IPD UK Annual Rural Property IndexResults for the year to 31st December 2013

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Sponsors

Disclaimer

© IPD (Investment Property Databank Ltd.) 2014 All rights conferred by law of copyright, by virtue of international copyright conventions and all other intellectual property laws are reserved by IPD. No part of the UK Rural Property Investment Index may be reproduced or transmitted, in any form or by any means, without the prior written consent of IPD.

This Index is neither appropriate nor authorised by IPD for use as a benchmark for portfolio or manager performance, or as the basis for any business decision. IPD gives no warranty or representation that the use of this information will achieve any particular result for you. IPD has no liability for any losses, damages, costs or expenses suffered by any person as a result of any reliance on this information.

The IPD UK Annual Rural Property Index measures un-geared total returns to direct investment in a sample of tenanted farmland. At December 2013 the sample consisted of 4208 assets, with a total capital value of just under £3.1bn and a total return for the year of 12.3%

*Index based at December 2000. Data sources: IPD UK Annual Property Index, IPD UK Residential Property Investment Index.

Data sources: MSCI, J.P. Morgan

Equities 3207.4 3799.9 18.5 - - 8.6 12.9 11.7

Bonds - - -5.2 - - 4.8 4.5 -

Comparative data

IPD UK Annual Rural Property Index

Total return index

Dec-2012

Dec 1980= 100

Total return index

Dec-2013

Dec 1980 = 100

Total return %

1yr

Incomereturn %

1yr

Capitalgrowth %

1yr

Total return %

3yr 5yr 33yr

Rural property 1364.0 1531.5 12.3 1.4 10.7 12.4 10.9 8.6

Commercial property

1565.1 1733.0 10.7 5.7 4.8 7.3 8.0 9.0

Residential market lets*

318.9 365.8 14.7 2.7 11.7 11.7 11.2 -

Rural property investment performance

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Mainly Cereals Intensive Arable Dairy Mixed Cropping

Capital Growth Income Return Total Return

Total return and the income & capital components, held property 2013 %

Other

Repairs & Maintenance

Insurance

External Management Fee/resident agents fee

Cost breakdown on held properties 2013 %

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201320062000199419881981

Market Total Return - Held properties

Universe Total ReturnTransactions impact

UK market total return % pa, showing effect of transactions

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Equities BondsCommercial Property

Residential Property

Rural Property

Investment performance by asset class, % pa

Headline results

• In the 12 months to December 2013, the IPD UK Annual Rural Property Index returned 12.3%, higher than the 9.4% seen in 2012.

• Capital growth, at 10.7%, drove the returns, while income return dropped to 1.4%, its lowest point in the index’s 33 year history.

• Transaction activity had little impact on performance with the overall total return to all assets also at 12.3%.

• There was a continuing net disinvestment from tenanted farmland within the IPD index, standing at -1.6% of the value of the Index in 2013.

Other asset classes

• The IPD UK Rural Property Index outperformed the commercial property market in 2013, with the IPD UK Annual Property Index achieving a total return of 10.7% for the year.

• Over three, five and ten years, farmland has outperformed all core UK property sectors, with returns of 12.4%, 10.9% and 12.5% respectively. UK property delivered 7.3%, 8.0% and 6.3% over the same periods.

• Against equities and gilts, commercial farmland compares well, outperforming both on a three and ten year basis, though underperforming the more volatile equities market in 2013 and over five years.

Market commentary (provided by sponsors)

Rural property continued to generate impressive returns for investors in 2013. Indeed, the sector has performed well throughout the recession, producing a 10.9% total return during the last five years, outperforming all other property types and reinforcing its reputation as a valuable element of an investment portfolio.

Most of the return is generated by rising values (10.7% capital growth in 2013). Although the income, which is mainly in the form of rents paid by farmers to use the land, is small (1.4% of capital employed), rents are rising due to it being a profitable period for farming.

There has been a considerable increase in activity in the investment market this year with purchasers chasing quality holdings.

For the last few years we have become used to a steady trickle of investments coming to the market, with most of the difference in values related to the expectations about the reversion and tax status. This year we saw some better quality investment farmland coming to the market, of primarily arable holdings on fully repairing terms, which sold for prices well in excess of the guide prices. Just as we are seeing in the main farmland market for farms without sitting tenants, there is increasing price differentiation for quality, where investors are seeking large good quality arable holdings that offer the best opportunities for long-term rental and capital growth. Investors seem much more optimistic about the arable sector’s profitability, possibly reflecting the higher commodity prices and better ability to control costs. Investors therefore appear to be being driven by asset performance fundamentals and not just seeing the investment market as a cheaper form of tax vehicle.

Rural property investment performance

Capital growth 1yr 3yr 5yr

South East 8.0 7.6 8.7

South West 10.6 12.1 10.8

Eastern 7.9 10.5 8.2

East Midlands 17.6 15.0 11.2

West Midlands 13.7 12.7 9.2

Yorks & Humberside 4.1 8.2 8.1

North West & North East 6.0 5.6 6.9

Other 6.5 8.5 5.8

All UK 10.7 10.7 9.2

Rural property investment including transactions Rural property investment held properties only

Total return Income return

Capital value growth

Index total return Dec 1980=100

Total return Income return

Capital value growth

Gross rent passing

growth %

Initial yield

2009 9.5 1.7 7.7 1331.2 8.4 1.8 6.6 6.9 2.1

2010 12.6 1.6 10.8 1498.9 9.0 1.6 7.3 3.9 1.8

2011 18.1 1.5 16.3 1770.4 15.6 1.6 13.8 24.9 1.7

2012 12.2 1.5 10.5 1986.2 9.4 1.6 7.7 4.4 1.9

2013 12.3 1.5 10.7 2229.7 12.3 1.4 10.7 5.3 1.8

Annualised return over the last:

3 years 14.2 1.5 12.5 12.4 1.5 10.7 11.1

5 years 12.9 1.6 11.2 10.9 1.6 9.2 8.8

10 years 13.8 1.9 11.7 12.5 1.9 10.4 5.1

20 years 14.2 2.9 11.0 12.7 2.9 9.6 3.8

33 years 9.9 3.7 6.0 8.6 3.6 4.8 2.8

As a result, there has been a considerable drop in yields, especially on arable investments over the year. There has also been much more interest and activity from new private purchasers coming into the market. They have primarily been seeking arable units on fully repairing terms to reduce risks from repair surprises. Furthermore since these are easier to manage, they can be controlled from a great distance away and thus appeal to a much wider range of purchasers. The fall in yields has not happened for all farm types, with more marginal, lower quality land investments struggling to sell, to such an extent that there is almost a 50% difference in yields between the best and worst.

Another factor in the market is rising farm rents. For a number of years, the higher rents being agreed for new open market lettings have been dismissed as possibly a blip. However there is a growing realisation that this rise is more long-term and that the difference in rental value between Agricultural Holdings Act and Farm Business Tenancies had become unrealistic. We are therefore starting to see rents on investment farms, with Agricultural Holdings Act tenancies, rising by significant percentages, although many landlords and tenants are phasing in this market evidence over several rent review cycles. The effect is rising investment capital values due to both expected rent reviews and agreed rents; again, this is much more of a factor for the arable units than livestock units, reflecting the sectors’ profitability.

Looking forward, the prospects for income return remain positive. The recent period of profitability for farming should continue based on the outlook for commodity prices, further helped by the reform of the Common Agricultural Policy which was as benign as it could have been. This will support farm rents, which we expect to continue rising over the medium-term (5 years).

Regional variations (annualised)

Total return 1yr 3yr 5yr

South East 9.7 9.3 10.4

South West 12.3 13.8 12.4

Eastern 9.6 12.1 9.8

East Midlands 18.9 16.7 13.0

West Midlands 15.4 14.8 11.4

Yorks & Humberside 5.7 10.0 9.9

North West & North East 7.7 7.1 8.4

Other 8.2 10.2 7.3

All UK 12.3 12.4 10.9

Income return 1yr 3yr 5yr

South East 1.6 1.6 1.6

South West 1.5 1.5 1.5

Eastern 1.5 1.4 1.5

East Midlands 1.1 1.5 1.7

West Midlands 1.5 1.9 2.0

Yorks & Humberside 1.6 1.7 1.7

North West & North East 1.6 1.5 1.5

Other 1.6 1.6 1.4

All UK 1.4 1.5 1.6

Index composition — 2013 overview

Index construction

The IPD UK Annual Rural Property Index measures un-geared total returns to direct investment in a sample of tenanted farmland. It is compiled from valuation and management records for individual farms and estates held by institutional and private investors. Data is collected from investors and managing agents and audited by IPD. All year-end valuations used in the Index are conducted by qualified valuers working to RICS guidelines. Confidential tenant names are not disclosed to IPD. At December 2013 the sample consisted of 4208 farms/estates with a total capital value of just under £3.1bn.

The Index shows total returns on those properties that have been held throughout the year without any part purchases or sales. This basis is the most appropriate for comparison of the Index results with other asset classes.

However, the realisation of profits from reversions to vacant possession and active management, which frequently involve part sales or purchases of small parcels of land or buildings, are both integral aspects of the rural investment market. Further analysis on the total market performance is available from IPD.

The Index shows annual time-weighted total returns calculated by chain linking monthly returns to capital employed.

In any month:

• Total return is the sum of capital and income return on capital employed.

• Income return is income receivable net of property management and other irrecoverable revenue expenditure as a percentage of capital employed in that month.

• Capital growth is the change in capital value from one month to the next, net of any capital expenses and receipts, as a percentage of capital employed.

• Capital employed is the capital value at the start of the month plus the gross purchase price of any whole or part purchases and any on-going capital expenditure.

The monthly returns are the basic building block for returns over all other periods. Annual returns are calculated by chain linking 12 monthly values. Annual time-weighted returns calculated in this way require details of monthly cashflows and monthly capital values. Where monthly valuations are not available, IPD computes estimated values by interpolation between successive quarterly or annual valuations.

• Initial yield is current net rent passing divided by year-end gross capital value.

• Net investment is the sum of gross purchase costs, development expenditure, and costs of all capital improvements, less net sales receipts and all other capital receipts summed over the period.

• Turnover is the sum of gross purchase costs, net sale receipts and all other capital expenditure and receipts summed over the period.

The historical figures are unfrozen, thus any new funds or changes to current funds are reflected in the Index.

Index progress

Total value(£m)

Number of acres*

Number of assets

1981 487 512,161 -

2004 1,606 569,989 -

2005 1,657 708,233 -

2006 1,766 697,023 -

2007 2,249 676,027 -

2008 2,097 586,335 -

2009 2,097 516,412 -

2010 2,258 541,492 -

2011 2,594 506,593 -

2012 2,736 395,575 2,682

2013 3,090 338,340 4,208

Contact

Rural market: mark.weedon@ipd.com +44.20.7336.9286General enquiries: enquiries@ipd.com +44.20.7336.9200 IPD Head Office Ninth FloorTen Bishops SquareLondon E1 6EGUnited Kingdom+44.20.7336.9200 www.ipd.com@IPDnews

Type of lease Number of tenants

AHA - FRI 169

AHA - Traditional Lease 445

Farm Business Tenancy 574

* Where acreage data is available; £1830m equivalent to 59.2% of index value at December 2013

Regional breakdown

At end 2013 Weight by region

(% cap val)

Capital value (£ per acre*)

Number of assets

South East 17.3 6,745 140

South West 21.1 6,037 548

Eastern 19.8 3,931 135

East Midlands 15.9 6,778 334

West Midlands 8.2 6,701 108

Yorkshire & Humberside 3.8 6,867 21

Northern England 7.0 7,219 33

Other 6.9 3,679 199

* Where acreage data is available; £1830m equivalent to 59.2% of index value at December 2013