IV. Zoning Regulations / Location Map V. Copy of Water Licence VI. Discounted Cash Flow Calculations VII. Site Plans

Client: Regenal Investments Pty Ltd, as nominee of CK Life Sciences Int’l (Holdings) Inc (CKLS).

Property Address: Miamba Vineyard, Miamba Road, LYNDOCH, SA 6 File Reference: V18885.02 December 2010

1. Introduction

1.1. Instructions

We have been instructed by Regenal Investments Pty Ltd as nominee of CK Life Sciences Int’l

(Holdings) Inc (CKLS) a subsidiary of CK Life Sciences Int’l Inc, by letter dated 2nd December 2010,

to assess the market value of the subject property inclusive of Water Licence No: 4035-2 for Major

Transaction purposes.

Our valuation has been prepared in accordance with the Australian Property Institute and

International Valuation property reporting standards and Hong Kong Stock Exchange checklist to

be included within the Major Transaction Circular to the CKLS shareholders. In completing the

valuation we have assumed continuation of existing use.

A copy of the letter of instructions is appended.

1.2. Basis of Valuation

Freehold Title subject to the existing lease as detailed herein, with continuation of existing use.

Included in the amount of this valuation are all normal fixtures and fittings, including Water Licence

Number 4035-2 with a total allocation of 176,300 kilolitres of underground water, 1,000 kilolitres for

stock and domestic and 68,000 kilolitres of surface run-off water allocation. Also included in the

valuation is the existing irrigation infrastructure.

We advise that we have carried out an inspection of the subject property, and have undertaken

market research with respect to comparable property sales, prepared our calculations and report

formally herein. The valuation has been prepared in conformity with the Code of Professional

Ethics and Conduct laid down by the Australian Property Institute and the Hong Kong Stock

Exchange checklist.

1.3. Date of Inspection

11 November 2010



1.4. Date of Valuation

31 December 2010

1.5. Market Value Definition

For the purposes of this assessment, Market Value is defined as:

“The estimated amount for which an asset should exchange on the date of valuation

between a willing buyer and a willing seller in an arm’s length transaction after proper

marketing, wherein the parties had each acted knowledgeably, prudently and without

compulsion”.

1.6 Pecuniary Interest Declaration

The valuer has no pecuniary interest in the said property, past, present or prospective, and the

opinion expressed is free of any bias in this regard. The company warrants under the provisions of

Section 74 of the Trade Practices Act, to prepare this valuation in accordance with the instructions

given, however, the quantum of value cannot form part of the warranty being related to prevailing

market conditions and ethical opinion.

1.7 Qualifications

1. This report is prepared for the private and confidential use of our client, Regenal Investments

Pty Ltd as nominee of CK Life Sciences Int’l (Holdings) Inc for Major Transaction purposes to be

despatched to the shareholders of CKLS, and should not be reproduced in whole or part, or

relied upon by any other party for any use without the express written authority of Valuation

Services (SA) Pty Ltd, trading as Knight Frank Valuations (SA).

2. Knight Frank Valuations (SA) has consented to this summary being included in the Major

Transaction Circular, but Knight Frank Valuations (SA) is not providing advice about a financial

product, nor the suitability of any investment set out in the Major Transaction Circular. Such an

opinion can only be provided by a person that holds an Australian Financial Services Licence.

Knight Frank Valuations (SA) does not hold such a licence and is not operating under any such

licence in providing its opinion of value as detailed in this summary and our valuation report.



3. In the case of advice provided within this report which is of a projected nature, we must

emphasise that specific assumptions have been made which appear reasonable based upon

current market perceptions. It follows that any one of the assumptions set out in the text of this

summary may be proved incorrect during the course of time and no responsibility can be

accepted in this event.

4. This valuation represents the valuer’s opinion of value at the date of valuation. It must be

recognised that the real estate market fluctuates with internal and external influences and the

risk that the property’s value may change under varying market conditions is a fact that the

parties should understand and accept. No liability is accepted for any loss or damage (including

consequential or economic loss) suffered as a consequence of fluctuations in the property

market subsequent to the date of valuation.

5. The Summary of Valuation appearing at the commencement of this report should be read in

conjunction with our complete Valuation Report.

6. Reliance on this report should only be taken upon sighting a signed original document that has

been counter-signed by an executive of Knight Frank Valuations (SA). The counter-signatory

verifies that this report is genuine, and issued and endorsed by Knight Frank Valuations (SA).

The opinion of value expressed in this report, however, has been arrived at by the prime

signatory acting as the Valuer in accordance with instructions given.

7. We draw your attention to the various qualifications contained within relevant sections of this

report. These qualifications are an integral part of this report and can be identified by the

“italics” print within each relevant section of this report.

8. Where the plantings are irrigated it is assumed that all existing or proposed water licences and

agreements will remain linked to the property. To ensure continuity of water supply, any party

relying on this valuation must maintain some form of charge or other security over these

licences or agreements.

9. Vineyards and horticultural plantings are assessed on the assumption that they are and will

continue to be competently managed, and are free from irremediable disease or structural or

design deficiency that affects yields and hence value.

10. Properties are valued on the basis that plant items normally associated with continuing use will

remain, and are included in the valuation amount. Such items would include vineyard and

horticultural irrigation and trellis systems, water pumps for buildings and the like, but not mobile

or removable processing or agricultural plant.

11. This valuation assumes that all necessary approvals have been obtained and compliance with

any conditions has been met.



1.8 Goods and Services Tax

The GST became law on 8 July 1999 and commenced operation on 1 July 2000. From this time,

rental payments for non-residential leases generally became subject to GST. The sale of non-

residential property may also be subject to GST, the amount of tax payable being dependent on the

tax status of the parties, available input tax credits and the operation of the Margin Scheme.

The supply of farmland is GST free if:-

a) the land on which farming business has been carried out on for at least a period of five

years preceding the supply; and

b) the recipient of the supply intends that a farming business be carried out upon the land.

Our valuation of this property has been prepared on a GST exclusive basis with no provision for the

payment of GST by the supplier (vendor) on the hypothetical sale of this property as at the date of

this valuation. GST is an important and complex issue and we strongly recommend that you

consult a duly qualified tax expert to ensure that your financial interest in this property is not

compromised.

We have assumed that the land qualifies as farming land, and will continue to operate as a farming

enterprise, and we have therefore undertaken the valuation on a GST exclusive basis.



2. Property Search Details

2.1. Registered Proprietor

In accordance with our recent Title searches, the Registered Proprietor is shown in all instances as

AUSTRALIAN EXECUTOR TRUSTEES (SA) LTD.

2.2. Title Description

In accordance with our recent Title searches, the property comprises the whole of the land

contained within the following Certificates of Title;

• Certificate of Title Volume 5212 Folio 13, being Allotments 21, 22 and 23, in Filed Plan 119710

in the area named Lyndoch, Hundred of Barossa.

• Certificate of Title Volume 5212 Folio 17, being Section 528 Hundred of Barossa in the area

named Lyndoch.


named Lyndoch.

• Certificate of Title Volume 5404 Folio 349, being Allotment 2 in Filed Plan 100282 in the area

named Williamstown, Hundred of Barossa.


named Lyndoch.

Copies of the Certificates of Title are appended to this report.

We advise that we have not sought further encumbrance advice in relation to the properties and

have, for the purpose of this assessment, assumed the properties to be unaffected by any other

easements, encumbrances, covenants or caveats which may affect our valuation assessment

contained herein, and have not been disclosed on the title information recently searched.



2.3. Identification

The property is contained within four (4) main parcels and has been identified with reference to

both Deposited Plan and Title particulars.

We are not qualified surveyors and therefore cannot state conclusively that there are no

encroachments to or from the subject. We note however, that from our inspection and a

comparison with the legal plan the improvements appear to be constructed within the title

boundaries.

We advise that we have not carried out a detailed site survey and we have, of necessity, assumed

for the purposes of this valuation, that all structural improvements have been erected within the

Title boundaries.

2.4. Easements and Encumbrances

From reference to the Certificates of Title the following easements, encumbrances, covenants or

caveats are listed on the above titles.

• Registered Caveat No: 10789319 by Burge Corp Pty Ltd.

• Registered Lease No. 10789320 to Grant Burge Wines Pty Ltd and Burge Corp Pty Ltd

commencing on 17.8.2007 and expiring on 16.8.2015.

• Registered Mortgage No. 10789321 to National Australia Bank Ltd.

We have searched a copy of the caveat placed by Burge Corp Pty Ltd. It relates to the signed deed

for the option to purchase of the property if offered for sale by Challenger Listed Investments Ltd.

We have assumed this will not be affected by the current share purchase and remain upon the

Title.

We advise that we have not sought further encumbrance advice in relation to the property and

have, for the purpose of this assessment, assumed the property to be unaffected by any other

easements, encumbrances, covenants or caveats which may affect our valuation assessment

contained herein, and have not been disclosed on the title information recently searched.



2.5. Local Authority

Barossa Council

2.6. Existing Council Zoning

Regulations under the Development Act 1993 have zoned the land “Rural (Valley Floor)”

The main objectives of the Rural (Valley Floor) zone are as follows;

Objective 1: A zone primarily for viticulture and associated winery, horticulture and farming

uses. Objective 2: Preservation of rural land and landscape character by limiting additional dwellings

and non-agricultural development.

Objective 3: Winery and small scale tourist facilities only where the character and function of

viticulture activities are not adversely affected.

Objective 4: Existing winery and industrial uses only expanded in association with

improvements to the amenity, visual impact, site access and environmental

protection standards of activities.

The current use of the subject property as an irrigated vineyard is considered to be a complying

land use within the intentions of the zoning.

A copy of the Planning Regulations is appended.

2.7. Environmental Considerations

Site Contamination

We are not aware of the property being listed by the Barossa Council as a contaminated site.

It is of note that there is an above ground fuel storage tank located adjacent the machinery shed

within the vineyard however the area was concrete bunded and there does not appear to be any

contamination, however historically fuel and oil storage areas have an increased risk of potential

contamination.



We also note that the Australian Property Institute has listed the current use of the subject property

(horticulture/viticulture), as a potentially contaminating land use; however we consider the risk of

contamination to be relatively low.

We did not observe any other signs of potential contamination upon our inspection and do not

consider the current or previous land uses should be regarded as increasing the potential risk of

contamination.

We draw to your attention that Knight Frank Valuations (SA) is not an expert in identifying

environmental hazards and compliance requirements affecting properties.

Whilst we have attempted to identify all matters of environmental concern and the effect they may

have on the value of the property, we accept no liability for failure to identify all such matters of

environmental concern and the impact which any such related issue may have on the property or

its value including loss arising from;

a) Site Contamination; or

b) The non-compliance with any environmental laws; and

c) Costs associated with the clean-up of the property in which an environmental hazard has

been recognised, including action by the Environmental Protection Authority to recover

clean-up cost pursuant to the Environment Protection Act.

We have found no information during our enquiries however which we consider is of a nature to

necessitate the instigation of a detailed environmental audit; however we are unable to give any

assurances that the site is free of contamination.

We therefore reserve the right to amend any valuation accordingly, should the presence of

contamination above acceptable levels be established by analysis.

Comment on Asbestos

The Occupational Health, Safety and Welfare Act 1986 require that where asbestos is present, an

Asbestos Register be completed.



We do not believe there are any asbestos products with the property and therefore we have

assumed that there no inherent risk from asbestos and reserve the right to review our valuation

should risk assessment conclusions differ.

2.8. Native Title Claims

In undertaking this valuation assessment, we have not commissioned a search of the Register of

Native Title Claims, which is administered by the National Native Title Tribunal. This valuation

assumes that there are no current or pending claims which will affect the subject property.



3. Land and Locality

3.1. Location

The property is situated approximately 3.5 kilometres south of the Township of Lyndoch within the

Barossa Valley Wine Region. More particularly the property comprises four (4) individual parcels

which are situated within close proximity to each other, having frontage to the Lyndoch Valley

Road, Miamba Road, Kreig Road and Burge Road. The property is situated midway between the

townships of Lyndoch and Williamstown which are of a similar size to each other and offer most

essential facilities and amenities.

Gawler is situated approximately 13 kilometres to the north west of the subject property and is the

nearest major service centre, whilst Tanunda is situated approximately the same distance to the

north and is also a reasonable sized service centre.

The development surrounding the subject property comprises other established vineyards where

surface and underground water are available together with other grazing, dry land farming and rural

living properties within the area.



The vineyard development within the area is primarily limited to those properties which are of a

level to gently undulating terrain mostly within the valley floor and have access to dam or

underground bore water for irrigation. The properties are also with the Barossa Valley

Geographical Wine District albeit the southern end.

A second location plan is appended.

3.2. Site Area

The property is contained within four (4) parcels and 5 Certificates of Title which are described as

follows:

Miamba Vineyard

This property comprises an irregular shaped allotment with a small stepped section having frontage

of 166.97 metres to Krieg Road, a western boundary of 764.04 metres to Berryfield Road and a

southern boundary of 842.69 metres to Miamba Road. The eastern boundary is a slight dog-leg

having two sections of 1,308.8 metres and 428.89 metres.

Total site area is approximately 93.33 hectares.

Filsell Vineyard

This vineyard is a generally triangular shaped allotment with a frontage of 507.75 metres to

Lyndoch Valley Road.

The total site area is approximately 20.64 hectares.

Cameron Vale Vineyard

This property comprises two (2) Certificates of Title. Sections 789 comprise a regular shaped

allotment with a frontage of 533.1 metres along the northern boundary to Krieg Road and 558.04

metres to the western boundary being Burge Road. This allotment joins Section 286 with an

adjoining boundary of 554.82 metres, a total northern boundary of 752.17 metres to Krieg Road, an

eastern boundary to Berryfield Road of 537.12 metres and a small section of frontage to Berryfield

Road along the southern boundary of 309.6 metres together with a further southern boundary of

507.55 metres.



The total site area of Section 789 is 29.5 hectares, while Section 286 is 44.82 hectares. The

combined total site area of Cameron Vale Vineyard is 74.32 hectares.

Chaff Mill Vineyard

This property comprises a slightly irregular shaped allotment having a total frontage of 327.3

metres along its northern boundary to Miamba Road, eastern boundary to Winkley Road of 522.84

metres, a dog-leg rear boundary of 295.01 metres (save a splayed corner) and an approximate

western boundary of 490.85 metres (save a splayed corner). The total site area is approximately

16.09 hectares.

The total combined site area of the subject property is approximately 204.38 hectares.

3.3. Road Systems and Access

Lyndoch Valley Road is a bitumen sealed country connector road providing sole access between

Lyndoch and Williamstown, whilst Miamba Road, Berryfield Road, Krieg Road and Burge Road are

all compacted gravel roads providing all weather access with each property having adequate road

frontage and access to the properties.

3.4. Services and Amenities

We understand that electricity and telephone are available and/or connected to shedding and

dwelling improvements with the water for irrigation and domestic consumption provided from a

combination of rainwater, underground bore water and surface water catchment. The toilets are

serviced by a traditional septic drainage system.



4. Improvements

4.1. General Description

The property comprises four (4) parcels of land which collectively are known as Miamba Vineyard

which individually include Miamba, Filsell Vineyard, Chaff Mill Vineyard and Cameron Vale which

includes Cameron Vale Dam Vineyard and Cameron Vale Grazing.

For the purpose of the valuation we have combined the Cameron Vale properties to be known as

Cameron Vale Vineyard as they are two (2) adjoining Certificates of Title and are operated as one

property.

The property is established with various varieties of vineyards with some of the original plantings

dating back to the 1890’s with a number of vineyards developed throughout the 1970’s, 80’s and

90’s providing a very good cross section of varieties and ages of vineyard.

The property is currently leased by Burge Corp Wines Pty Ltd and we have provided a detailed

description of the properties various improvements and vineyard sections as follows.

4.2. Vineyard Improvements

Miamba Vineyard

The Miamba Vineyard comprises a number of both

red and white varieties with the majority of the

plantings ranging from 1989 – 2009. The majority of

the trellising is single cordon wire with the Semillon

trained to a two-wire vertical trellis system as are

some of the Shiraz vines.

The vineyard inter-rows are planted to a perennial

grass mix including perennial rye grass and fescue

and the vineyard appears to be very well maintained with good weed control and under-vine

management with irrigation comprising suspended poly drip irrigation with good end assemblies

comprising strainer posts and stubs. The vines are mostly machine pruned with some hand

pruning to specific bud numbers over some of the varieties. Two small areas have recently been

replanted to Pinot Gris and White Frontenac in 2009. A summary of the vineyard details are as

follows:



Miamba Area (ha) Year Planted Pinot Noir 3.06 1989 Pinot Gris 2.98 2009 Cabernet Sauvignon 3.26 1995 Frontenac 3.31 2009 Semillon 3.75 1995 Chardonnay 6.23 1993 Chardonnay 6.89 1994 Shiraz 6.21 1993 Shiraz 10.41 1994 Shiraz 3.52 1995 Shiraz 1.99 1997 Merlot 6.89 1996 Total 58.77

Chaff Mill Vineyard

The Chaff Mill Vineyard comprises a number of older

bush vines with the oldest Shiraz being planted in 1890

with other varieties planted in the 1940’s, 70’s and the

late 1990’s. The majority of the trellising to Chaff Mill is

representative of the age of plantings being in a well

maintained condition. The trellis is mostly single cordon

wire and the bush vines having been trained to a basic

low level single cordon wire trellis. Inter-row the

vineyard is planted to perennial grasses including

perennial rye grass and fescue and the vineyard

appears to be well maintained.

The vineyard is irrigated with suspended poly drip irrigation and is supplied water from the

adjoining Miamba and Cameron Vale properties. A summary of the vineyard details are as follows:



Chaff Mill Area (ha) Year Planted Shiraz 1.49 1890 Shiraz 1.39 1997 Palomino 1.28 1965 Grenache 1.80 1970 Grenache 1.29 1972 Grenache 0.21 1998 Grenache 3.12 2000 Semillon 0.62 1947 Viognier 2.12 2003 Total 13.32

Cameron Vale Vineyard

As discussed previously the Cameron Vale Vineyard comprises both Cameron Vale Grazing and

Cameron Vale Dam properties having a total vineyard of 41.27 hectares with a further estimated

plantable area of 4.5 hectares. Approximately 11 hectares was planted to Shiraz and Grenache

vines in 2008. The plantable land is of a gentle to moderate undulation with a slightly northern

aspect.

The Cameron Vale Vineyard has been established in two

main sections, being the 1970’s and 1990’s. The older

vines include Shiraz and Cabernet which are contour

planted to the north western corner of the property with

the balance of the property planted in the 1990’s to a

conventional straight line trellis system. The majority of the

vines are of a single cordon wire with well maintained

trellising and good end post and wires. The Sav Blanc has

single cordon wire trellis with adjustable foliage wire.

Some of the older planted vines are bush vines which have been trained to a basic trellis system

and pruned to a rod and spur. All vines have a suspended poly dripper line. The property is

irrigated from an onsite dam and pumping station with state of the art filtration and individual

section controls.

The pumping system contained within Cameron Vale supplies the whole Miamba 5 Vineyards and

will be discussed further within the report.



A summary of the vineyard details are as follows:

Cameron Vale Area (ha) Year Planted Shiraz 2.27 2008 Shiraz 6.76 2008 Grenache 0.59 2008 Grenache 0.75 2008 Shiraz 4.42 1998 Cabernet Sauvignon 4.54 2008 Cabernet Sauvignon 1.59 2008 Cabernet Sauvignon 0.86 1973 Cabernet Sauvignon 1.32 1975 Cabernet Sauvignon 4.55 1998 Cabernet Sauvignon 3.67 1999 Sauvignon Blanc 2.74 1994 Sauvignon Blanc 4.25 1995 Petit Verdot 2.93 1999 Total 41.27

Filsell Vineyard

The Filsell Vineyard is a primarily triangular shaped

allotment with frontage to Lyndoch Valley Road

having a total vineyard of 17.46 hectares planted to

vines. This vineyard includes 5.2 hectares of Shiraz

bush vines which were planted in 1920 together with

the balance of the vineyard planted in 1980’s and

1990’s. Filsell is a highly regarded vineyard within

the area given its age, quality of production and

location.

The bush vines Shiraz have been trained to a basic single cordon wire trellis system, whilst the

majority of the other vineyard has a modern single cordon wire trellising system with good strainer

post and stump end assemblies. The Mataro vines however do have two wire vertical trellis

system.

The property has been managed and pruned to ensure very low yields with high quality fruit are

harvested from the vineyard, particularly the older bush vines. The vineyard is irrigated from

suspended poly inline dripper system with various on site filters throughout the vineyard. A

summary of the vineyard details are as follows:



Filsell Area (ha) Year Planted Shiraz 5.20 1920 Shiraz 1.99 1994 Shiraz 2.50 1988 Shiraz 3.96 1996 Mataro 3.81 1996 Total 17.46

The Miamba vineyards as a whole appear to be in a well maintained condition as at the time of the

inspection with no obvious outstanding maintenance required at this time.

4.3. Topography & Soils

The property comprises a range of gently undulating rises and low lying flats with the soils ranging

from a gradational red clay loam with some areas of silky loam over black clay ranging to small

areas of black cracking clay to the lower flats. There are also areas of the Chaff Mill and Cameron

Vale Vineyards that have sandy loam over poor structure brown clay soil to the elevated areas.

The undulating rises are formed on silt stone slates and fine sandstones, mantled by soft fine grain

carbonate with negligible rock outcrops and some minor subsurface slate, sandstone and quartz.

The soils are inherently fertile and are typical of those soils within the lower Barossa Valley. The

vineyard is planted to mostly gentle undulating terrain which minimises frost risk to some extent;

however some of the lower lying areas of Miamba and Filsell are prone to some frosts.

4.4. Water Supply and Climate

The subject property has an estimated annual rainfall

of approximately 800mm according to the Bureau of

Meteorology with the average maximum temperature

of 20.9°C and minimum 8.7°C

The property has irrigation water supplied by a Water

Licence No. 4035-2 which comprises both

underground water and surface catchment water from

the Barossa Valley Prescribed Water Resources



Area. The licence has a total underground water allocation of 176,300 kilolitres for irrigation and

1,000 kilolitres for stock and domestic. This water still contained within the permanent allocation of

the licence. There is also a further 68,000 kilolitres of surface water allocation.

The irrigation water for the entire property is stored within a 68 mega litre dam within the Cameron

Vale Vineyard property. There are three (3) bores contained within the Miamba and Filsell Vineyard

properties which pump water to the Cameron Vale dam where the water is stored and combined

with the surface water catchment and then pumped to the various portions of the vineyard.

Situated at the base of the large dam are an electric centrifugal pump and a large multi-stage self

cleaning primary filtration system. The pump supplies water to each of the properties and is

therefore considered that if the properties were to be sold individually then various disconnection

and reconnection of the existing water infrastructure would be required.

The total “taking irrigation” allocation of 244,300 kilolitres is endorsed over each and all of the

properties and is therefore administered as required. The total allocation equates to approximately

1.86 mega litres per hectare which is more than adequate for irrigation of the vineyard.

We strongly recommend that any intending financier register a third party interest over the water licence with The Department of Water, Land and Bio-diversity Conservation to ensure their financial position is not compromised.

4.5. Historical Production Levels

We have been provided with the 2010 total production figures which are summarised as follows:

Vineyard Total Tonnes

2010 Average tonne/ha Miamba 445 7.58t/ha Filsell 198 11.45t/ha Chaff Mill 106 8.02t/ha Cameron Vale 288 7.00t/ha

We have been provided with detailed historical yields beyond last harvest, and the yields above are

considered reasonably reflective, although at the low end, of expected yields for each of the

vineyards.



We understand that the vineyard has historically had low target yields to increase grape quality with

some of the older Shiraz vines having target yields of only some 2.5 to 5 tonnes per hectare with

other varieties yielding as high as 15-20 tonnes per hectare. The average yields of between 7t/ha

and 12t/ha over the property are reasonable.

In the case of the subject property which is subject to a lease agreement the level of production is

therefore not directly related to the level of rental income derived from the property. The viability of

the vineyard however is likely to affect the long term desire for the lessee to continue to lease the

property at the current passing rental in the future.

4.6. Grape Supply Contract

The subject property does not have a grape supply agreement, however is leased on a long term

basis to Grant Burge Wines who use the fruit within the Barossa Valley Wine Labels.

4.7. Building Improvements

Miamba Vineyard

Structural improvements contained within Miamba vineyard include a large workshop facility with

office and staff room amenity.

The shed is of steel portal frame, “Colorbond” iron construction with reinforced concrete flooring.

To the end is an enclosed chemical storage area with several sliding doors (3 metres wide) for

access along the front elevation.

Internally the shed has male and female toilet

amenities, staff lunch room with laminated bench

tops, cupboards and stainless steel sink with

linoleum floor coverings. Above the office is an

enclosed mezzanine storage area with a small

verandah to the eastern elevation of the office.

In accordance with on site measurements the gross

building area of the workshop is 482.8m².



There is a large compacted gravel apron to the front elevation of the shed and an above ground

steel diesel tank which is contained within an area with concrete flooring and bunding. A small

area to the front of the chemical shed has a concrete apron with a central spoon drain for

catchment of waste water.

Chaff Mill Vineyard

Contained within the Chaff Mill Vineyard are various improvements including shedding and

dwelling. The dwelling comprises two or three bedrooms estimated to have been constructed in

the 1930’s of a very basic design. We were not able to gain access internally to the dwelling at the

time of the inspection and have relied upon the advice provided by the tenant. As to its condition,

we have been advised it is of near original appointment and a basic standard.

Various shedding contained within the property includes an insulated barrel storage shed which is

of steel portal frame and galvanised iron cladding with concrete flooring and insulated internally.

There are two (2), sliding doors with 5 metres height clearance to the eaves. This shed has a total

gross building area of 648m² in accordance with the measurements taken on site.

There are several other sundry storage sheds within the Chaff Mill property including a basic

enclosed steel frame workshop with concrete flooring, sliding door to the front elevation, measuring

27 metres x 6 metres with a total gross building area of 162m².

Adjacent the workshop is a further machinery storage shed with steel portal frame, 3 metre

clearance, concrete flooring with a total gross building area of 72m².

Alongside the dwelling is an older shed which offers only very basic amenity over a split level

however there is a new side addition which measures approximately 10 metres x 9 metres.

This portion is of modern steel framed, galvanised iron construction with 5 metre height clearance

and is considered to be of some added value with a total gross building area of 90m².

Miamba, Cameron Vale and Filsell Vineyards have no significant structure improvements other

than the vines and perimeter fencing.



4.8. Condition and Repair

We consider the vineyard to be in a well maintained condition for its age and current use.

We point out that we have not undertaken a structural survey nor have we inspected unexposed or

inaccessible parts of the improvements. We have assumed that there is no timber infestation,

asbestos or other defect. We have not made any investigation for them. We have not inspected

the plant and equipment nor obtained any advice on its condition or suitability. We are not aware

of any notices currently issued against the property and we have made no enquiries in this regard.



5. Occupancy

5.1. Lease Details

The property is currently leased and we have summarised the pertinent details as follows:

Status: Stamped and Registered

Lessor: Tower Trust (SA) Limited

Lessee: Burge Corp Pty Ltd

Commencement Date: 17 August 2007

Expiry Date: 16 August 2015

Term: 8 years plus three (3) rights of renewal of four (4) years each

Passing Rent: $1,292,004 p.a. (paid monthly in advance)

Permitted Use: Operation of a vineyard

Rent Reviews: Increases are each anniversary of the commencement date at

CPI with a cap of 1.5% with market review in the 5th year of the

anniversary and at renewal calculated on 9.8% of the market

value.

Responsibility of Outgoings: Lessee is responsible to pay all rates, tax, charges, assessment,

contributions, levies and fees including State Land Tax on a

single holding basis.

Special Conditions: The lease has a clause which offers the Lessee the First Right of

Refusal to Purchase the property.

5.2. Statutory Assessments

The property is assessed under a combined assessment and as such the assessments for rating

and taxing purposes for 2010/2011 financial year as at 1 January 2010 are as follows:

Site Value $3,875,000

Capital Value $6,850,000

5.3. Current Passing and Market Income

The commencing rental was $1,195,175 p.a. which has been reviewed to the passing rental

currently of $1,292,004 p.a. which is considered to be above a market level. With regards to other

market rentals for vineyard properties, we are aware that CLIL have in 2008 re-leased a vineyard in



Griffith NSW based on a rate of 10% of the market value to Fosters Wines Ltd. We are also aware

of a number of other vineyard rents CLIL have negotiated on a similar basis.

We have adopted the same method herein however more recent market negotiations have been at

a slightly lesser rate of 9.8% which we consider is reasonable.

In accordance with the lease, there are annual reviews at CPI capped at 1.5% until 2012, were the

rent is to be reviewed to market, however a ratchet clause does not allow for the rental to reduce,

therefore the first opportunity for the rental to decrease is in 2015 at lease renewal. To determine

the market rental at this point in time, we have determined the current un-encumbered value of the

vineyard, and have then applied an annual growth rate of 1.5% to reflect its value in 2015. To

determine or predict the actual capital value of the property in the future we have determined a

value based on several assumptions. We have assumed a 1.5% growth rate for all prices and costs

alike, which is the same as the rate of rental growth. Therefore any real variance to the actual rate

of growth will be negated to some extent by the expected rise in prices.

We have adopted the passing income of $1,292,004 per annum for our calculations. We have then

adopted a rental of $1,053,322 per annum at the market review in 2015. It is considered

reasonable to adopt the passing income for the property until the market review in 2015 as we

have assessed the value by way of a ten year cash flow.

5.4. Previous Sale of The Subject Property

According to the Department of Transport and Infrastructure the property sold for $11,500,000

exclusive GST in August 2007. The property remains in significantly similar condition to the time of

the sale, however market conditions have softened since this time.



6. Market Overview

6.1. Rural Overview

• La Niña conditions have continued to develop across the Pacific and as a result

August/September was wet across most of Australia, except the south-west of Western

Australia. The three-month outlook for Australia remains generally neutral. Temperatures were

mixed across the country with warmer than average conditions across northern and far

western areas and cooler than average days throughout central and southeast Australia.

However, on average, nationally averaged maximum temperatures were moderately below the

long term average.

• The Southern Oscillation Index (SOI) is now above +20 points, indicating that La Niña

conditions are well and truly at play. It is now likely that La Niña will persist through spring and

into 2011 in both Australia and New Zealand. NIWA National Climate Centre also predicts that

the La Niña conditions will strengthen in New Zealand during 2010. It is likely that La Niña will

continue to bring above average rainfall to northern and eastern Australia.

• The graph above shows the average rainfall for the 3 months to November 2010. As can be

seen by the graph, there have been a number of areas of SA particularly the north eastern

areas, and most parts of NSW and VIC which have now received well above average rains for

this period, many being the highest September rainfall on record.



• The global economy has continued on an unsteady trajectory with a broad-based recovery

remaining elusive. Data from the US has been most concerning, while data from the euro

zone has tended to surprise to the upside, and growth remains on a solid footing across Asia.

The Reserve Bank of Australia has kept rates on hold at 4.5%, despite better-than-expected

Q2 GDP growth, which showed the private sector starting to lift. The Reserve Bank of New

Zealand kept rates at 3%, with strong retail figures offset by weak data elsewhere.

• One step forward, one step back best describes economic dataflow in August, as the evidence

of a solid broad-based recovery remains elusive. The economic performance in the euro area

has been surprising to the upside, especially in Germany. Meanwhile, the tepid performance

of the US labour market reignited concerns of a double-dip recession. Rabobank still believes

that market pessimism has been overdone in August, and that a double-dip is still likely to be

avoided.

• Australia has a new Labor-led minority government and has reasserted itself as one of the

best performing economies in the developed world following a blistering Q2 GDP growth rate

of 1.2%. In the GDP data, the most encouraging sign was a beginning in the process of the

economy rebalancing away from government support toward private expenditure – this has

taken longer than expected. A surge in consumption was a surprise because it countered

anecdotal reports from retailers that households had cut back spending.

• Weaker US retail and unemployment figures have further heightened fears that the US

economy is heading into a double-dip recession. US President Barrack Obama has promised

new stimulus measures after a weak August jobs report showed a slight increase in

unemployment. The unemployment rate has remained above 9% all year and the prospect of

high unemployment for a long period remains a central concern of policy. Goldman Sachs

Group reported that the Federal Reserve has the capacity to buy “at least” $1 trillion in

Treasury notes, and “sizeable purchases of Treasury securities” later this year or early next

year if required. This comes after their first $787 billion stimulus failed to create much needed

jobs.

• Share markets around the world continue to experience volatile times from the most recent

concerns that the debt levels relating to economies such as the US, Greece, Ireland, Portugal

and Spain in particular could threaten global economic recovery. Those countries worst

affected by the fiscal crisis are still struggling because of the combination of high

unemployment and banks reluctance on lending. In contrast, Germany appears to be in strong

economic health.



Over the year to June 2010, the German economy grew by 3.7%, its best result for several

years, and the fastest of the major economies. However there is still conjecture over the

possibility of a contagion effect resulting from the debt crisis and its potential impact on the

Australian economy.

*some information has been taken from the Rabo Bank Agribusiness Review

Wine Industry Overview

The Wine Grape Growers Australia (WGGA) have recently reported that initial estimates of the

2009-10 vintage suggest there will be a very significant fall in the nation’s crush – down to 1.53m

tonnes, compared with 1.73m tonnes in 2008-09. It is also evident that a significant volume of fruit

may be left on the vine or harvested to the ground, due largely to the collapse of the Chardonnay

market.

It has been reported that across south-eastern region of Australia, there has been a 24% fall in

Chardonnay yields which is due in part to seasonal variations and but also in response to a

reduction in the amount of water and fertiliser inputs that growers have been applying to their vines.

Although the estimated intake for Chardonnay decreased by 24% to 315,000 tonnes, it is still the

most crushed variety after Shiraz, representing 44% of white grape intake and 21% of total grapes.

Except for the low 2007 vintage, red grapes have dominated since 2001. The estimate of red intake

is 817,000 tonnes or 53% of the total crush and the white intake is estimated to be 715,500 tonnes

or 47% of total crush.



In late 2009 a joint statement labelled the Wine (Industry) Restructuring Action Agenda (WRAA) a

report on the wine industry’s over-supply, compiled by Australia’s four national wine bodies - Wine

Grape Growers’ Australia, Winemakers’ Federation of Australia, the Australian Wine and Brandy

Corporation and the Grape and Wine Research and Development Corporation, was released on 10

November 2009. The report seeks to address the significant oversupply within the wine industry

and has identified those wine grape growing areas deemed to offer limited viability.

On the back of this report, the Wine Grape Growers Association (WGGA) has also recently called

on the major wine companies to begin shouldering their share of the wine industry restructuring

process following recent signs that vineyards around the country are being retired from production

– almost solely at the instigation of the grape growing sector. There still appears to be pressure

from all levels of the industry to restructure and reduce the overall production of wine.

In recent years, the growth in demand for Australian wine has slowed, as competition in export

markets has increased. The high Australian dollar has also significantly affected the

competitiveness of Australian wine exports, reaching near parity against the American dollar in the

week ending 15 October 2010. The $A has been near 90 cents US for most of 2010 which has

placed downward pressure on both wine and wine grape prices.

Following the larger than expected wine grape crop for the last couple of years, albeit, the 2009-10

harvest was a more respectable 1.5million tonnes, and falling wine sales, stocks of Australian wine

have increased to record levels. This increase in stocks and ongoing weakness in the demand for

Australian wine has seen wine grape prices continue to decline in the 2009/10 harvest. Prices are

expected to remain low through the coming 2010-2011 harvest.

It has been widely reported that there is still a massive oversupply of Chardonnay with many

growers not harvesting this year’s fruit due to the low price offered from the wineries. In many

cases, the prices offered fell well short of their annual production costs and freight. It appears that

much of the surplus fruit is as a result of many contracted areas coming to the end of their terms,

with many thousands of tonnes now uncontracted flooding the market, with little demand from

wineries for the fruit. There is also a large quantity of Sauvignon Blanc being imported from New

Zealand at in some cases less than the cost of production, further compounding the oversupply of

Chardonnay. Grape prices are likely to remain low as long as there is a supply/demand imbalance.

On a more positive note, the River Murray irrigation allocations have recently been lifted to 67%

because of significantly increased inflows to the Murray-Darling Basin. The 67% allocation is the

highest in South Australia since 2006-07, when allocations were at 60%.



6.2. Market Position of Property

The subject property comprises several vineyards known as Miamba. The parcels are all within

close proximity to each other and are managed as a whole, with a common irrigation system.

The property is well established to several wine grape varieties and there is a total planted area of

130.77 hectares. The expected price bracket of the property as a whole is significantly above many

other historic sales within the area. Whilst there have been a number of vineyards sold in recent

times, from which comparisons can be made, they are much smaller. Whilst the properties could be

sold individually, the vines are currently irrigated from a central storage and pumping station. It

would therefore require some works to restore an independent irrigation system to each property.

As discussed earlier the property was originally established by Grant Burge Wines and has been

leased since August 2007 for an eight (8) year term which expires August 2015 with three further

rights of renewal of four years each. Grant Burge Wines owned this vineyard and originally

established most of the present day vines.

Established in 1988, Grant Burge Wines has grown to become one of the top 10 privately owned

wine companies in Australia. The company has a strong commitment to its Australian consumers

and overseas markets in the United Kingdom, Europe, Canada, the United States and Asia. Grant

Burge the current Proprietor and Chief Winemaker is a fifth generation member of a winemaking

and grape growing family that has been part of the Barossa since 1855. Grant Burge Wines has

an extensive network of premium quality vineyards in Australia, strategically positioned throughout

the Barossa region.

Grant Burge Wines would be considered to offer a reasonably strong lease covenant to the

property and would be viewed favourably by potential investors. The lease has been recently

negotiated with a long initial lease term. The Lessee has established the majority of the property

over an extended period of time and many of the well known and highly regarded Grant Burge

wines originate from this vineyard. The lease has three further rights of renewal remaining.

The lease allows for annual reviews to 1.5% for the term of the lease, with a market rent review at

the 5 year anniversary and at renewal. The market rent is to be determined based upon “rent =

9.8% * Market Value”



The in situ irrigation system has the capacity to operate on a fully automatic basis and provides

very efficient water usage. Whilst we haven’t been provided with the actual water usage figures, the

total permanent allocation equates to approximately 1.9mgl’s per hectare. This allocation is

considered more than adequate for the property. The 68 mega litres of surface water may not be

collected in very dry years and therefore based upon only the underground allocation; there is 1.4

mega litres per hectare available. Even with the total plantable land established there is over 1.1

mega litres per hectare available, (plus the surface water), which is about the average annual

usage for the district.

We emphasise that the property’s value is assessed with continuation of the existing use,

assuming that the vineyard is to continue under sound management practices and offered subject

to the existing lease agreement.

6.3. Sales Evidence

We have considered the sale of vineyards and holdings in the general locality in order to determine

the market value for the property as a whole. Whilst there have been a number of sales within the

Barossa Valley in recent times, there have been no sales, to our knowledge, over about $1,5m.

There have however been several sales within other districts of vineyards over $1.5m plus. We

have, amongst others, considered the following sales within our deliberations.

1. Property: 2 Croft Road, LENSWOOD Date of Sale: Nov-2009

Sale Price : $1,900,000 (excluding GST)

Site Area: 43.00 ha

Zoning: Rural

Rate/ha of site: $44,186/ha

Improvements: The subject property comprises a substantial Adelaide Hills

vineyard originally established by Tim Knapstein. There is

approximately 24.3 hectares of established vines comprising 8

hectares of Pinot Noir, 8 hectares of Sauvignon Blanc, 2.4

hectares of Semillon, 2.4 hectares of Chardonnay, 1.5

hectares of Cabernet Sauvignon and 2 hectares of other. The

vineyard was established in 2000 and has a well established



trellis system with single cordon wire and additional foliage

wires with a suspended drip wire. The property sold with a

hanging crop and some minor machinery included in the sale

price. The property has been sold with a supply contract to TK

Wines (Tim Knapstein) and due to the terrain the property is

handpicked and pruned.

Sales Comments: Upon analysis of the sale price the established vineyard

equates to approximately $67,500/ha overall.

2. Property: Tatachilla Road, MCLAREN VALE Date of Sale: Oct-2009


Site Area: 41.50 ha

Zoning: Rural


Improvements: The property is situated adjacent the south western corner of

the Mclaren Vale township, split by Main South Road and

bordered by California Road to the west. The property is fully

established to vineyard, which is considered of average quality

only having a total planted area of 38.1 hectares. There are

various improvements including a cream brick dwelling, and

machinery storage shedding. The soils are heavy brown clays

with some shallow limestone. The vines are irrigated with an

underground bore and there were no contracts offered for the

sale of the fruit. The average annual rainfall for the area is

650mm to 700mm.

Sales Comments: Sold under instruction from the receiver manager during

softening vineyard market conditions. After making deductions

for the nominal value of the improvements, the vineyard value

equates to $50,000/hectare of planted area.

3.. Property: Sturt Highway, LAKE CULLULERAINE Date of Sale: Feb-2009


Site Area: 185.70 ha

Zoning: Rural




Improvements: The property comprises an established vineyard at Lake

Culluleraine which is mid way between Mildura and Renmark.

The property has a total vineyard of 172 hectares with Shiraz,

Cabernet Sauvignon, Merlot and a small area of Semillon. The

vineyard was planted in 1998 and has a total water licence of

1,350 mega litres. Improvements include a modern dwelling

and several implement sheds. Offered for sale by Constellation

with a Grape Supply Agreement offering an above district

average price also including a range of machinery such as

harvesters, tractors, spray equipment and utes. The sale

included the crop, however the purchaser took on the

management in late 2008 and therefore we consider the actual

value of the crop to be limited given the risk of failure from this

early stage.

Sales Comments: After deducting the estimated value of the P & E, the crop and

improvements, the estimated value of the vineyard equates to

$36,000/ha of planted area.



7. Risk Analysis

7.1 SWOT Analysis

A SWOT analysis summarises the outcomes of this assessment. Key points under the headings

Strengths, Weaknesses, Opportunities and Threats are outlined below:

Strengths

• Efficient irrigation system and water usage with adequate supply and storage

• Good remaining lease term

• Contained within 5 Titles

Weaknesses

• Continued low grape prices and returns may affect the market value of the rental at lease expiry

• Annual reviews to a maximum of 1.5%, which is well below historic and projected CPI

• Current rental is likely to fall at market review in 2015

Opportunities

• An increase in grower returns and vineyard prices may help secure a rental increase at the

market review in 2015

• Potentially sell in separate parcels, subject to separation of services

Threats

• Continuation of the recent and future droughts will effect temporary and permanent water

restrictions

• Rising interest rates already appear to have had a negative effect on purchase demand in some

markets.

• Commodity prices, which are linked to supply and demand, are likely to remain uncertain for the

short term.

• Further worsening to the global credit crisis may continue



7.2 Purchaser Profile

The wine industry has been dealing with significant oversupply and severe water restrictions for

some time now, however the demand for quality properties was until early 2008 was considered

reasonably good.

With the exception of the Foster vineyards which were sold in 2009, the current vineyard market

however has been characterised by a lack of activity albeit there is a large supply of inferior

vineyards currently for sale. Although absent from the market for most of 2009, institutional

investors and international parties appear to be showing interest in the rural sector in the southern

states.

The winery purchasers who were active in the market until 2008 appear to be struggling to survive

in many cases from the effects of both the wine over supply and the global financial crisis, which

saw share prices plummet and many companies struggle to renew debt. Several wineries in the

past year have been placed into receivership including Cockatoo Ridge Wines and the ex

Jamiesons winery.

Given the expected price bracket for which the subject property will fall there is a very thin market

segment for such a large holding at present. We believe that the property would be saleable at the

valuation figure, although a longer selling period may be required than has traditionally been

experienced, to have regard to the thinner number of purchasers in the market at present. The

most likely purchaser with the capacity to purchase the property is an institutional purchaser such

as an agricultural trust, who have only recently re-entered the market. Syndicates have been

relatively active in recent times in the commercial market space, and we would expect some limited

enquiry from this sector. Given the secure income available until 2015, many potential investors

would anticipate the vineyard market has recovered prior to the lease expiry.

We consider the property would be readily saleable at or around the valuation figure within a 3 to 6

month period.



8. Valuation Rationale

8.1. Valuation Methodology and Considerations

We have been instructed to assess the market value of the subject property comprising the land

and fixed improvements subject to the existing lease agreement. We have assessed the market

value of the property assuming that the existing Water Licence will remain linked to the property.

The subject property is subject to a lease agreement with reasonable remaining term to Burge

Corp Pty Ltd. Due to the complexity of the cash flow with annual reviews to 1.5% and market

review in 2012 and 2015, we have adopted a Discounted Cash Flow (DCF) Analysis as the primary

method by which to assess the market value of the subject property. Whilst this valuation method is

usually adopted for more traditional investment property types, we consider that it suited to the

subject property due to the complex and long term cash flow we have analysed. We have

undertaken a Capitalisation Approach as a check subject to the lease agreement.

8.2. Discounted Cash Flow Approach, subject to the existing lease agreement

Capitalisation of income is generally not preferred as a primary valuation method for rural property.

In the case of the subject property, the Discounted Cash Flow approach has been utilised to

adequately analyse the long term lease agreement with the complex rental reviews.

The measure of the market value of the property is the discounted expected future income stream

from that property. The income stream is that received by way of rental, less the costs of achieving

the rental. The concept of the discounted cash flow acknowledges that there will be cash in-flows

and out-flows through the life of the project.

The Discounted Cash Flow Approach incorporates four unknown variables:

1. The appropriate discount rate (target IRR) to be applied to the cash flows.

2. The rental and expenses growth rate.

3. The rate of the escalation to be applied to estimate a likely redemption or Terminal value.

4. The amount of capital expenditure which may be required to maintain the cash flow during the

term of the holding period until redemption.



Net operating income has been discounted by a market derived discount rate, together with the

terminal value of the property in the last year of the cash flow, based on expected growth and

having regard to the income at this time.

As discussed previously, the lease agreement extends to 2015 with fixed annual rent reviews and a

review to market in 2012 as detailed herein. We have therefore adopted the expected future

earnings for the cash flow and discounted them to the present value, as at 31st December 2010.

There are several ways we can determine the expected value of the market rental at lease expiry.

As we are aware that CLIL have recently leased a vineyard in Griffith NSW based on a rate of 10%

of the market value to Fosters Wines Ltd, we have adopted the same method herein. More recent

market negotiations have been at a slightly lesser rate of 9.8%. We have adopted a rental

equivalent to 9.8% of the estimated market value.

We have adopted the current passing rental of $1,292,004 indexed to 1.5% until the first

opportunity for a market renewal of the lease in 2015. We have then adopted a rental of

$1,053,322 per annum at this point, as detailed within 5.3 Net Market Income.

It is also necessary to determine a likely Terminal Value. We have calculated a Terminal Value

(TV) based on the current market value with vacant possession. The vacant possession value has

been used because we consider the lease has some added value and may artificially inflate the

Terminal Value if this value is used. The Terminal Value adopted is approximately $67,500/ha

which is below the market value adopted subject to the lease.

Whilst there are no market transactions of other leased vineyards from which a discount rate can

be derived, there are a number of investment properties offering different risk profiles, from which

comparisons can be made.

We have also looked at the returns that are achieved for the Wine Trust investors, which recently

have been as much as 25% (based on a $0.08 dividend). The longer term returns have been

mostly around 10% to 15%. A Discount Rate of 12.0% is considered to adequately reflect the risk

profile of the cash flow and expected returns to investors.

As stated above, we have adopted a cash flow over a 10 year holding period. As the income is

received in bi-annual (half yearly) instalments we have discounted the income at both the start and

end of each yearly period and then averaged the two values. This gives a close approximate to

discounting the cash flow over bi-annual periods. We have then added to this the Present Value of



the Terminal Value after deducting the selling costs and then deducted acquisition costs at 6.25%

of the start value.

This shows a Net Present Value of $10,113,049 exclusive GST. Adopting the rounded NPV of

$10,100,000 equates to a rate per hectare of $77,237. This value appears to be at the upper end of

the market range however is considered reasonable given the strong lease covenant to the

property. The summary of calculations can be shown as follows:

Discount Rate 12.0% Discounted Value of Cashflow $7,343,919 $7,343,919 PV of Terminal Value $3,401,195 Total NPV of cash flow $10,745,114 Less acquisition costs (6.25%) (-$632,066) Net Present Value $10,113,049 Rounded value $10,100,000 Rate per Hectare (subject to lease) $77,237

We should state that the accompanying cash flow forecast is prepared solely for the purpose of this

valuation and does not necessarily correspond or reconcile with any cash flow forecast which may

be made by the owner for management or budgeting reasons.

The cash flow methodology is acknowledged as being extremely sensitive to any change in the

various integral components and we have therefore sought to minimise the level of perceived risk

of each value component.

The considerations adopted, reflect in our view, commercially supportable assumptions and

projections, based upon current market activity and recorded date, while at the same time

recognising that any projections maybe subject to change from external factors that are not

currently evident. Future predictions must therefore be, by their nature, regarded as somewhat

speculative.

8.3. Capitalisation Approach, subject to the existing lease agreement

In accordance with our instructions we have also undertaken the capitalisation of the net annual

income as a check. There are no sales of comparable leased vineyards that we are aware of,

which have been sold in recent times. It is therefore difficult to determine the likely expected returns

for an investment of this nature. It is reasonable to expect that returns would be higher than those

currently achieved for more conventional property types.



To undertake the Capitalisation Approach, we must first determine the net market income to be

applied to the property for the calculations. The passing rental is $1,292,004 per annum net. We

have adopted this level of income for our calculations, as we consider an investor would.

We consider a capitalisation rate in the order of 12.5% to 13.0% would be achievable for this

income stream in the market place. Whilst other more traditional property types show capitalisation

rates of between 8% to 10%, we consider a capitalisation rate of 12.75 % for the subject property,

adequately reflects the risk profile, the future expected income returns and the likelihood of the

tenant renewing their lease. The Capitalisation rate toward the middle, also takes into consideration

the undeveloped land which is suitable for further vineyard plantings in the near future, which would

in turn increase the passing rental. Applying this capitalisation rate to the net annual income of

$1,292,004 equates to $10,133,365. The value as derived by the NPV approach is $10,113,049.

After due consideration of both approaches, we have adopted the rounded figure of $10,100,000

as the market value, subject to the existing lease as detailed herein and exclusive GST.



9. Valuation Certification

Acting under instructions from Regenal Investments Pty Ltd, as nominee of CK Life Sciences Int’l

(Holdings) Inc, Knight Frank Valuations (SA) has undertaken a valuation of the Miamba Vineyard,

Miamba Road, Lyndoch SA. We confirm that we have inspected the property as described herein

and have prepared this report.

Subject to the overriding stipulation’s contained within the body of this report, we are of the opinion

that the market value of the subject property, assuming a sale of the freehold interest, subject to

the lease as detailed herein, with continuation of the existing use, including Water Licence No:

4035-2 relevant to prevailing levels of value as at 31 December 2010 for Major Transaction

purposes was:

Market Value (Subject to existing lease and inclusive of Water Licence No 4035-2)

$10,100,000 exclusive GST (Ten Million One Hundred Thousand Dollars)

This certificate of valuation forms part of, and should not be used or read independently from, the

complete report.

Knight Frank Valuations SA JASON OSTER NICK BELL B. Bus. Prop. (Val.) A.A.P.I. DIRECTOR Dip. App. Sc. (Farm Management) Associate Director – Agribusiness Specialised Water Valuer & CERTIFIED PRACTISING VALUER The counter-signatory verifies that this report is genuine, and issued and endorsed by Valuation Services (SA) Pty Ltd, trading as Knight Frank Valuations (SA). The opinion of the value expressed in this report, however, has been arrived at by the prime signatory acting as the valuer in accordance with instructions given. This valuation report is for the use of and may be relied upon only by the party to whom it is addressed. No other party is entitled to use or rely upon it and the valuer shall have no liability to any party who does so.

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V18885.02 - Miamba Vineyard, Miamba Road, LYNDOCH, SA - JAS … · 2015-04-21 · 2 Valuation...

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