APPRAISAL. STAR BAR FARM AND RANCH Double Adobe, Cochise County, Arizona. for. First Financial Bank WALTER D. ARMER & ASSOCIATES

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1 APPRAISAL STAR BAR FARM AND RANCH Double Adobe, Cochise County, Arizona for First Financial Bank by WALTER D. ARMER & ASSOCIATES Walter D. Armer, Jr. MAI, ARA

2 December 11, 2015 First Financial Bank c/o Mrs. Jan Fleming 214 North Washington El Dorado, Arkansas RE: Star Bar/Moore Farm and Ranch Appraisal Dear Mrs. Fleming; Attached and in accordance with your instructions is my appraisal of the Star Bar Farm and Ranch owned by Starlene T. Moore, located at Double Adobe, Cochise County, Arizona. This is a Self Contained Summery Appraisal Report and has been prepared in conformity with Standard Rule 2-2 of the Uniform Standards of Professional Appraisal Practice and Title XI of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Based upon my judgment and the data and discussions contained in this report, it is my opinion that the Market Value of the subject property as of November 19, 2015, is: NINE HUNDRED THIRTYTHOUSAND SEVEN HUNDRED DOLLARS ($930,700.00) The intended use of this appraisal is to form an opinion of the as is Market Value of the subject property for loan underwriting. The interest to be appraised is the fee simple interest for the deeded land. The above valuations are based on cash or terms equivalent to cash on an "as is" basis. Your attention is invited to the data and discussions contained in this report, which contains 70 consecutively numbered pages and an Addenda.

3 The subject property contains no lands that would qualify as having any significant natural, cultural, recreational or scientific values. I do hereby certify that, to the best of my knowledge and belief, all statements and conditions contained in this report are correct, subject to the Assumptions and Limiting Conditions that are made a part this report. Respectfully submitted, WALTER D. ARMER & ASSOCIATES Walter D. Armer, Jr., MAI, ARA State Certified General Real Estate Appraiser (#30185) WDA, Jr. MOORE-STAR BAR RANCH-2015.doc

4 TABLE OF CONTENTS Page SUMMARY OF SALIENT FACTS AND CONCLUSIONS 1 SCOPE OFWORK 2 LEGAL DESCRIPTION 5 STATE AND REGIONAL DATA 6 State of Arizona 6 Regional Data 10 Neighborhood Data 14 SITE DATA 18 Description of Property 18 Headquarters Improvements 18 Farm/Ranch Improvements 20 Water Rights 21 Environmentally Hazardous Conditions 22 Flood Zone Analysis 22 Utilities 22 Zoning 23 Easements 23 Tax Data 23 Property Rights 24 Property Ownership and History 24 HIGHEST AND BEST USE 34 THE APPRAISAL PROCESS 37 COST APPROACH 39 Theory 39 Comparable Sales 40 Summary of Comparable Sales 51 Adjustments 53 Valuation Farmland 56 Valuation Rangeland 58 Valuation Improvements 60 Summary 62 RECONCILIATION 63 ASSUMPTIONS AND LIMITING CONDITIONS 64 CERTIFICATE 67 QUALIFICATIONS OF APPRAISER 69 ADDENDA State Certification Engagement Letter Irrigation and Drainage Supplement Environmental Disclosure

5 SUMMARY OF SALIENT FACTS AND CONCLUSIONS Property: Location: Owner: Land Tenure: Improvements: Highest and Best Use: Opinion of Value Sales Comparison Approach: Opinion of Value Income Approach: Star Bar Farm and Ranch 4737 West Duke Road, McNeal. This location is 1 to 2 miles northwest of Double Adobe, Cochise County, Arizona Starlene T. Moore ± acres deeded Main residence, guest house, two garages, equipment/storage buildings, hay barn, horse pens, corrals, two (2) hydroponic growing systems and typical farm and ranch improvements Land Investment/Agriculture N/A N/A Opinion of Value Cost Approach: $930, Final Opinion of Value: $930, Date of Valuation: November 19, 2015 Date of Appraisal: December 11, 2015 Appraiser: WALTER D. ARMER & ASSOCIATES Walter D. Armer, Jr., MAI, ARA State Certified General Real Estate Appraiser (#30185) 1

6 SCOPE OF WORK This appraisal has been made in conformity with all pertinent Appraisal Foundation, USPAP and Title XI of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) guidelines. The requirement of this appraisal is to form an opinion of the Market Value "as is" of the property to a single purchaser on a cash equivalent basis, assuming a reasonable marketing period. The estimate of market value is not a matter of formulas or artificial rules, but of sound judgment and discretion based upon a consideration of the relevant factors concerning the property. In effect, market value means the most probable price a landowner could have sold a real property for, at or near the date of appraisal, to a well informed buyer, who has purchased to devote the property to any one or all of the uses, including the highest and best use, of which the property was capable and for which it could legally be used. It does not mean the price that an owner would receive under any forced type of transfer; or price receivable from an uninformed buyer; or price paid by a buyer who can devote the property to a special use; or price obtainable in any unusual type of property transfer that is not found to be participated in by the general public in the real estate market. Market Value is defined as follows: Market Value - means the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 2

7 (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto, and; (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Rules and Regulations, Federal Register, Vol. 55, No. 165, Page The intended use of this report is solely for the establishment of values for the loan underwriting and the intended users are First Financial Bank and/or their representatives. The appraisal is made as of November 19, 2015, the date of inspection. All three approaches to value will be considered but, as will be discussed, only the Cost Approach will be utilized for the valuation of the real estate. The appraiser inspected the subject and researched local real estate and market conditions. This market includes virtually all of Southern Arizona, specifically Cochise County. This appraisal will estimate the Market Value of the subject property. The interest to be appraised is the fee estate for the deeded acreage. This interest in the fee includes the various rights that usually consider the present worth of the future benefits resulting from the ownership of the property. Exposure time is the estimated length of time the subject property being 3

8 appraised would have been on the market prior to the hypothetical sale effective as of the date of valuation. Marketing time is an estimate of time it takes to sell the subject property at the estimated market value during the period after the date of valuation. In analyzing the market and in talking with brokers familiar with the market it was determined that a reasonable exposure and marketing period of 12 to 18 months is reasonable. This period is typical for the area and has no adverse effect on any opinion of market value. The appraiser has appraised agricultural properties, including properties similar to the subject, throughout Arizona since 1966 and is fully competent to accomplish this assignment. 4

9 LEGAL DESCRIPTION The subject is legally described as follows: NW¼ and W½ SW¼ Section 29, Township 22 South, Range 26 East, in the Gila and Salt River Base and Meridian, Cochise County, Arizona. 5

10 STATE AND REGIONAL DATA State of Arizona The subject property is located in the State of Arizona. Arizona is bordered by California and Nevada to the west, Utah to the north, and New Mexico to the east. Arizona shares a common border with the Republic of Mexico to the south. Arizona is the nation's sixth largest state with an area of 114,000 square miles. The state contains three distinct topographic areas: a high plateau region in the northwest quarter of the state; a mountainous area which runs diagonally across the midsection of the state from the eastern boundary to the northwestern corner; and, the southern end of the state with the drier southwestern desert and the higher desert and mountains in the southeast. Elevations range from around 100 feet near Yuma in southwestern Arizona to over 12,000 feet at Humphrey's Peak in the San Francisco Mountains near Flagstaff. Average annual precipitation ranges from two to three inches in the southwestern desert to near 30 inches in the White Mountains. Native vegetation includes Southern Desert Scrub in the southwestern desert and parts of central and southeastern Arizona. Northern Desert Scrub, Pinyon-Juniper woodlands, and short-grass plains dominate the plateau and northwestern Arizona. Chaparral and Oak woodlands are found throughout the north-central highlands. Ponderosa Pine and Douglas Fir are the predominate species in the central mountains along the Mogollon Rim, which stretches from Williams in northern Arizona to Alpine near the eastcentral border with New Mexico. These species are also found in the higher elevations on the Arizona Strip above the Grand Canyon and on isolated peaks in southeastern Arizona. Arizona is made up of 15 counties with a total population estimated at

11 million. The state's population is centered in and around two metropolitan areas. Phoenix, in Maricopa County, is the state capitol. The population of Maricopa County is estimated at about 4.01 million. Phoenix has an estimated population near 1.51 million. Tucson, in Pima County, has an estimated population of about 529,400 and the population of Pima County, as a whole, is estimated at around 1 million. Thus, over three-quarters of Arizona's population reside in or around the cities of Phoenix and Tucson. Other population centers outside the Phoenix/Tucson metro areas include Sierra Vista in Cochise County, with 44,300 estimated population; Bullhead City and Lake Havasu City in Mohave County, with an estimated population near 39,400 and 53,200 respectively; Flagstaff in Coconino County, with an estimated population of about 69,400; Yuma in Yuma County, with a population of about 96,500, and Prescott in Yavapai County, with a population of some 40,500. Casa Grande, in Pinal County, is also a developing commercial center with a population estimated at about 50,800. Arizona has experienced substantial growth over the past several years or more. From 2000 to mid 2014, Arizona's population increased from about 5.10 million to 6.67 million, a 31% increase. Maricopa County grew from a population of 3.10 million in 2000 to about 4.01 million in 2014, an increase of 32%. Pima County increased from a population of 834,000 to one million, about a 20% increase. Population projections estimate an increase in state population to 10.2 million by the year This estimate represents a 51% increase over the 2014 estimate. Maricopa County is projected to increase to about 6.2 million, a 51% increase. Pima County is expected to grow to a population of 1.38 million, a 36% increase. Arizona's primary economic sectors include manufacturing, tourism, and 7

12 services. Mining and agriculture are also significant, although waning in importance in recent years. Total non-farm payroll in March 2015 was about 2.63 million. The major employment sectors included 410,000 jobs in trade, 412,400 in government, and 156,100 in manufacturing. The service and hospitality sector accounted for more than 301,000 jobs. Construction accounted for about 126,000 jobs in March Arizona's average unemployment rate in March 2014 was 6.2%. Cash receipts from agricultural marketing s were near $3.9 billion in 2012, down from $4.3 billion in Crop marketing s contributed $2.14 billion and livestock and livestock products contributed $1.77 billion. Principal crops are cotton, vegetables, hay, grains, citrus and other fruits and nuts. Cattle raising and feeding are the principal livestock activities. Harvested cotton acreage, Upland and Pima varieties, was 162,500 acres in About 113,500 acres of vegetables and melons were harvested in Alfalfa hay accounted for 260,000 acres, and 195,000 acres of grain, including 72,000 acres of Durum wheat, were harvested in There were only 11,000 bearing acres of lemons and tangerines in the season, a small remnant of a once important segment of the Arizona economy. Beef cattle are the major livestock enterprises in Arizona. There were about 880,000 head of cattle and calves in Arizona as of January 1, 2015 including 195,000 dairy cows. Some 252,000 head of cattle and calves were on feed in Arizona feedlots in January 1, Sheep raising and feeding and swine production also contribute to the livestock sector of the agricultural economy. 8

13 Copper mining is the principal mining activity in Arizona. Copper production fell sharply between 1981 and 1983, dropping from 1,147,534 tons to 747,604 tons. Since 1983, production recovered somewhat as technology allowed the mines to extract greater tonnage more efficiently. In 2006, Arizona s mines produced 787,326 tons of copper with some 5,900 workers, compared to about the same amount produced in 1974 with about 28,000 workers. Arizona mines typically produce about 12 pounds of copper per ton of ore, while some South American operations can yield as much as 24 pounds per ton. Mining employment declined from about 25,000 in 1981 to 11,000-12,000 from Increased prices for copper helped stabilize the mining industry in Arizona until recent years. Copper prices averaged 72 cents per pound in 2002, but increased significantly to a current price of $2.78 per pound. Mining employment was about 13,100 workers in January The mining industry produced some $4.87 billion of copper and other minerals in Most of the State of Arizona is owned or controlled by public agencies. The land ownership in Arizona is as follows: U.S. Forest Service 15% Bureau of Land Management 20% Indian Reservations 28% State of Arizona 13% Individual or Corporate 17% Other Public Lands 8% Most range livestock production is carried out with a combination of various degrees of public and private lands. Some crop production also involves public land, principally State of Arizona agricultural leases. Some commercial leases involving public lands are also utilized for non-agricultural purposes. The presence of vast acreage of public land may hinder development in 9

14 some areas. A program for consolidation and/or retirement of selected public lands through exchange or purchase by individuals or corporate entities will open up additional land for future development. Arizona is well known for its natural attractions. Numerous national parks, including the Grand Canyon, monuments, and wildlife preserves are found throughout Arizona. Many natural and man-made lakes, historical and recreational parks, Indian ruins, National Forests, ghost towns and other attractions provide many recreational opportunities for visitors and residents alike. A full range of cultural and leisure activities are available to the state's residents and visitors. The state's natural attractions, mild desert climate, and varied recreational and leisure activities provide a basis for continued growth in the state's economy. Basic industries, such as mining and agriculture, will likely decline in importance as the demographics of the state changes. Future development will likely be geared to servicing the residential and commercial needs of a rapidly growing state with a diverse population and economy. The primary points of growth should continue to be in Maricopa and Pima counties. Central Arizona, primarily around Casa Grande, should also show considerable growth in the future. Other parts of Arizona near established recreation and tourism areas should also demonstrate various degrees of growth in future years. Southeast Regional Data The Southeastern Arizona region includes Pima County, Santa Cruz County and Cochise County. Pima County, named after the Pima Indians, is one of the four original counties of the Territory of Arizona. It is located in the southern part of Arizona, sharing its 10

15 southern border with the State of Sonora, Mexico. It has a land area of 9,188 square miles and a current population of about 986,000 concentrated in and around Tucson. Santa Cruz County is the smallest County in Arizona in terms of area, covering 1,238 square miles. Population is currently about 48,100. The county was named after the river that flows south to north in a verdant valley surrounded by mountain ranges. Cochise County was named after the famous Chiricahua Apache leader. In territorial days, the county was remote from civil law and was a haven for outlaws. Cochise County is located in the southeast corner of Arizona. It has a land area of 6,219 square miles and a current population of about 130,500 people. Pima County claims the second largest city in Arizona. Tucson is the commercial, educational and cultural center of southern Arizona, as well as a resort area. The City of Tucson's population is over 522,000. Pima county s population is 986,000 including the towns of South Tucson, Oro Valley, Marana, Sahuarita and several unincorporated areas adjoining the city. Overall, a wide variety of business, education, cultural and religious opportunities are available to residents and visitors in the metropolitan Tucson area. The principal trading and population center for Santa Cruz County is the city of Nogales, Arizona, about 65 miles south of Tucson. Nogales, established in 1882 by Jacob Isaacson, is the county seat for Santa Cruz County with a population of about 21,100 residents. Nogales is one of the major gateways between the U.S. and Mexico. There are strong commercial, religious, and cultural ties between Nogales, Arizona, and its substantially larger sister city across the border, Nogales, Sonora. Patagonia and Sonoita are rural communities located east of Nogales. They are in attractive rural settings which have attracted many retirees and others to live in one of 11

16 the rural subdivisions established in the area. Several up-scale developments have been established in the area. The leading cities in Cochise County are Sierra Vista with a population of about 45,100; Douglas with a population of around 17,100; and Bisbee, the county seat with a population of about 5,500. Sierra Vista is the largest population center in Cochise County and is considered one of the fastest growing, non-metro cities in Arizona. Sierra Vista grew up around Fort Huachuca, which was a frontier cavalry post in the 1880's. The town of Sierra Vista has grown from a population of about 6,900 in 1970 to over 25,000 in Current population is estimated at around 45,100. The U.S. Army installation at Fort Huachuca, near Sierra Vista contributes significantly to the economy of the area. Fort Huachuca serves as a worldwide communications center and electronics proving ground and is home to the U.S. Army Intelligence School. The installation employs around 11,000 workers. Douglas is located at the southeast corner of Cochise County and is a designated port of entry into Mexico at Agua Prieta. A large Phelps-Dodge Smelter was the major employer in the area for years. However, the smelter was shut-down and demolished. Douglas continues to establish a new economic base. A growing tourism industry in Cochise County is a response to the declining copper industry, particularly in and around Bisbee and Tombstone. Tombstone has long relied on tourism as an economic base. Bisbee's tourism industry is relatively new and has evolved as new residents have gradually replaced many former residents who left the area after the Lavender Pit mine closed. The natural features of the region vary from desert valleys to high mountain peaks. Several mountain ranges are found throughout the region. The Santa Catalina, 12

17 Rincon, and Tucson Mountains ring the Tucson area; the Santa Rita and Patagonia Mountains are between Tucson and Nogales; and the Chiricahua and Pedregosa Mountains are found along the eastern boundary of Cochise County. Elevations range from less than 2000 feet in northern Pima County to peaks of over 9,000 feet. Native vegetation varies from sparse Southern Desert Scrub to open Desert Grasslands to conifer forests at the higher elevations. Precipitation varies from around 10 inches in the desert valleys to over 20 inches in the mountains. Soils are predominately Thermic Semiarid soils with Mesic Subhumid soils at the higher elevations. Land ownership in Southeastern Arizona is as follows: Pima Santa Cruz Cochise Region U.S. Forest Service 7% 53% 12% 12% Bureau of Land Management 6% -0-9% 6% Indian Reservation 42% % State of Arizona 15% 8% 35% 23% Individual or Corporate 11% 39% 41% 24% Other Public Land 19% -0-3% 11% Points of interest in the subject region include Mt. Lemmon, San Xavier Mission, Saguaro National Monument, Old Tucson, Arizona-Sonora Desert Museum and Kitt Peak in Pima County; Tombstone/Bisbee, Parker Canyon lake, Chiricahua National Monument and Coronado National Monument in Cochise County; and Nogales, Sonora, Tumacacori Mission, Tubac, Madera Canyon and Patagonia/Sonoita in Santa Cruz County. The subject region has experienced substantial growth in population over the past decade or more. The economy of the metro-tucson area remains strong and is the driving force for continued growth in southern Arizona. The military and retirement sectors in and around Sierra Vista contribute substantially to the overall economic vitality of the subject area. Nogales has shown an ability to grow in the face of uncertainty relating to the economic instability of Mexico, relative to exchange rates and overseas debt. Overall, the 13

18 area should continue to support a reasonable rate of growth, subject to the uncertainties of military spending, international trade and environmental limits. Neighborhood Data The subject farm is in the Sulphur Springs Valley farming area some 70 miles south of Willcox and 16 miles northwest of Douglas in South-central Cochise County. The immediate subject neighborhood is bounded roughly by Interstate-10 to the north, the Chiricahua and Pedregosa Mountains to the east, the U.S.-Mexico International border to the south and the San Pedro River to the west. Principal trading centers in the neighborhood include Willcox at the north end and Douglas at the south end. Other small unincorporated communities include Sunsites, Sunizona, Elfrida and McNeal. These towns provide only limited basic services and retail outlets. The area is predominately rural in nature with considerable irrigated farmland. The principal crops are cotton, grain and vegetables with some tree crops and vineyards. Cattle ranching is the predominate livestock operation in the area. The entire area is rather rural in nature with a historical economic basis of agriculture with numerous ranches and farms throughout the entire area. Overall, the subject neighborhood is in transition from a traditional livestock grazing and farming economy to one based on recreation, tourism and residential development. The subject neighborhood reflects the rural nature of the area and remains an attractive alternative for those seeking a rural lifestyle that is still within easy access of a population and trade center for the area. Overall, the subject neighborhood will remain rural in nature. 14

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22 SITE DATA Description of Property The subject Star Bar Farm and Ranch property is located some 1 to 2 miles northwest of Double Adobe in south-central Cochise County. Access to the property is generally good to excellent via paved Frontier Road and 1 mile along graded gravel West Duke Road. This constitutes both legal and physical access. The property is generally level at elevations from 4,020 to 4,060 feet and slopes easterly toward Whitewater Draw. Climate is characterized as warm to hot summers and mild winters with an annual precipitation of very near 10 to 12 inches. The subject contains deeded acres lying in a single tract. This acreage includes 76 acres of irrigated acres under center pivot sprinkler systems and 20 irrigated acres under flood irrigation with the balance being headquarters sites, roads, ditches and grazing land. The farmland is planted with alfalfa and Bermuda grass. Headquarters Improvements Headquarters improvements include a residence, a bunk house, a double garage with attached storage room, a new garage, a shop/equipment storage shed, a feed storage barn, a new hay barn, covered horse pens and steel panel corrals. Owners Residence: The owners residence is 1,900 square feet and is painted block construction with a corrugated metal roof and new double-pane windows. The interior is newly remodeled and includes wood and tiled floors, ceiling fans throughout, and open beamed ceilings. Rooms include three (3) bedrooms and two (2) bathrooms, a living room, a separate dining area and a newly remodeled kitchen and office/den. The living room includes the main entrance to the dwelling and a newly-built 18

23 fireplace. An open dining area adjoins the living room and kitchen. It includes an outside entrance and a free-standing wood-burning stove. The kitchen includes new, custom-built wood cabinets, a polished Saltillo tile floor, tile counter-tops and new stainless-steel appliances. A laundry/utility room adjoins the kitchen. The interior includes two (2) bedrooms and a bathroom with a polished Saltillo tile floor, a tub and shower with tile wainscot, a lavatory with custom vanity with a tile counter-top and accent around the mirror and a standard toilet. The master suite includes a bedroom and a bathroom with wood floor, a whirlpool tub and shower with tile wainscot, a double lavatory and custom vanity with a tile counter-top. A small Arizona or sun room adjoins the master bedroom. It includes a number of multi-pane windows, a concrete floor and an outside entrance. HVAC includes a forced-air gas furnace and evaporative cooling. Original date of construction was in Considering the age of the dwelling and the recent remodel, the overall condition of the residence is good. Appurtenant structures include a front porch, a detached double garage with attached storage room and a separate guest or bunk house. The porch is of post and beam construction with a corrugated steel roof and a concrete floor. The older garage is block-stucco construction with a corrugated steel roof and concrete floor. The new garage is 735 square feet and is frame/stucco construction with a corrugated steel roof and concrete floor. The bunk house is 351 square feet, painted block construction with a concrete floor and corrugated metal roof. It has three (3) rooms with a bedroom, kitchen and bathroom. Yard improvements include a 6 foot chain-link fence and some landscaping. Overall condition of the additional structures and yard improvements is fair to average. 19

24 Farm/Ranch Improvements The acreage is improved with four (4) irrigation wells, two (2) short center pivot irrigation systems and a flood irrigation system. One of the pivots is an older Lindsey system and the other is a new Zimatic system. Three of the wells are utilized as irrigation wells and are equipped with electric motors and centrifugal pumps. One of the wells is currently used as a domestic well. The non-irrigated portion of the property is perimeter fenced and cross fenced into several pastures and pens. The fencing consists of barbed wire on steel posts, steel corral panels and hog wire. There are several hundred feet of concrete feed troughs. The last of the agricultural improvements to consider are two (2) hydroponic systems. Each of the T-126 systems measures 19.4 long x 9.8 wide x 10.2 high and produces 63 biscuits of barley sprouts daily. These systems were developed in Australia and are marketed by Fodder Solutions in California. The systems were purchased and installed in May 2012 in the large barn. Shop/Equipment Storage Barn: The structure is 5,722 square feet and is a steel-pole frame with a corrugated sheet metal roof over wood joists and a concrete floor. Condition is fair. The barn houses the two (2) relatively new, self-contained hydroponic growing chambers. Feed Storage Barn: This structure directly adjoins the equipment shed and is 2,541 square feet. it is concrete block construction with a concrete floor and sheet metal roof over wood joists. Condition is fair. Hay Barn: The hay barn is 1,504 square feet. Construction is steel pole frame with three (3) sheet metal sides, a corrugated sheet metal roof and a partial 20

25 concrete floor. Condition is essentially new. Horse Pens: The horse pens are 2,000 square feet with a steel-pole frame and a sheet metal roof over wood joists, and open stalls. About half of the area has been converted to open pig pens. Overall condition is fair. A small farrowing shed with two (2) farrowing crates is located behind the horse pens. Corrals: The corrals are mostly steel livestock panels of varying age and condition and include a Priefert squeeze chute. Total length is estimated at 1,400 linear feet. Overall, the agricultural improvements are in fair to good condition and are adequate for efficient management of the farm/ranch operation. Water Rights The subject property lies within the Douglas Irrigation Non-expansion Area (INA) as established for the management of groundwater through the Arizona Department of Water Resources (ADWR). All wells and surface waters must be registered with ADWR whether or not the property is in an INA. In an INA, only acreage that was irrigated during the five years prior to January 1, 1980 may be irrigated with groundwater. Further, annual pumpage must be measured and reported to ADWR. The subject has a grandfathered water right for 76 acres under Notice of Irrigation Authority No From an inspection of the records at ADWR and from discussions with the owners, it appears that all wells have been properly recorded and that there are no surface water rights. ADWR records show four (4) registered wells under Registration Numbers , , and Information from ADWR and the owners indicate that all of the wells are 100 to 300 feet deep, are 16 casing diameters and water 21

26 levels are very near 60 feet. Environmentally Hazardous Conditions There were no known or observed potentially hazardous conditions present on the subject property. There appears to be no excess spillage of fuel or lubricants. The appraiser was advised that there are no Underground Storage Tanks (USTs) and none were observed. The appraiser is not qualified to assess potential hidden or underground leakage from fuel tanks or other hazardous conditions and recommend that the client contact an expert if such assessment is so desired. Flood Zone Analysis The subject property has been compared and analyzed on the maps published by the Federal Emergency Management Agency (FEMA) to determine if any of the property lies within any Special Flood Hazard Area (SFHA) or 100 year flood zone (Zone A) as defined by FEMA. None of the property lies within Zone A. There are no major drainages through the property and the only flooding would come from sheet flooding during unseasonably heavy rains. Utilities Electricity and telephone service is available throughout the subject neighborhood. Propane gas is available from commercial distributors. Water is from private wells and sewer is by private septic tank. 22

27 Zoning The subject is zoned RU-4 (Rural 4) a county zoning that covers a variety of uses and is basically a holding classification for rural acreage to preserve them until such time as urban or more intensive usages are warranted. Minimum lot size is 4 acres Easements The appraiser was provided a current title report to review and it appears that there are no significant easements or restrictions that would adversely impact the utility, marketability, development potential, use or operation of the property. An A.L.T.A. survey of the property was not provided, thus, the appraiser was unable to determine whether any encroachments exist. Tax Data Total Cochise County property tax data for 2015 and 2016 for the subject is as follows: Parcel 2016 Full Cash 2016 Assessed 2015 Taxes Number Value Value $154,144 $18,288 $2, The above Full Cash Value consists of $15,696 in land value and $138,448 in improvement values. Taxes on agricultural properties are based on the property's "value in use" rather than on "market value". This often results in values that bear little or no resemblance to true market value and are therefore of little real significance. For example, the average Full Cash Value, which should equate to Market Value, is $65.40 per acre. The above full cash values, assessed values and taxes are typical of and consistent with properties similar 23

28 to the subject. A 1989 law passed by the Arizona legislature requires that the property be a bonafide crop or livestock operation, either owner-operated or leased, to qualify as an agricultural property and be valued as such. As properties are developed or agricultural use cannot be proven, the valuations will increase toward market values that reflect development or speculative uses. The subject agricultural acreage fully qualifies for this classification at the present time. Property Rights The property rights appraised are the Fee Simple Estate for the deeded lands, excluding any geothermal or mineral rights. To the best of the appraiser's knowledge and belief, there are no significant geothermal or mineral resources on the subject or in the subject's immediate vicinity. Property Ownership and History As of the date of valuation, title to the subject property is held by Starlene T. Moore. The parcel has been held by and used by the current owner since April 2000 and is currently being utilized for a small farming and livestock grazing operation with cattle and hogs. The livestock are processed and sold at farmers markets throughout the Tucson area each week as grass fed. 24

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31 RESIDENCE OLD GARAGE 27

32 NEW GARAGE BARN WITH HYDROPONIC SYSTEMS 28

33 HYDROPONIC SYSTEMS NEW HAY BARN 29

34 HORSE STALLS WITH PIG STALLS FARROWING SHED WITH CRATES 30

35 DOMESTIC WELL CATTLE PENS 31

36 SOUTH FLOOD IRRIGATED ACREAGE NORTH IRRIGATED PASTURE 32

37 CENTER IRRIGATED PASTURE CENTER IRRIGATED PASTURE-NEW PIVOT 33

38 HIGHEST AND BEST USE Land or sites must be valued in terms of their highest and best use. The highest and best use of land may be defined as: 1) The reasonable and probable use that supports the highest present value of vacant land or improved property, as defined, as of the date of the appraisal. 2) The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value. 3) The most profitable use. Implied in these definitions is that the determination of highest and best use takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners. Hence, in certain situations, net returns to land may take the form of non-monetary amenities such as unrestricted vistas, wildlife habitats, parks, greenbelts, preservation of unique natural features, and other amenities that cannot be readily quantified in terms of money, but benefit society as a whole. In most properties, the highest and best use is customarily the one that is permitted by zoning ordinances or private restrictions. There may, however, be cases where the land manifestly has a more valuable use than that permitted by law, and if there is ample evidence to support such a conclusion, a different highest and best use could be considered. Inherent in a discussion of Highest and Best Use must be a consideration of the following questions: 1. To what use is the property adaptable? 2. What uses are legal and permitted? 3. What uses have demand in the market? 34

39 4. What is the most probable Use? 5. Of these uses which meet the above criteria, which will produce the greatest return? Adaptable Uses The property is well established to be adaptable for the agricultural uses as are currently being done. This would include the current farming/grazing operation in place on the property. Other uses such as residential, commercial or industrial could be realized from a physical standpoint. Legal Uses Under current zoning, as previously discussed, the property has a rather wide option of uses. However, these are all quite rural in nature and most any commercial or industrial usage would require rezoning action. Market Demand As previously discussed, this portion of Cochise County is largely rural in nature with the historical economy based on agriculture. There are a few scattered homesites and small rural subdivisions in the area. There appears to be a moderate to weak market demand in the area for investment tracts but little immediate user demand for any use other than agriculture or rural residential. Most Probable Use The most probable current and future use of the subject property will continue to be agriculture. 35

40 Greatest Return It is acknowledged that the subject property has been operated for agricultural usages for many years and will likely continue to be so utilized for years to come. However, prices being received for most agricultural land in Arizona cannot be justified by the limited income that can be anticipated from these lands. Any additional value is the result of land investment and/or the various amenities discussed previously. Therefore, it is the opinion of this appraiser that the Highest and Best Use of the subject property, as improved, is Land Investment with Agriculture (ranch, farm, etc.) being an interim usage. Without the improvements, the property would have a Highest and Best Use strictly of Land Investment with no interim agricultural usage. 36

41 THE APPRAISAL PROCESS In arriving at an estimate of market value for a given property, it is customary appraisal practice to assemble as much information through three different approaches to the value estimate; the Cost Approach, the Income Approach and the Sales Comparison (Market Data) Approach. In the Cost Approach, an estimate of the site value is first derived by a comparison of other similar sites that have sold. An estimate is then made of the cost of reproducing the subject improvements at today's costs. From this is deducted the estimated loss in value through diminished utility, whether it be from physical, functional or location causes. All such estimates of loss in value through diminished utility are taken from market evidence. The indicated value from this approach is then the sum of the site value plus the net value of the improvements. The Cost Approach is often not applicable to agricultural properties since the great majority of the value lies strictly in the land. However, the subject property has improvements with significant contributory value and this approach will be utilized. In the Income Approach, an estimate is made of the market rent or gross income the subject property might generate based on the analysis of competitive properties. Estimates are also made of the appropriate expense ratios for the subject, based on information developed on similar properties in the market. Thus, an indication of the net income that the subject property is capable of producing is developed. This is the basis for any of the capitalization techniques, regardless of which one is indicated by the type of property or investor. The rate of return on investments in similar type properties is derived from the market, and this rate of return is used to capitalize the indicated net income into an indication of value. The income potentials of similar properties are highly speculative and 37

42 minimal when compared to the high land values. Also, income from an operaion as is in place on the subject is highly dependent on the operator rather than on the acreage with rental potentials. Therefore, this method was not considered as applicable. The Sales Comparison Approach utilizes the sales of similar properties as the basis for an indication of value for the subject. Direct comparisons are made between the sales properties and the subject on an item-by-item basis in such elements of comparison as terms of financing, conditions of sale, time of sale and location as well as for physical characteristics. Adjustments are made to the sale price of the comparative property to indicate what that property would have sold for had it been essentially similar to the subject property. These comparisons are correlated or reconciled into an indication of value. Since there is a lack of comparably improved properties with this mix of farmland, rangeland and improvements, this approach will not be utilized 38

43 COST APPROACH Theory The Cost Approach to value consists of the estimated reproduction cost, new, of the improvements, less all elements of accrued depreciation, to which is added the estimated value of the land as indicated from the analysis of comparable land sales. The approach assumes that the projected improvements represent the highest and best use of the site. This method also relies heavily on the Principle of Substitution which, in this instance, holds that the value of a property tends to be limited to the cost of purchasing comparable raw land and building (reproducing) the same improvements on it. To arrive at a value for the land, an abbreviated Sales Comparison Approach is utilized. The premise of this method is that when a property is replaceable in the market, its value tends to be set at the cost of acquiring an equally desirable substitute property. It is acknowledged that no two properties are exactly alike, but by examining the market data of similar properties, a comparison can be made, and a value for the subject determined. Therefore, from a search of the local public records, discussion with local brokers and the appraiser's files, sales of comparable properties in the area have been obtained. Sales No. 1 through 5 will be analyzed to arrive at an opinion of value for the farmland acreage and Sales No. 6 through 11 will be utilized for the rangeland acreage. These sales follow: 39

44 Sale Number: 1 Grantors: Grantees: Type of Instrument: KOEHN, Courtney BRENEMAN, C. Edwin Special Warranty Deed Date of Instrument: February 13, 2014 Recording Data: February 14, 2014 in Docket in Cochise County, Arizona Legal Description: S½ Section 31, T 17 S, R 27 E and N½ N½ Section 6, T 18 S, R 27 E Size: acres Deeded Total Price: $1,891, Terms: Cash to seller Price per Acre: $3, Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located some 12 miles southeast of Kansas Settlement and 2 miles north of State Highway 181 with access via dirt farm roads. The farm has 2 irrigation wells, 4 center pivot sprinkler systems, a residence, shop. equipment shed and a barn with an upstairs apartment. Approximately 70 acres is desert and Turkey Creek runs through the southern portion. The total price was $2,110,000 which included buildings with a total estimated value of $219,

45 Sale Number: 2 Grantors: Grantees: Type of Instrument: LOWSLEY TRUST BRENEMAN, C. Edwin & Karen Special Warranty Deed Date of Instrument: February 17, 2014 Recording Data: Legal Description: Size: February 21, 2014 in Docket in Cochise County, Arizona S½ Section 20, T 17 S, R 27 E acres Deeded Total Price: $1,100, Terms: Cash Price per Acre: $3, Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located some 12 miles southeast of Kansas Settlement and 4 miles north of State Highway 181 with access via dirt farm roads. The farm has 3 irrigation wells and 2 center pivot sprinkler systems. 41

46 Sale Number: 3 Grantors: Grantees: Type of Instrument: RATLIFF, Alvin S. & Christine ALLIGATOR FARM PROPERTIES, LP Special Warranty Deed Date of Instrument: January 12, 2015 Recording Data: Legal Description: Size: January 15, 2015 in Docket in Cochise County, Arizona W½ Section 25 and all Section 35, T 17 S, R 26 E 1, acres Deeded Total Price: $5,159, Terms: Cash Price per Acre: $5, Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located some 10 miles southeast of Kansas Settlement and 2 miles north of State Highway 181 with access via paved roads and dirt farm roads. The farm has 12 irrigation wells and 9 center pivot sprinkler systems and an equipment shed. This sale also included a State of Arizona Agricultural lease with acres including 360 irrigated acres. The total price was $5,900,000 and allowing for the state lease at $680,000 and the shed at $60,500 results in a price of $5,159,500 for the deeded acreage. 42

47 Sale Number: 4 Grantors: Grantees: Type of Instrument: DOBERSTEIN, Robert A. & Carol RIVERVIEW, LP Warranty Deed Date of Instrument: April 3, 2015 Recording Data: Legal Description: Size: April 3, 2015 in Docket in Cochise County, Arizona S½ Section 14 and E½ Section 22, T 16 S, R 26 E acres Deeded Total Price: $2,196, Terms: Cash Price per Acre: $3, Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located some 3-4 miles southeast of Kansas Settlement with access via paved roads and dirt farm roads. The farm has 5 irrigation wells. This sale also included a residence, shop, hay barn and grain bin. The total price was $2,559,080 and allowing for the improvements at $362,100 results in a price of $2,196,980 for the deeded acreage. 43

48 Sale Number: 5 Grantors: STEWART, Cynthia F. Grantees: Type of Instrument: ACOSTA FARM PROPERTIES Warranty Deed Date of Instrument: April 15, 2015 Recording Data: Legal Description: Size: April 22, 2015 in Docket in Cochise County, Arizona Long legal in Section 12, T 20 S, R 25 E acres Deeded Total Price: $849, Terms: Cash Price per Acre: $2, Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located some 3 miles northeast of Elfrida with access via paved Gleeson Road and dirt farm roads. The farm has 3 irrigation wells and 1 center pivot sprinkler system. The buyer is from California and plans to plant pecan trees. Portions of this acreage were not currently being farmed. The seller had inherited the property and was exceptionally anxious to sell. 44

49 Sale Number: 6 Grantors: OWENS, Carolyn Ashley, as Trustee Grantees: YOUNG, Gordon W. & Mary S. Type of Instrument: Warranty Deed Date of Instrument: March 6, 2007 Recording Data: March 28, 2007 in Docket in Cochise County, Arizona Legal Description: SE¼ NW¼, SW¼ NE¼ and W½ SE¼ Section 19, T 22 S, R 26 E Size: acres Deeded Total Price: $110, Terms: $11, cash (10%) with seller carryback Price per Acre: $ Highest and Best Use: Remarks: Land Investment/Agriculture This acreage is located ¼ mile east of paved Frontier Road on a dirt road. The acreage is vacant desert land with no improvements. Access is via ¾ miles on dirt Morin Road and ¼ mile on a dirt road. This constitutes physical but not legal access. 45

50 Sale Number: 7 Grantors: Grantees: Type of Instrument: DONAHUE, Edward, Norman E. Davis and Donald L. Davis HOFFREN, Vaino & Ingegerd, Trustees Warranty Deed Date of Instrument: January 5, 2009 Recording Data: January 15, 2009 in Docket in Cochise County, Arizona Legal Description: SE¼ NW¼, E½ SW¼ and S½ SE¼ Section 35, T 22 S, R 26 E Size: acres Deeded Total Price: $140, Terms: Cash Price per Acre: $ Highest and Best Use: Remarks: Land Investment/Agriculture This acreage is located 1¼ miles east of Double Adobe along paved Double Adobe Road. The acreage is vacant desert land with no improvements. 46

51 Sale Number: 8 Grantors: Grantees: Type of Instrument: BORANE, Ronald J. & Rona, Trustees DACO COMPANIES, LLC Warranty Deed Date of Instrument: January 4, 2012 Recording Data: January 9, 2012 in Docket in Cochise County, Arizona Legal Description: NW¼ Section 36, T 21 S, R 26 E and W½ Section 1, T 22 S, R 26 E lying east of Highway 191 Size: acres Deeded Total Price: $175, Terms: Cash Price per Acre: $ Highest and Best Use: Land Investment/Agriculture Remarks: This acreage lies in two separate parcels and is located 3 miles south of McNeal. One of the parcels lies along Highway 191 while the other has no access. The acreage is vacant desert land with no improvements. 47

52 Sale Number: 9 Grantors: YOUNG, Gordon W. & Mary S. Grantees: Type of Instrument: HOFFMAN, Charles A., et al Warranty Deed Date of Instrument: August 19, 2013 Recording Data: August 29, 2013 in Docket in Cochise County, Arizona Legal Description: SE¼ NW¼, SW¼ NE¼ and W½ SE¼ Section 19, T 22 S, R 26 E Size: acres Deeded Total Price: $55, Terms: Cash Price per Acre: $ Highest and Best Use: Remarks: Land Investment/Agriculture This farm is located ¼ mile east of paved Frontier Road on a dirt road. The acreage is vacant desert land with no improvements. Access is via ¾ miles on dirt Morin Road and ¼ mile on a dirt road. This constitutes physical but not legal access. This is a resale of Sale No. 6 at a much lower price. 48