Estimates on land prices according to a analyst website...This...

Estimates on land prices according to a analyst website...

This relates to TODHA..


Similar security

The amount of security per debenture is almost identical to that backing the bonds. At book value, the assets are worth 50% more than the value of the outstanding debentures. This entity produces its own financial statements, though, which means we have a much clearer picture of the underlying assets.


The trust owns two properties. The first, in South Australia, is planted with 763 hectares of citrus orchards, 440 hectares of wine grapes and has an annual entitlement to 8,861 megalitres of water rights.


According to the local Elders office, this type of property’s current market value is something like $30,000 per hectare, including water rights, down from approximately $50,000 a few years ago. Uncertainty about future water allocations is weighing substantially on the prices potential purchasers are prepared to pay – but $30,000 per hectare still translates to a value of $36m for the property.


Grapes of wrath

The second is a 409-hectare property in New South Wales originally planted with table grapes. The original project was a financial disaster for investors and Timbercorp is halfway through replanting the entire property with a different variety of grape. That’s going to have a serious impact on the value that might be realised if it comes to a fire sale – perhaps knocking the value down to as little as $15,000/ha, or $6m for the whole property.


In a distressed environment, then, the Timbercorp Orchard Trust might get as little as $43m for its two properties. Given the face value of the debentures outstanding is $59m, that would mean bondholders end up with $73 back on every $100 debenture. They are currently trading at $31.20, though, so even $73 would represent an outstanding return. There’s no law that says the result can’t be worse, but we’re assuming a fairly drastic scenario.


Are these prices realistic?