Global Timberland Investment Trends. Implications for European Investors

Transcription

1 Global Timberland Investment Trends Implications for European Investors TIMBER-INVEST EUROPE CONFERENCE, LONDON October, 2011 Dennis Neilson DANA Limited, Rotorua, New Zealand

2 DANA Limited Small New Zealand- based company International forestry and forest industry consulting Publishing Increasingly involved with timberland asset allocation and investment advice 2

3 Topics Covered Global Scale of Timberland and Investments Timberland Investment Options Some Major Institutional Investment Vehicles Location of Institutional Investments Non- North American Investment Timberland Investment Trends Regions, species, some new future? options 3

4 Global commercial timberland value is around US$ 300 billion* and timberland institutional investment is (say) $60 billion -- this might sound a lot, but not when compared with the total global investment funds: only around 0.07% $ Trillion Total Global Investment Funds - end Inst. TL Commercial TL* Hedge Funds 2.8 Private Equity 3.8 SWF Insurance Funds Mutual Funds Pension Funds Source: IFSL Estimates, end-2009 * US TIMO TIR,

5 Now a bewildering array of TL investment options for institutional and retail investors ~ 20 North American based TIMO s (see next slide) 4 USA- based publicly listed T-REITS Plum Creek, Weyerhaeuser, Potlatch, Rayonier Listed UK vehicles Phaunos and Cambium Listed FP companies e.g. Stora Enso, UPM, Portucel, ENCE, MWV, Arauco, CMPC, Fibria, Suzano [At least there was --?] Listed China Forestry Cos. (Canada - Hong Kong - China) 5

6 Continued Growing list of specialized Forestry Funds Australia, Chile, Brazil, Uruguay "Fund of Funds" e.g. Stafford (Aust), IWC (Denmark), Flag Capital (USA) Growing list of Forestry Index Funds UK, USA, Switzerland 6

7 Institutional TL Investment to date has been dominated by USA Private Equity "Timber Investment Management Organisations" (TIMOs) including: The Forestland Group Hancock Timber Resource Group The Campbell Group Wagner Forest Management Resource Management Services Forest Investment Associates Forest Capital Partners Regions Morgan Keegan TL Molpus Woodlands GMO RR Timbervest Lyme Timber Timberland Investment Resources Global Forest Partners Wells Timberland Greenwood Resources Pinnacle Forest Investments American Timberland EcoTrust 19/7 7

8 But other (private - direct investment) institutional investor groups include: North America Europe * Brookfield Asset Mgmt. Harvard Mgmt. Company OTPP AimCo B.C. Invest. Mgmt. Corp. Public Sector Pens. Inv. Bd. * DANA ITOIR identifies ~40 in UK alone International Woodlands Company Green Resources Irish Forestry Fund Global Solidarity Fund The Forest Company Dasos Capital FIM Services (UK) TIR (Europe) New Tectona G Capital Latifundium Fund 8

9 Percent of Total But USA still dominates institutional/financial timberland investment will this change? Yes probably 100% 80% 79% 78% % 40% 20% 0% USA 4% 6% South America 17% 14% Oceania* 0% 3% Other Source: RMK 2010 * Has increased with HTRG ,000 ha Qld Aust. buy 9

10 A growing list of non- USA Institutional TL investment countries Sw eden New Zealand Australia Finland Brazil Uruguay South Africa Belize Chile Rom ania Tanzania Mosam bique Latvia Malaysia Argentina Nicaragua- Ecuador Guatem ala- Panam a Colom bia ,000 1,500 2, Ha 10

11 TL Investment Trends 11

12 Regions [Some players maybe in earlier] 1980s - present: North America 1990s - present: Oceania 2000s - present: Europe present: Uruguay ?: Brazil [see Economist Sept 24 page 48] present: East Africa present: Central America present: Asia ?: West Africa 12

13 Species - Regimes 1980s - present: Douglas fir, Southern Yellow Pine, Norway Spruce, Scots Pine, Sitka Spruce 1990s - present: Radiata pine 2000s - present: Eucalyptus pulpwood, some US Sth/Mexican pines present: Teak, Eucalyptus sawlogs, African Mahogany, present: Eucalyptus poles, Euc. Biomass, Poplar biomass 13

14 The UK Timberland investment story a sad saga of weak governments and (some) nutty citizens Most plantations owned by Government Forestry Commission Policy to restrict productive spruce and to re-plant with HWs that take 100s of years to grow At least two unsuccessful attempts to privatise -- latest in 2011 The Government abandoned its proposal of selling off 85 per cent of public forests after a public outcry. [It may continue with 15%?] August press report about sums up the nuttiness Hamsterley Trailblazers say selling forests could create an obesity time bomb. 14

15 Teak Was the domain of (sometimes dodgy) retail schemes in India and Central America Still a lot of retail options But, an increasing number of institutional investors are concluding that teak is maybe one of a very few hardwoods that can replace "native" Myanmar and Indian teak and native forests Now a move to large/institutional: Floresteca - Brazil (40,000 ha) US TIMO GFP - Central America US TIMO GMO - Central America IWC - Asia HMC - Mosambique (and CA?) European Pension Funds Other TIMOs looking Tectona G Capital - a major play in Central/Sth America Six Mexican pension funds With 9,000 (going on 20,000) ha 15

16 But investors should work with managers who know the relationships between log quality and price Myanmar Ivory Coast Ecuador 16

17 Eucalyptus Poles and SL Tanzania and South Africa October

18 And some other specialist species are coming out of the woodwork -- [just three examples] Indian sandalwood Major US Endowment Fund and Middle East Sovereign Wealth Fund into this in Australia African mahogany US TIMO GMO RR into this in Australia Brazil Paulownia Vanuatu, Nevada, near Berlin in Germany [Due diligence required on all maybe double- treble DD on Paulownia 18

19 Planned claimed biomass demand developments every PR company's dream "Biomass demand to grow >50% in Europe" "EU faces biomass shortage without new sources" 31 biomass power stations operating in the UK 39 more in various stages of planning and construction If all approved and built, biomass demand will increase from 5 million GMT/yr, to nearly 50 GMT/yr Imported biomass to increase from 13% to 68% RSPB: September 2011 RISI, June

20 Tree plantation biomass a new sizzle? but with some fish-hooks? Africa Canadian Buchanan Renewables in Liberia - Rubberwood UK based Africa Renewables (2010) in Ghana and Ivory Coast Swiss group Global Wood Holding in Tunisia: 900 million Euro, (400,000 ac eucs + acacia)??? Tanzania, Mosambique, South Africa? Europe Sweden, Germany, Poland, Hungary, Slovakia Already institutional money inflows Brazil Replacement of native forest wood for steel making/soybean drying/electricity - Suzano US$ 800 million for plantations/pellet plants [late October press release] - Phaunos and Cambium Timber Funds, others 20

21 And -- those European emitters who think Africa will just send all its biomass abroad may have to re- think a little? You know how short of electricity [name your African country] is when you arrive there and everyone is using their cell phones as flashlights In September, just one country's electricity provider [South Africa's Eskom] announced plans to replace 10% of its coal usage with wood biomass in the next 15 years. That is maybe 14 million GMT of tree biomass per annum the same as S.A.'s total harvest in 2011! Local CHP plants will spring up all over Africa 21

22 Poland SRC poplar, 16 Months 6 metres 22

23 Bamboo In a 2007 RISI Tree Farm economics study, an Indian bamboo "case study" gave the highest IRR returns of any of 101 options analysed RISI Review update out in Q Various new bamboo initiatives in 2011 some examples New NE Indian clones high quality species UK- based Clenergen (Philippines) and Plantation Capital (6 countries) US- based Ecoplanet bamboo in Nicaragua US- based Bamboo Global wants to plant in Mexico for wood pellets to Europe South African- based Envirovest Bio-products Claims clones with irrigation and fertiliser to grow 150 t/ha/yr (most TL trees grow at 10-50) Best of most/all "timber" species at fixing CO2 23

24 Oil Palm traditionally not considered a tree but million ha now worldwide and growing More and more maturing, to be pulled out for: 200 litres per tree of "wine Biomass Indonesia Govt plans to reclassify oil palm as "industrial forests" Does this look like a tree? 24

25 Tree- based Carbon Offset Trading Sounds sexy and "green" -- but Major market (Europe) refuses to allow trading Only one country with Kyoto and a Govt. ETS (NZ) To get "credible" voluntary compliance, need to jump through hoops -- even more than for FSC Green Resources A/S is probably the global pioneer/leader in this field 25

26 What about this REDD+ thing? A lot of genuine people are promoting it --- [but a lot of nongenuine people are wanting to exploit it] A least five REDD+ carbon conferences are held for every one on wood based timberland investments But -- a lot of water to go under the bridge yet Even over-generous Norway is getting "tetchy" Govt will no longer add to its $30 million allocation of a $1.0 billion "commitment" to Indonesia until governance is sorted out For me, it remains a "watch this space" but I may be persuaded? 26

27 There is always something new to keep us on our toes e.g. there is a growing worry about baboon damage to South African pine plantations -- forest owners must shoot every single baboon in a troop

28 -- but we now hear that the baboons are learning how to fight back -- 28

29 TL options and trends -- implications for European Investors A plethora of European and USA- based (and other) institutional investment options Direct investment Listed TL companies - Indices Via US TIMOs Increasing issue with finding terminating "co-mingled" funder replacements Via European Fund Managers Via Fund of Fund Managers Traditional countries/regions/species/regimes More recent and future options first mover? 29

30 2011 International Timberland Ownership and Investment Review Sixth Edition 370 pages > 1250 TL Owner/Manager profiles (750 in 2010) Introduction Table of > 190 transactions North America Almost 300 owner profiles. Overseas Countries > 750 owners-fund managers profiled in 70 countries Pension Funds/Endowments > 200 T/L invested/interested investor funds profiled. 20 Interesting Country-Regions Climate Change - Tree Based Carbon Trading Returns: Recent and Expected 49 country-region "case study" examples. Conclusions Appendix: >500 timberland transactions STOP PRESS Chapter Contact: Or go to: jan@dana.co.nz 30

31 Thank you for your attention Questions? Dennis Neilson DANA Limited PO Box 392 Rotorua, New Zealand