Sourcing Equity InvestmentsFor Production Agriculture

Ken WarlickDirector of Acquisitions704-604-2988 kwarlick@hnrg.com

February 2012

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DISCLOSURES

The information herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security. The contents of this presentation are for educational purposes only and may not represent the views or opinions of Hancock Natural Resources Group.

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Hancock Agricultural Investment Groupa division of Hancock Natural Resource Group, Inc. and a wholly-owned, indirect subsidiary of Manulife Financial Corporation (John Hancock Life Insurance Company)

Origins During the Farm Crisis of the 1980s (Founded 1990)

$1.5 billion in assets under management, covering over 280,000+ acres of U.S., Australian and Canadian farmland (Timber Division and Agriculture $10+ billion)

One of North America’s largest domestic farmland managers with offices located in Boston, Fresno, Charlotte, Louisville, Des Moines and Brisbane, Australia

Offering farmland investment advisory services with a minimum $5 million investment to institutional investors

Top-five producer of almonds, walnuts, pistachios, macadamia and cranberries

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WHAT IS AN INSURANCE COMPANY DOING IN THE PRODUCTION AGRICULTURE BUSINESS?

Parent Has Been In Agricultural Investments for Over 100 YearsStarted with Farm MortgagesFarmland Investing Began in the 1970s Through Joint VenturesFarm Economic Crisis of the 1980s was Not Kind To Institutional Investors – Many Exited the Business—including Hancock’s Farm Mortgage business.HAIG’s late 1980’s origins evolved from a simple business plan ---prophetically at a similar time as the release of “I Was Country When Country Wasn't Cool”

While Farmland Cap Rates Continue to Fall - Making This Business a Challenge – HAIG Client Returns Have Been Very Good

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Farmland Macro Outlook

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1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Popu

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in b

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U rban Population Rural Population

Projected →

Demographic Changes Driving World GrowthGrowing global population with largest growth coming from India, China and Sub-Saharan AfricaAs developing nations grow their economies, consumption rates will approach that of the developed worldDemand for food, feed and fiber production in the 21st Century will increase proportionately with population growth

…if current levels of per capita consumption remain at today’s levels

…POSSIBLY greater levels of consumption, based on demographic trends

Growing population moving to urban areas, accentuating impact on farmland supply/demand factors:― Greater demand for consumer products, fuel,

high-protein diets― Conversion of farmland reduces supply― Increasing water constraints

0.00

0.40

0.80

1.20

1.60

2.00

1980 1990 2000 2010 2020 2030 2040 2050

Popu

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in b

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s

India Sub-Saharan Africa China

Projected →

Major Developing Nations: Population Estimates 1980-2050E

China Population Trends: 1950-2050E

Source: FAO

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Farmland Macro Outlook

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Strong correlation between per capital GDP and protein consumption.― Developing countries obtain the bulk of

their caloric intake from carbohydrates (rice, wheat, tubers) and eat small amounts of animal protein

― Developed countries prefer to obtain much of their calories from protein such as dairy products and meat.

Dietary Progression in Developing Countries:― As per capita GDP growth continues,

citizens tend to substitute calories from carbohydrates to proteins (meat and dairy)

― Large increases in per capita meat consumption seen in developing counties

― Considerable room for further incremental growth

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0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

GDP per Capita (PPP)

Mea

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per

cap

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ar)

Increased Wealth Correlates with Higher Meat Consumption

0.0010.0020.0030.0040.0050.0060.0070.0080.0090.00

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

kg/c

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Brazil China Vietnam

Per Capita Meat Consumption: 1961-2008

Demographic Changes Driving World Growth

Source: FAO

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SO ….YOU ARE CONSIDERING SOURCES OF EQUITY FOR THE FARM BUSINESS

All We Need Is

Money to ?_______?

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THE RIGHT REASONS TO SOURCE EQUITY FOR THE FARM BUSINESS

Improves your efficiencies or competitive positionBusiness succession planningVertical integrationFamily and partner buyoutsRegional diversificationSpecial opportunities

• Time to take advantage of farm investment media blitz – “The Wall Street Club of the Month”

• I can’t get acceptable bank financing

• It’s a cheaper cost of capital than other sources

• Good way to sell the business

Quote From One Institutional Investor – “Before the Joint Venture our partner had the Experience and we had the Capital. After the Joint Venture our partner has the Capital and we have the Experience.”

THE WRONG REASONS TO SOURCE EQUITY FOR

THE FARM BUSINESS

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SWOT: THE DECISION?Strengths:What advantages your business over others? How does the opportunity enhance the business?Weaknesses (or Limitations): What characteristics place your business at a disadvantage relative to others?Opportunities:What external opportunities could improve performance (e.g. make greater profits)?Threats:What external elements could challenge the success or outcome business or project ?

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SOURCES OF PRIVATE EQUITY CAPITAL

High net worth individualsPrivate equity, hedge fund, and commodities investorsPension funds, endowments, foundationsVenture capitalistsPension fund advisors and private wealth managersFood and agriculture entrepreneurs

Typically sourced through investment bankers, equity consultants, bank trust departments and networks.

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TYPES OF PRIVATE EQUITY CAPITAL

Private equity is a broad term used to define any type of equity investment in an asset or a company that is not listed on a public stock exchange.Private equity covers a wide range of investment opportunities, including:― Early stage investment (angel investors), ― Take off (venture capital), ― Mid-growth investment (mezzanine finance), ― Later stage (private equity),― Sale and leasebacks, ― Distressed debt financing (sub-debt and others).

Private equity funds are generally organized as limited partnerships, which are controlled by the private equity firm that acts as the general partner.Institutional capital is a subset of private equity and generally represents funds sourced from insurance companies, pension funds, & endowments.

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IN FARM TERMS - THE HYPE FOR FARMLAND INVESTING HAS NEVER BEEN DEEPER

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"It's the only thing that lasts."Ted Turner quoting Gone with the Wind

“Investing in agriculture today will be like investing in oil in 2001 to 2002 ”

Economist Dr. Marc Faber:

Legendary investor Jim Rogers:“I’m convinced that farmland is going to be one of the best investments of our time”

Well known advocates of farmland as an investment include:• George Soros• NassimTaleb• Warren Buffett• Marc Faber• Lord Rothschild• Michael Burry• Barton Biggs

Bloomberg 8-2011 “Being Like Soros in Buying Farmland Reaps Annual Gains of 16%”

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“I’d rather have all the farmland in the U.S. than all the world’s gold.” - Warren Buffett, CNBC 3/2/11

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INVESTMENT BANKERS

ExpensiveDetermining the Firm’s Reputation and AbilitiesMany have tendency to Over-Promote the BusinessOver Simplified Numbers

Multiple Capital SourcesAnalyze Business For Investor - CIMProvide CoachingExperience in Dealing with Investors

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Challenges Benefits

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WHO ARE THE INSTITUINAL INVESTORS - DomesticIt’s a growing group and the sector is getting more crowded everydayHancock Ag Investment Group - Focus on leased row crops and directly operated permanent plantings in domestic and in select global markets. TIAA-CREF - Invested through multiple outlets until it bought Westchester in 2010. With the backing of its parent it is clearly the fastest growing member of the group with leased row crops and directly operated permanent plantings in domestic and most global markets. Also making integrated ag investments with a large funding commitment from its parent. UBS Agrivest – Invests in leased row crops and permanent plantings in the domestic markets. Teays River Investments, Agricultural Real Estate Investors, Ag Real Value Fund, LLC - Focus on owned and leased domestic row crop and livestock production operations. International Farming Corporation (U.S. Farming Realty Trust) - Invest directly in farming properties including row crops, pasture land, dairy farms and permanent crops in both domestic and international markets. Pensions Directly Investing - CalPERS, Texas Teachers Retirement, Canada Pension, HarvardPensions Mentioning Direct Investing – CALSTRS, Ascension Health Farmland REITs In the Making - Gladstone Land Corp, Optima, Chess Ag Full Harvest PartnersAgribusiness - Black River Asset Management LLC, an independently managed subsidiary of Cargill, Incorporated, is a global asset management company that provides sophisticated institutional investors with alternative investment opportunities.Others - Farmland LP, NGP Global Adaptation, Ceres Farms, LLC

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WHO ARE THE INSTITIONAL INVESTORS - International

South America – Adecoagro (International Farmland Holdings) claims to be the largest owners of farmland in South America, BrasilAgro, SLC Agricola, Macquarie Agricultural Funds, Bungee, Agro Terra, Brazil Iowa Farms.Australia - Sustainable Agriculture Fund, Terra Firma Capital Partners, Macquarie Agricultural Funds, Warakirri Agricultural Trust, Fabal, Agman Group. Canada - AgCapita Partners, Pike Management Group, Assiniboia Farmland Ltd. Partnership, Bonnefield Canadian Farmland Corp, One Earth Farms CorpEurope – Black Earth Farming, NCH Capital, Insight Investment

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INVESTOR RETURN EXPECTATIONS - DOMESTICWant better than market returnsReturns commensurate with the investment riskThe more the layers (middle men) within the Equity Source, the higher the investment return hurdlesThe type of investment will drive the investor return expectationsA farmland-only equity investment provides returns at relatively low risk levels― Low required cash income (4% to 6%)*― Land Appreciation (3% to 6% average)― Intangible returns associated with inflation hedge and real estate diversification― Long investment horizon (7 to 15 years)

A production agriculture business investment has a higher perceived risk component― Higher required cash income (10% to 20%)― Might have a land appreciation and portfolio diversification component― Tend to have shorter time horizons (3 to 7 years)* Irrigated farmland rents typically 150-250bps higher to compensate for irrigation system repairs and capital replacements.

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1919Source: Ibbotson Associates; Farmland: Ibbotson 1970-1990 (predecessor to the NCREIF Farmland Index); NCREIF Farmland Indices 1991-2010 (U.S. Benchmark only). *HAIG numbers are from January 1, 1991.

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PRODUCTION AG RETURNS IN OUR PORTFOLIO

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~~SLIDE REDACTED FOR CONFIDENTIALY ~~

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NCREIF Farmland Index posted an 8.70% total rate of return for the 2011 fourth quarter, comprised of 3.58% income and 5.11% appreciation.

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S&P / Fitch Moody'sAAA AaaAA+ Aa1AA Aa2AA‐ Aa3A+ A1A A2A‐ A3

BBB+ Baa1BBB Baa2BBB‐ Baa3BB+ Ba1BB Ba2BB‐ Ba3B+ B1B B2B‐ B3

CCC+ and Below Caa1 and Below

Investment Grade / High Yield Distinction

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What is the Price of Equity CapitalIt’s a Risk-Reward Proposition That Requires an Assessment of the Business

Standard Credit Assessment - the “Five C’s of Credit” (Character, Capacity, Capital, Conditions Collateral)Governance & delegation of authoritiesBusiness analysis― Review of business plan― Customer and supplier analysis

Risk managementAccounting & reportingBusiness ranking― Financial results― Benchmarking to industry― Peer comparisons― Sector margin potential

Competitive advantages and disadvantagesKey business risks and mitigantsSovereign credit riskInvestment rationale Expected Investor Returns Rise with the

Perceived Investment Risk

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WHAT IS THE INVESTOR LOOKING FOR?

Perfect management teamImpeccable corporate governanceTimely and accurate accounting and reportsCompetitive advantages & positionsA business that can “Drive Margin Expansion”

An investment that makes lots of money, generating: ―Better than Market Returns, and―Lower than Market Risks

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THE EVALUATION CAN BE BRUTAL“HOW THICK IS YOUR SKIN”

Management Assessment…Investors Want a Managing Partner That: ― Avidly seeks information; ― Thinks competitively; ― Surround themselves with smart employees and advisors

◘ This includes a CFO that is more than a book-keeper◘ A banker that is more than an order taker◘ A COO that also sees the big picture;

― Constantly seeks ways to improve in all aspects of the business; ― Seek out the right management accounting information and reports;― Use analysis as a management tool (trend analysis, cost analysis, shock, sensitivity,

what if and ratio analysis); and― Mitigates risks when reasonably feasible.

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INVESTOR EXPECTATIONS

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Communication― Timely Reports― No Surprises Ever― Never over promise

Strategic Planning & Decisions― Situation & Inventory Analysis ― SWOT Analysis ― Goals & Objectives ― Strategic Decision Making Tools ― Scenario & Whole Farm Planning

Production Costs, Budgeting & Financial Analysis― Machinery Management ― Enterprise Budgeting ― Partial Budgeting ― Whole Farm Budgeting ― Financial Measures― Performance Monitoring

Human Resource Management― Human Resource Organization ― Employee Handbook ― HR Performance Evaluation

Marketing & Risk Management― Marketing Strategies ― Marketing Plans ― Risk Identification ― Risk Mitigation

Forecast Requirements― Deliver What You Promise― Timeliness and accuracy

Accounting (GAAP or IFRS)― Accurate & Audit Ready

Reporting ― Financial Statements (Quarterly)― Tax Returns― Interfacing Systems

Compliance Reports― Commodity Position Reports― OSHA Compliance― Illegal Alien Worker Affidavits― Health Code and ADA― Pesticide and Fertilizer Use― Operations and Accidents― Treasury & Bank Accounts― Debt, Covenants & Insurance― Related Party Transactions― Conflicts of Interest

Access to All Records

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FARMING PRACTICES

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Precision Agriculture― Satellite-Based Auto Guidance Systems― Yields Monitoring and Mapping― On-the-Go Vehicle Based Soil Sensors― Site Specific Management of pH― Site Specific N-P-K Fertilizer Applications

Integrated Pest ManagementSustainable Agriculture― Triple bottom line: people, planet, profit. ― Reconciling environmental, social and

economic demands. ― Resource Conservation Audit

Land Management― Conservation practices ― Environmental practices ― Water efficiency, use and drainage― Wildlife management (fish screens – habitat)― Pollution controls― Wetlands/Compliance with Clean Water Act

and EPA regulations

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CONCLUSION - HINTS ON FINDING THE PERFECT MATCHKnow your exit strategy before you begin looking for an Investor partnerUnderstand the Investor’s commitment to the asset class ― Is this a Core Business or Toe Dipping opportunity for the Investor

Make sure the Investor has reasonable and sustainable return objectives― What happens when interest rates rise? When the Dollar strengthens?― Will falling farmland cap rates or stagnant farmland land prices make them flip-flop?

Aligned goals and objectives between the Investor and the farm businessWhat is the Investor’s time horizon – Does it match your needs?Understand the Investor’s “sales pitch” to it’s investor clients― Have they over-promised― Could the client could force the Investor to liquidate prematurely

Make sure your reporting and governance systems can meets or exceed the Investor needs― GAAP vs. IFRIS (Lease Treatment – Consolidation Issues – Mark to Market Accounting)

Consider FX ramifications with foreign capitalMake sure the Investor understands the volatility (markets – weather – supply) and that in tandem with rising profits, production agriculture risks/volatility has risen significantlyUnderstand the Investor’s commitment to Sustainable Ag and who pays the costs to comply

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