ARK Fund buys Rewards Group sandalwood property

Listed agricultural investment company The ARK Fund Ltd has expanded its close alliance with West Perth-based managed investment scheme promoter Rewards Group by acquiring a sandalwood property in the Western Australian wheatbelt.

The sandalwood property has been leased to the responsible entity of Rewards' 2006 sandalwood project, which closed last June after raising $15.4 million from investors.

It is the third property that Ark has acquired on a sale and leaseback basis.

Ark has previously acquired a $2 million property in Kununurra used by Rewards' tropical fruits projects and a $4 million Queensland property used by Rewards' strawberry project.

It is finalising the purchase of two fully-developed mango farms in north Queensland, which are also used by Rewards.

Ark and Rewards are both managed by Andrew Radomiljac, Craig Anderson and John Kenny.

The sandalwood property is located south-east of Pingelly and has been acquired for $2.0 million.

Ark said the rent equated to an income yield of 10 per cent while the cost of debt used to acquire the property was 7.37 per cent.

Ark's ASX announcement is pasted below:

The Board of the ARK Fund Limited (ARK) is pleased to announce the purchase by ARK of 1172 hectares of land 30 kilometres south-east of Pingelly in Western Australia for the purchase price of $2,027,900 (Sandalwood Property).

ARK drew down on its recently concluded debt facility with NAB in order to complete the purchase of the Sandalwood Property. The purchase was made therefore with 100% debt capital. The cost of the debt capital is 7.37%.

Simultaneous with its acquisition, ARK has leased out the Sandalwood Property for an initial term of 20 years. The starting rent is $202,790 plus GST. This equates to an income yield of 10%. The rent to be earned by ARK automatically rises by 2.8% per year during this 20 year lease period.

Valuation

The Sandalwood Property is comprised of 8 contiguous lots on 7 certificates of title and has a fence to fence area of 1172Ha. Prior to making an offer for the Sandalwood Property, ARK received a sworn valuation in respect of the Sandalwood Property which swore that the value of the Sandalwood Property was $2,027,900.

The sworn valuation of the Sandalwood Property also makes the following important points:

• The Sandalwood Property currently is a mixed farming property suitable for various crops (wheat, lupins, barley, canola and/or oats) and grazing purposes (i.e. sheep).
• The Sandalwood Property has been well cleared and developed.
• The Sandalwood Property is comprised of good soil types with minimal areas of saline-affected soils.
• The Sandalwood Property is regarded as being well watered with a watering point to all paddocks and has generally been self-sufficient with respect to water during extended dry periods.
• The Sandalwood Property is located south-east of Pingelly and due diligence enquiries indicate that the rainfall (approximately 400mms per year) and productivity in this particular locality is generally very reliable.
• The Sandalwood Property has upon it no buildings or other improvements of any value.
• Land in the area in which the Sandalwood Property is located has been tightly held for many years.

Market Conditions Pingelly

The real estate market in the area in which the Sandalwood Property is located has been extremely active over the last 18 to 24 months with very strong upward movement in land values in spite of the relatively poor outlook for commodity prices until recently.

Whilst the strong upward movement in land values for large rural properties may have abated, there is very strong demand emerging for lifestyle holdings in this area.

Demand for larger rural property has been widespread and includes overseas interests though for the most part sales have been to local and adjoining property owners wishing to expand.

Based on historical sales data, land values in the Western Australian Wheatbelt region (the area in which the Sandalwood Property is located) have increased on average by approximately 9% per annum in the period from 1996 to 2003. Land values increased therefore by approximately 6.3% above that 8 year period s average CPI, which was 2.7% per annum.

Location

The Sandalwood Property is located in the Great Southern Region of Western Australia approximately 30 kilometres south-east of Pingelly via the Wickepin-Pingelly Road, and is approximately 190 kilometres south-east of Perth, the capital of Western Australia. Please find following a map indicating the exact location of the Sandalwood Property.

There is a modest range of commercial and recreational facilities and a primary school available in Pingelly with a wide range of educational, commercial and recreational facilities available at Narrogin, the major regional centre for this area, approximately 45 kilometres south-west of the Sandalwood Property.

Historically land in this region has been used principally for grazing for wool and meat production, though changing technology and economic circumstances have seen a greater emphasis placed on cropping.

There appears to be an emerging trend in the vicinity of the Sandalwood Property where larger holdings are being split up and sold as lifestyle holdings.

Services

Western Power has a single-phase electricity line running along a portion of the northern boundary of the Sandalwood Property though there is no power point or meter located on the Sandalwood Property. There is a telephone cable from the Telstra network adjacent to the Sandalwood Property.

There is a modest range of commercial and recreational facilities available in Pingelly to the west, Yealering to the east, and Wickepin to the south-east with a greater range available at Narrogin to the south-west.

Town Planning

The Sandalwood Property falls partially within the Pingelly and Wickepin shires and is zoned Farming by the Shire of Pingelly and General Farming by the Shire of Wickepin.

Rainfall and Climate

The Sandalwood Property is located in an area with a dry warm Mediterranean climate, which typically encompasses hot dry summers and cool wet winters. The area is regarded as having a reliable annual rainfall of approximately 400mms per year. Most of the rainfall occurs between May and October although significant summer thunderstorms are not uncommon.

Topography

The Sandalwood Property is moderately undulating with several granitic and lateritic ridges located through the holding. Though the Sandalwood Property is generally quite high in the landscape, the Woodebulling Brook largely bisects the Sandalwood Properly as it runs in a north-easterly direction exiting the holding in the north-east corner. There are numerous generally minor drainage lines that feed into the Woodebulling Brook collecting water from properties to the south and north-west.

The eastern boundary of the Sandalwood Property runs up to the Geelaming Hills along most of its eastern boundary.

Clearing and Development

Approximately 1010 hectares of the Sandalwood Property is cleared and considered arable and suitable for cropping and pasture production. There is approximately 107 hectares of granitic rocky ridges predominantly towards the western and southeastern
boundaries, approximately 5 hectares of uncleared land where the Woodebulling Brook enters the Sandalwood Property on the southern boundary and approximately 50ha of waterlogged creek lines. There are some generally isolated areas of granitic outcrops towards the northern boundary with some scattered through other sections of the holding. Generally the Sandalwood Property is well
developed and has numerous grade banks installed across it to ameliorate the affects of water erosion and harvest water run off into dams for stock watering purposes. The Woodebulling Brook is quite well defined and there is some generally minor erosion to the upper reaches of gullies particularly where water enters the Sandalwood Property along the north-western boundary. Most of the land has been well cleared and is largely free from rocks and stumps though some minor picking may be required following normal cultural operations.

Cropping Production Data

Crop yields to date on the Sandalwood Property in respect of its current use have generally averaged approximately 2 tonnes per hectare for wheat, approximately 1 tonne per hectare for lupins, 2.5 tonnes per hectare for barley, approximately 900 kilograms for canola and approximately 2 tonnes per hectares for oats.

Water Supply

There are 14 serviceable dams across the Sandalwood Property each ranging in size from approximately 1,500 to 3,000 cubic metres providing a water supply to all paddocks. There is an equipped well and an equipped bore that are both utilised during summer months. The well is located towards the eastern boundary and is equipped with a small windmill, a 6ft head on a 20ft tower delivering to a 9 kilolitre concreted corrugated iron tank, while the bore is located towards the western boundary is also equipped with a small windmill. The Sandalwood Property has always been self-sufficient in water, though during prolonged dry periods water may be required to be pumped from one water source to another. The Sandalwood Property is regarded as being well watered with a watering point to all paddocks and has generally been self-sufficient during extended dry periods.

Suitability for Sandalwood Production

The Sandalwood Property is ideal for the growing of Sandalwood (Santalum spicatum) trees. Sandalwood (Santalum spicatum) is native to Western Australia and is native to the area in which the Sandalwood Property is located.

The Sandalwood Property is thoroughly suitable for the growing of Sandalwood for the following reasons:

Sandalwood grows in areas that receive between 200 to 600 millimetres of annual rainfall. The rainfall at any plantation site should average more than 400 millimetres a year. The Sandalwood Property has reliable annual rainfall in excess of 400mms, and has adequate soil depth, nutrient levels, drainage and site microclimate conditions.

The Sandalwood Property is close enough (190Kms) to a major port (i.e. Port of Fremantle). Well established road and rail infrastructure exists from the Sandalwood Property to the Port of Fremantle.

The Sandalwood Property has a normal risk exposure profile to natural catastrophe after assessing key indicators, which include historical exposure of the site to fire, wind, disease or drought).

Rewards Group Sandalwood Project 2006

Rewards Group Limited s 2006 Sandalwood Project closed fully subscribed on 30 June 2006 after raising $15,445,000 (inc. GST) from 572 growers. ARK has leased out the Sandalwood Property for an initial term of 20 years to the Responsible Entity of the Rewards Group s 2006 Sandalwood Project. The starting rent is $202,790 plus GST. This equates to an income yield of 10%. The rent to be earned by ARK automatically rises by 2.8% per year during this 20 year lease period.

Further Acquisitions of Land in and around the Pingelly to Narrogin Region in Western Australia

ARK is greatly interested in acquiring further land in and around the Pingelly to Narrogin region that has reliable rainfall of approximately 400mms to 450mms per year and which is suitable for Sandalwood (Santalum spicatum) forestry. The details of such acquisitions will be made public as and when such transactions occur.