Summary Update. Contents

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1 Contents Summary Update Timber Prices Product Prices Timberland Markets Economic News The FIA Quarterly Dashboard Summary Update Timber & Product Prices Despite wet winter weather conditions in parts of the Southeastern U.S. during the quarter, timber prices remained relatively flat. Pacific Northwest prices saw moderate increases throughout the quarter as the demand for logs, both domestically and for export, increased from prior months. In the Northeast, prices increased slightly for all species except black cherry, which remained at roughly half its historical trend price. Pulp prices regained some momentum after falling throughout the past two quarters. Framing lumber and structural panel prices skyrocketed as the housing market showed continued improvement. The annualized number of housing starts rose sharply to 954,000 in December, up more than 35% from a year ago. Meanwhile, the average rate for 30-year mortgages reached yet another all-time low of 3.35%. Forest Investment Associates 15 Piedmont Center Suite 1250 Atlanta, Georgia TEL: FAX: Timberland Markets Timberland markets seemed to regain their footing in 2012 as total transaction values nearly doubled from those of Thanks in large part to the Forest Capital Partners sale, the value of solely domestic transactions will reach nearly $4 billion this year, making 2012 the most active year for transactions in the U.S. since International markets remained very strong as well, with more than US$2.3 billion changing hands. Over the course of the year, values tended to increase and discount rates compressed as managers, some of whom have been sitting on capital for nearly three years, took advantage of increased opportunities. Sellers, recognizing the renewed energy of buyers late in the year, reverted back to sealed bid sales in an attempt to broaden the exposure of their offerings. Deal size also increased, allowing buyers to place more capital in single transactions and sellers to package large parcels of land together. Forest Investment Associates 1 4 th Quarter 2012

2 Timber Prices Southeastern Timber prices remained relatively flat during the quarter despite some instances of wet winter weather throughout the Southeast. One bright spot was hardwood pulpwood, which saw a substantial price spike. According to Forest2Market, south-wide average prices for pine sawtimber increased 0.8% during the quarter, but finished 2.6% below year-ago levels. Chip-n-saw prices fell by 0.6%, but remained 5.2% above year-ago levels. Pine pulpwood prices increased by 0.6%, finishing 13.7% ahead of last year s prices. Hardwood markets saw increased demand throughout the quarter, as average hardwood pulpwood prices increased 21.7%, remaining 23.6% above year-ago levels. Average prices for hardwood sawtimber fell 2.2%, finishing 3.7% behind last year s pace. Southeastern Timber Prices Source:Forest2Market Northern Hardwoods In Pennsylvania and New York, pleasant winter weather has created favorable logging conditions, keeping mill inventories relatively high. These increased mill inventories have adversely affected the hardwood pulpwood market in particular. According to the Pennsylvania Woodlands Timber Market Report, black cherry prices decreased 2.8 % during the third quarter (the most recent publicly reported pricing), falling to 1.1% below year-ago levels. Prices for northern red oak increased 11.2% last quarter, finishing 18.0% above year-ago prices. Hard maple stumpage prices increased 2.7% during the quarter, finishing 17.4% higher year-over-year. Soft maple prices increased 11.7% last quarter, finishing 24.2% ahead of year-ago levels. White ash prices increased 10.3% last quarter, outpacing last year s prices by 24.5%. In Wisconsin, veneer markets picked up considerably in the fourth quarter, as is customary during the winter months. Hardwood pulpwood inventories continued to remain quite high, pulling prices down accordingly. Forest Investment Associates 2 4 th Quarter 2012

3 Northeastern Hardwood Timber Prices Source: Pennsylvania Woodlands Timber Market Report - Northwest Region Pacific Northwest According to Log Lines, Pacific Northwest (PNW) average delivered prices for Douglas-fir #2 logs increased by 3.6% during the quarter, finishing 1.5% above year-ago levels. Whitewoods (i.e., fir and hemlock) average delivered log prices increased 3.0%, falling 0.1% shy of yearago levels. The domestic and export demand for logs increased during the quarter. Asian export demand continues to drive log prices in the Pacific Northwest. Analysts are predicting export log prices to increase moving forward into the early months of Analysts maintain that the supply of logs from Russia will not increase significantly in the moderate term, creating a sustainable Asian demand for PNW Douglas-fir and whitewood logs for the foreseeable future. Pacific Northwest Log Prices Source: Log Lines Forest Investment Associates 3 4 th Quarter 2012

4 Product Prices Lumber and Panels As housing starts continued to rebound throughout the quarter, lumber and structural panel prices responded accordingly. The Random Lengths Framing Lumber Composite Price increased by 18.0% during the quarter, finishing 41.1% above year-ago levels. Likewise, the Structural Panel Composite Price increased by 10.7%, remaining 52.1% above year-ago levels. Lumber and Panel Prices Source: Random Lengths Pulp and Paper Pulp and paper prices remained relatively flat throughout the quarter. The benchmark NBSK (northern bleached softwood kraft) pulp price index increased 4.5% during the quarter, finishing 2.2% below year-ago levels. U.S. Newsprint (30 lb.) increased 0.1%, dipping 0.6% below year-ago levels. Uncoated freesheet (20 lb.) fell 1.0%, and was down 3.7% year-overyear. Linerboard and boxboard prices were unchanged, with linerboard up 7.8% and boxboard down 3.5% for the year. Pulp and Paper Prices ($/short ton) Source: FOEX Indexes, Ltd., RISI Pulp & Paper Week Forest Investment Associates 4 4 th Quarter 2012

5 Timberland Markets Transactions The end of 2012 saw a number of sales as many private or taxsensitive timberland owners looked to close transactions prior to Private sellers sold nearly 90,000 acres in separate deals in Alabama, Pennsylvania and Texas. In the Texas transaction, Rayonier continued to build up its regional presence with the acquisition of the Wirt Davis timberlands from a private owner for $88 million, ending a process many market participants thought had been terminated over the summer. Following several successful sales in the third quarter, Hancock sold properties in South Carolina, Alabama, and California to mostly TIMOs flush with new capital. Despite awaiting news on a few sales that closed in late December, total transaction value is already nearing $3.8 billion for Deals in Progress While many sellers worked to close transactions prior to the end of the year, there were still a few deals active at the beginning of The seller of the Eastern Divide property (a predominantly hardwood property in Pennsylvania, Tennessee and Texas) accepted second round bids and is reportedly talking with potential buyers. In the South, investors are still waiting on news from sales in Alabama, Arkansas and Texas. The Pacific Northwest has been eerily quiet on the deal front with few properties coming to the market. The notable exception is a privately held 600,000-acre property which, given its location on the eastern side of the Cascades, is attracting limited attention. International Markets International markets remained very active throughout 2012, and the fourth quarter saw several notable transactions. Australia and New Zealand continue to see record levels of transactions as Harvard has reportedly sold a 30% interest in the Kaingaroa Forest on the North Island to Canada s Public Sector Pension Investment Board (PSP). While no value has been released to date, reported values of other owners suggest the value of PSP s interest could be as much as US$600 million. South America continues to be active as well with ENCE, a large Spanish forest products company, reportedly selling the approximately 40,000-acre Sierra Calmas property (which includes some processing facilities) in Uruguay to a U.S. investor for $US77 million. In Brazil, a buyer has been found for the Comfloresta estate but no names or values have been released. Also, new properties continue to come to the market in Brazil as buyers become more comfortable with structures that comply with Brazilian laws. Forest Investment Associates 5 4 th Quarter 2012

6 Economic News Housing Housing starts have continued to rise, up approximately 36.9% year-over-year, with December s starts at an annualized level of 954,000. This level is significantly higher than the market bottom of around 500,000, but still roughly two-thirds the level of what is considered healthy. Building permits are also up, approximately 28.8% year-over-year, at an annualized level of around 903,000 units. Mortgage Rates U.S. mortgage rates continued to decline to record lows as the Federal Reserve pushed down borrowing costs by resuming purchases of mortgage-backed securities. The average rate for a 30-year fixed loan fell to 3.35% by the end of the quarter. It was the lowest since 1971, and substantially lower than the 3.95% level reached in the final week of Jobs The U.S. unemployment rate ended the year at 7.8% with 155,000 new non-farm jobs added. The bright spots in the economy were in healthcare, food services and drinking establishments, construction and manufacturing. Consumer Confidence The Consumer Confidence Index fell six points in December to 65.1, its lowest level since August. Inflation Inflation remains low by historical standards, with core Consumer Price Index (CPI) rising at a 1.33% annual rate as of November. Trade Deficit The country s trade deficit in 2012 ranged from September s low of $40.3 billion to January s high of $52.3 billion. Rising U.S. competitiveness has fueled an export revival since 2009, despite Europe s slide back into recession and a major slowdown in China. Interest Rates The federal funds rate remains at a range between zero and 0.25%, and is expected to remain there indefinitely. The yield on the 10-year note ended the quarter at around 1.9%. Forest Investment Associates 6 4 th Quarter 2012

7 The FIA Timber Economics Quarterly Dashboard Southeastern Timber Prices Northeastern Hardwood Timber Prices Source: Forest2Market Pacific Northwest Timber Prices Source: Pennsylvania Woodlands Timber Market Report - Northwest Region Inflation (CPI) Source: Log Lines Source: Forest Investment Associates th Quarter 2012

8 The FIA Timber Economics Quarterly Dashboard Housing Starts 30 yr. Mortgage Source: NAHB.org Source: The Federal Reserve Lumber Pulp and Paper Source: U.S. Department of Labor, Bureau of Labor Statistics Source: U.S. Department of Labor, Bureau of Labor Statistics Forest Investment Associates th Quarter 2012