Macquarie Forestry. Welcome

Transcription

1 Macquarie Forestry UPDATE 214 Welcome Welcome to the 214 Macquarie Forestry update from the Macquarie Agribusiness team, designed to keep you up to date with key developments in the forestry industry and the status of your investment. Macquarie Financial Products Management Ltd and Macquarie Alternative Assets Management Ltd (Macquarie) are responsible for managing forestry plantations on behalf of retail investors across nine managed investment schemes established between 23 and 211 inclusive (Projects). Despite the current depressed prices for timber that if maintained will adversely impact the potential returns for investors, all of the Projects continue to be well funded and to operate in accordance with the scheme constitutions and the PDSs. The 23 Eucalypt project was the first Macquarie forestry project to commence harvesting at the beginning of 214 in accordance with original PDS timing expectations and preparations are ongoing for the 24 Eucalypt project harvest which commenced in the beginning of 215. Hardwood timber from broad-leaved flowering trees irrespective of physical hardness. Includes eucalypts, wattles and most rainforest species. Current market price The negotiated hardwood chip export price in Australia has fallen over the past two years in both Australian and US dollar terms because of lower demand from Japanese pulp mills, increased availability of chip supply from Vietnam, and unwillingness from Chinese companies to pay premium prices for higher quality Australian Eucalypt wood chips. Prices reached an all time low in September 214 and this current depressed market could continue in the medium term with a large portion of Australian hardwood plantation timber at or above harvest age. Current stumpage prices are significantly below the prevailing prices from 23 to 211 when the Projects commenced and this will impact projects that are to be harvested in the short to medium term. Dry conditions The most important factor which influences tree growth is soil moisture, which is directly influenced by rainfall. The Ballarat and East Gippsland regions have been subject to drought conditions since establishment of the Projects, with the exception of a handful of years where normal rainfall was experienced. For the 23 to 27 Projects, these areas make up approximately 7 per cent of the plantation estate and tree growth is well below site potential and PDS expectations. All regions continue to witness an extended dry spell which began in the last quarter of 212 and is causing tree growth to slow across most regions, also impacting projects that are to be harvested in the short to medium term. Macquarie remains dedicated to delivering the highest standards in the development of the Macquarie Forestry Projects and we thank you for your continuing support. 1 of 2

2 Macquarie Forestry Update of 2 Inventory measurements and growth models Future growth predictions of forestry plantations using scientific models is uncertain, given that models assume the continuation of average growing conditions (particularly average rainfall) and therefore cannot fully capture all types of possible agriculture risk. Future growth of agricultural projects, including forestry, will be determined by climatic and environmental conditions which can vary widely from the long term average. As a result, whilst forecast inventory results can provide a guide on the projected yield at harvest, care must be taken not to rely too much on inventory information (particularly earlier inventory measurements) due to the level of extrapolation involved in the growth models and the variability in growing conditions that may occur over the remaining years of a project. While growth models can never be relied upon with absolute certainty, the level of confidence becomes greater the closer the inventory measurements are taken relative to projected harvest, i.e. a year three inventory measurement requires a greater degree of extrapolation than a year seven inventory measurement, and therefore greater care must be taken when relying too much on younger inventory results. Green Metric Tonnes (GMT) a term used in the forestry industry for a metric tonne of freshly cut timber, bark mulch, etc. 23 Investors Harvest of the Macquarie Eucalypt Project 23 (23 Project) has commenced on all properties with approximately 75 per cent of the harvest completed as at the end of 214. At this stage it is expected that the harvest will be completed near the end of May 215. The harvest can be delayed by various factors including weather, as the machinery required to harvest timber cannot be operated on total fire ban days or if the ground is too wet. Once all harvest proceeds have been received and reconciled a final distribution payment will be made to members. As outlined in the previous important update to members, an initial stumpage price of $9.3 per Green Metric Tonne (GMT) has been agreed with Midway Pty Limited (Midway), the party to the off-take agreement. Under the terms of the off-take agreement with Midway, the agreed stumpage price will be adjusted, either upwards or downwards, by movements in the market price of timber during the harvest period, and to take into account any variation in costs such as building new roads to accommodate the heavy haulage trucks on the plantation and accessing rural roads in order to deliver timber from the plantations to processing facilities. To date the harvest yield is tracking to a yield between 165 to 175 GMT per hectare and actual yields will not be known until harvest is complete. The 23 Project has been exposed to prolonged dry periods since planting and tree performance has been adversely affected by deficits in soil moisture. The Rainfall section at the end of this report provides graphs outlining the actual rainfall received in different plantation regions vs long term averages.

3 Macquarie Forestry Update of 2 24 Investors Harvest of the Macquarie Eucalypt Project 24 (24 Project) commenced in the beginning of 215. We are in advanced stages of the negotiation process with Midway and have agreed in principal an initial stumpage price of $1.5 per GMT. Under the terms of the off-take agreement with Midway, the agreed stumpage price will be adjusted, either upwards or downwards, by movements in the market price of timber during the harvest period and to take into account any variation in harvest costs. The year 9 inventory checks were completed in May 214 and were undertaken when the trees were approximately 8.7 years old. It was noted by the external expert, Geddes Management Pty Ltd (Geddes) that while the survival stocking figures were satisfactory, the difference in growth rates between regions is significant. Tree growth at Ballarat has been impacted by a number of years of droughts, while higher rainfall in the Otway region has meant that soil moisture deficits are less frequent and growth rates are high. Growth projections for the 24 Project are a merchantable harvest estimate of between 154 and 161 GMT per hectare. Final yields will not be known until harvest is completed. Geddes also noted that based on inventory from the last few years, it seems the models are being compromised by the severe drought which has caused growth rates to slow over the last few years. Based on a price of $1.5 per GMT and a yield of 154 to 161 GMT per hectare the current expected harvest proceeds are approximately $1,35 to $1,45 per hectare after a deduction of the 5 per cent Management Fee payable to Macquarie and the 1 per cent Deferred Licence Fee payable to the Land Trust. As noted above the final stumpage price will be adjusted by movements in the market price of woodchips during harvest and final yields will not be known until harvest is completed. The first payment of harvest proceeds will be distributed around August next year and will be based on the volume of trees harvested as of 3 June Investors As previously communicated, replanting of a majority of the Macquarie Eucalypt Project 25 (25 Project) was required as a result of severe dry conditions and frosts which occurred at the time of planting. The year of initial planting was one of the worst recorded dry periods in the region. Very dry air during the season led to severe frosts that resulted in the freezing of plant tissue affecting early survival, with dry soil and continual frosts making it difficult for newly planted trees to survive. Due to these challenging climatic conditions, the plantation manager (McEwens) replanted some failed areas in 27. The higher than average rainfall in 211 also resulted in some areas of the replanted trees being inundated for large periods of time. Efforts were taken to alleviate the impact of this inundation but unfortunately approximately 2 per cent of the entire project is now expected to produce a yield below 8 GMT per hectare. Due to the levels of replanting, the 25 Project contains a mixture of trees of different ages. The last inventory measurements were undertaken in 214 at an average tree age of 7.7 years. From these inventory measurement, growth projections for the 25 Project expected a merchantable harvest estimate of between 129 and 144 GMT per hectare, externally verified by Geddes. It is important to note that these estimates are based on tree growth of 1 years, which in some cases may not eventuate if the trees are harvested in accordance with the original time frames due to replanting of a certain area in the 25 Project. Geddes also noted during this year s inventory checks for other projects that based on inventory from the last few years it seems the models are being compromised by the severe drought which has caused growth rates to slow over the last few years. The next scheduled inventory measurement for the 25 Project will be the year nine inventory check, which will occur in 215. The results of the year nine inventory measurements will be reported to investors in the next annual newsletter.

4 Macquarie Forestry Update of 2 26 Investors Trees in the Macquarie Eucalypt Project 26 (26 Project) were planted in 27 and are now into their seventh year of growth. Geddes reported that since the previous inventory in 212, there has been a noticeable weakening in tree growth as a result of the drought conditions experienced over the past two years. Seven year inventory measurement of the 26 Project was undertaken in 214. Growth projections for the entire 26 Project are a merchantable harvest estimate of between 151 and 171 GMT per hectare. Geddes reported that based on inventory from the last few years, it seems that the growth models are being compromised by the severe drought. The next scheduled inventory measurement for the 26 Project will be the year nine inventory check which will occur in 216. It is common for the nine year inventory to predict lower harvest volumes than the seven year inventory and results are showing that growth has continued to slow over the last few years. The results of the year nine inventory measurements will be reported to investors in the 216 annual newsletter. 27 Investors Trees in the Macquarie Eucalypt Project 27 (27 Project) were established in June 28 and are now into their sixth year of growth. The year five inventory checks for the 27 Project were completed in 213. Growth projections for the 27 Project are a merchantable harvest of between 142 and 183 GMT per hectare. Geddes reported that based on inventory from the last few years, it seems that the growth models are being compromised by the severe drought. The next scheduled inventory measurement for the 27 Project will be the year seven inventory check which will occur in 215. It is common for the seven year inventory to predict lower harvest volumes than the five year inventory and results are showing that growth has continued to slow over the last few years. The results of the year seven inventory measurements will be reported to investors in the 215 annual newsletter.

5 Macquarie Forestry Update of 2 28 Investors Trees in the Macquarie Eucalypt Project 28 (28 Project) were planted in 29 and are now into their fifth year of growth. Geddes reported that most trees have experienced strong canopy growth and that the 28 Project has shown an excellent survival rate with approximately 952 viable trees per hectare. A five year inventory measurement of the 28 Project was undertaken in 214. Growth projections for the entire 28 Project are a merchantable harvest estimate of 139 to 174 GMT per hectare. Geddes reported that based on inventory from the last few years, it seems that the growth models are being compromised by the severe drought. The next scheduled inventory measurement for the 28 Project will be the year seven inventory check which will occur in 216. It is common for the seven year inventory to predict lower harvest volumes than the five year inventory and results are showing that growth has continued to slow over the last few years. The results of the year seven inventory measurements will be reported to investors in the 216 annual newsletter. 29 Investors Trees in the Macquarie Eucalypt Project 29 (29 Project) were planted in 21 and are now into their fourth year of growth. Geddes reported that the surviving stocking rate ranged from 866 to 1,45 viable trees per hectare which is an excellent tree survival rate. Geddes also noted that growth rates vary within and between plantations and that some areas within plantations were showing signs of drought stress. A three year inventory measurement of the 29 Project was undertaken in 213. Growth projections for the entire 29 Project are a merchantable harvest estimate of 115 to 163 GMT per hectare. There are risks in relying too much on year three inventory information due to lengthy extrapolation required by the growth models to project the future performance of young trees. A level of caution must therefore be applied to these early inventory results. The next scheduled inventory measurement for the 29 Project will be the year five inventory check which will occur in 215. The results of the year five inventory measurements will be reported to investors in the 215 annual newsletter.

6 Macquarie Forestry Update of 2 21 Investors Trees in the Macquarie Eucalypt Project 21 (21 Project) were planted in 211 and are now into their third year of growth. Geddes reported that the surviving stocking rate is approximately 833 viable trees per hectare and that growth rates vary within and between plantations. Geddes also noted that visually the trees seem to be performing better than the inventory data suggests as the trees look healthy with good height growth for their age and well developed crowns. A three year inventory measurement of the 21 Project was undertaken in 213. Growth projections for the entire Project are a merchantable harvest estimate of 95 to 134 GMT per hectare. There are risks in relying too much on year three inventory information due to lengthy extrapolation required by the growth models to project the future performance of young trees. A level of caution must therefore be applied to these early inventory results. The next scheduled inventory measurement for the 21 Project will be the year five inventory check which will occur in 216. The results of the year five inventory measurements will be reported to investors in the 216 annual newsletter. 211 Investors Trees in the Macquarie Eucalypt Project 211 (211 Project) were planted in 212 and are now into their second year of growth. Geddes reported that the surviving stocking rate averaged 937 viable trees per hectare which is above the year one PDS target of 9 trees per hectare. Geddes also noted that the trees were growing well apart from 15 hectares on the Anderson property which has been replanted. The first scheduled inventory measurement for the 211 Project will be the year three inventory check which will occur in 215. The results of the year three inventory measurements will be reported to investors in the 215 annual newsletter.

7 Macquarie Forestry Update of 2 Woodchip price update The price for Australian hardwood woodchips has been historically set through annual negotiations between major suppliers and Japanese pulp and paper manufacturers. However, recent changes in the forestry plantation industry due to the collapse of a number of large companies such as Timbercorp, Great Southern, and Gunns have resulted in an individual rather than consolidated negotiation process. As shown in the graphs below, the negotiated hardwood chip export price in Australia has fallen over the past two years in Australian dollar terms, even after the fall in value of the Australian dollar. The weighted average September 214 Free on Board (FOB) price reached all-time lows significantly below the five year average FOB price of $173 per GMT. Notwithstanding recent falls in the Australian dollar, the competitiveness of Australian woodchip exports continued to be impacted by an Australian dollar above it s long term average level during the 214 calendar year. Contributing further to the downward pressure for Australian exporters have been the large volumes of supply coming out of countries such as Vietnam and Thailand which have been able to supply large volumes of lower quality and lower priced timber to China. Further commentary on supplies from these countries is provided in the following sections. Total hardwood chip exports from MQ 9 to SQ 14 (volume and price) kbdmt Quantity Price AUD MQ'9 JQ'9 SQ'9 DQ'9 MQ'1 JQ'1 SQ'1 DQ'1 MQ'11 JQ'11 SQ'11 DQ'11 Quarter A typical yet simplified woodchip pricing table is provided on page 8. This illustrates how prices derived from the FOB per dry metric tonne price are converted back to a stumpage price per green metric tonne (GMT). The stumpage price is the price received per GMT by investors for their timber after all costs associated with harvesting, chipping and delivering the timber to port are considered. A per hectare return can be estimated by multiplying a stumpage price by the merchantable estimated GMT per hectare. MQ'12 JQ'12 SQ'12 DQ'12 MQ'13 JQ'13 SQ'13 DQ'13 MQ'14 JQ'14 SQ' AUDFob/bdmt Source: Industry Edge Investors should note that the table on page 8 is just an example and that harvest costs will differ from plantation to plantation and are influenced by the size of the trees, topography of the land and ease of harvest. Transport costs are influenced by the distance from plantations to port. In the example we have used a distance of 1 km.

8 Macquarie Forestry Update of 2 The table below also highlights the impact on stumpage prices when the FOB price moves from $27.4 BDMT, the contract rate to Japan from 28 to 211, to $16 BDMT. As chipping, harvest and transport costs are generally a fixed cost per GMT, in percentage terms, a change in the FOB price has a magnified impact on stumpage prices. Simple illustration of woodchip pricing: FOB PRICE $/BDMT 16 less: port costs (2) less: moisture content and stockpile losses (53%) FOB PRICE $/GMT 66 less: chipping costs (1) MILL DOOR PRICE $/GMT 56 less: harvest costs (26) less: transport costs (15) less: other costs (eg road construction) (6) STUMPAGE PRICE $/GMT 9 FOB PRICE $/BDMT 27 less: port costs (2) less: moisture content, incl. stockpile losses (53%) FOB PRICE $/GMT 88 less: chipping costs (1) Asia Pacific woodchip update During the last 2 years, Japan has been by far the largest importer of hardwood woodchips in the Asia Pacific region. The global paper and paperboard market experienced a dramatic fall in demand for paper and paperboard products during 29 which brought forward decisions to close down older and less competitive production units in Japan. Offsetting this decline in Japanese demand, the number of paper mills in China entering production has increased since 28. This has resulted in China increasing it s market share of Asia Pacific woodchip imports from 7 per cent in 28 to 44 per cent in 213. It is expected that the overall size of Japan s position in the market will continue to decrease, particularly if demand from China continues to increase. Interestingly, pulp production in Japan increased in the first half of 214 and to meet their higher wood fibre needs, hardwood woodchip imports are up 1 per cent year to date. Conversely, China s hardwood woodchip imports only increased by 6 per cent over the same period, the slowest growth rate observed since 28. Despite this increase in import volumes, average prices for imported hardwood chip prices have declined over this period. Asian woodchip imports BDMT () MILL DOOR PRICE $/GMT 78 less: harvest costs (26) less: transport costs (15) less: other costs (eg road construction) (6) Japan 211 China South Korea Source: RISI, Macquarie Taiwan India STUMPAGE PRICE $/GMT 32 Bone Dry Metric Tonnes (BDMT) a measurement used in the forestry industry relating to a metric tonne of dried woodchips. Free on board (FOB) Vietnam and Thailand have emerged as significant suppliers in the Asia Pacific region with a collective share of approximately 65 per cent of the region s hardwood woodchip exports in 213. This is a significant increase from 28 when the combined countries exported 17 per cent of the Asia Pacific regions woodchips. Export volumes from Vietnam increased from 2.2 million BDMT in 29 to 7.4 million BDMT in 213 while export volumes from Thailand increased from less than 1. million BDMT in 29 to 2.6 million BDMT in 213. As stated previously, industry commentators have questioned the sustainability of such supply from these countries. Vietnam and Thailand produce a low quality product which Japan and China are purchasing for a significant discount to Australian woodchips making it difficult for Australian growers to compete and driving up exports from these countries. a trade term requiring the seller to deliver goods on board a vessel designated by the buyer.

9 Macquarie Forestry Update of 2 Hardwood chip prices for the Japan market 2 15 US$ per BDMT, FOB Source: RISI Aust. E. globulus S. African Euc. Chilean E. globulus Vietnamese Acacia Exports to North Asia by country of origin Million BDMT Source: DANA Malaysia/Other Indonesia Thailand Vietnam Australia In an attempt to address its consumption needs, China has been expanding its own efforts in pulpwood plantations. While this may ease the country s net deficit of hardwood pulpwood over the longer term, China is still expected to remain a significant net importer of hardwood fibre during the next decade. Pulpwood relates to logs which are below sawlog quality, but are suitable for manufacturing pulp, paper and panel products.

10 Macquarie Forestry Update of 2 Australian supply into the Asia Pacific woodchip market Australia has been the largest woodchip supplier in the Asia Pacific region for the last 2 years, however, was overtaken in 211 by Vietnam who supplied 5.4 million BDMT compared to Australia s 3.5 million BDMT. Exports of hardwood woodchips from Australia fell 31 per cent in 211 from 4.1 million BDMT exported in 21. This large drop in supply stabilised in 212 with 3.3 million BDMT of hardwood woodchip exported, a drop of only five per cent but the lowest level of exports in over 1 years. This significant drop is represented in the black line of the graph on page 9 which also highlights the rate in which export volumes are increasing from Thailand and Vietnam. However, over the first three quarters of 214, shipments of woodchips from Australia have rebounded and year to date volumes exported are 43 per cent above the same period last year and 7 per cent above the same period in 21. The biggest reason for this increase has been China s need for wood fibre and the first quarter of this year was the first time Australia exported more woodchips to China than Japan. Year to date shipments show that Australia has exported 3 per cent more woodchips to China than Japan this year. But, as noted earlier, there is an unwillingness on the part of Chinese pulp companies to pay elevated prices for higher quality Australian Eucalypt woodchips. Total hardwood chip exports from 29 to 214 (volume and price) kbdmt AUDFob/bdmt YTD 15 Source: Industry Edge, Macquarie Quantity Price AUD In addition to historically low demand for Australian woodchips, there is a large supply of hardwood plantation timber available in Australia meaning there appears little likelihood of a meaningful rise in price in the near term. As shown in the graph below there are over 45 million tonnes of harvest age hardwood plantation in Australia and at the current rate of annual export it will take some time for this timber to be harvested and sold. Furthermore, if prices do rise, access to ports and supply agreements could become difficult due to the available supply. The Macquarie Forestry Projects all have off-take agreements with Midway and Australian Paper contracting them to harvest the timber after 1 years of growth so access to port facilities should not be problematic for Macquarie growers. Estimated standing volume by hardwood plantation age (years) Source: URS Tonnage (million tones)

11 Macquarie Forestry Update of 2 Rainfall update Various factors impact tree growth, including soil type, soil fertility and soil moisture. The most important of these is soil moisture, which is directly influenced by rainfall. The Ballarat and East Gippsland regions have been subject to drought conditions since establishment of the Macquarie Forestry Projects, with the exception of years 21 and 211 where normal rainfall amounts were experienced. For the 23 to 27 Projects, these areas make up approximately 7 per cent of the plantation estate and tree growth is well below site potential. All regions continue to witness an extended dry spell which began in the last quarter of 212. The Australian Bureau of Meteorology is expecting drier than normal conditions to continue for the period from November 14 to January 15 for most of Victoria. Table 1, below, illustrates the amount of rainfall received across the Macquarie Forestry Projects catchments from 1 January 214 to 1 November 214. In all circumstances, rainfall has been below average for the period. Victorian rainfall deciles from November 212 to October 214 Rainfall Decile Ranges Highest on Record Very Much Above Average Above Average Average Below Average Very Much Below Average Lowest on Record Distribution Based on Gridded Data Australian Bureau of Meteorology Table 1 Rainfall data across Macquarie Forestry Projects catchments from January 214 to November 214 REGION YEAR TO DATE (YTD) RAINFALL PERIOD AVERAGE +/- (YTD VS PERIOD AVERAGE) Otways % Ballarat % East Gippsland % Strzelecki % Casterton % Hamilton %

12 Macquarie Forestry Update of 2 As shown in the below graphs, the average rainfall for the 214 calendar year can be largely attributable to the low levels of rainfall during the third quarter of 214. These dry conditions are causing tree growth to slow across most regions and in the Ballarat and East Gippsland regions many plantations are showing extreme drought stress with patches of dead or dying trees. Also shown in the graphs below, the annual rainfall for all regions has generally been below average with the exception of years 21 and 211. These years experienced above annual rainfall due to extreme weather conditions that created flooding in parts of Victoria. In this instance, whilst above average, rainfall looks promising on a graph, these rains were not very effective in increasing soil moisture for the plantations. Rainfall charts across selected Macquarie Forestry Projects catchments Otways Actual rainfall vs average Rainfall (mm) Jan Mar May Jul Sep Source: Australian Bureau of Meteorology Actual Average Annual rainfall vs long term average Source: Australian Bureau of Meteorology Annual rainfall Long term annual average

13 Macquarie Forestry Update of 2 Ballarat Actual rainfall vs average Rainfall (mm) Jan Mar May Jul Sep Source: Australian Bureau of Meteorology Actual Average Annual rainfall vs long term average Source: Australian Bureau of Meteorology Annual rainfall Long term annual average

14 Macquarie Forestry Update of 2 Strezlecki Actual rainfall vs average 12 1 Rainfall (mm) Jan Mar May Jul Sep Source: Australian Bureau of Meteorology Actual Average Annual rainfall vs long term average Source: Australian Bureau of Meteorology Annual rainfall Long term annual average

15 Macquarie Forestry Update of 2 Hamilton Actual rainfall vs average 1 8 Rainfall (mm) Jan Mar May Jul Sep Source: Australian Bureau of Meteorology Actual Average Annual rainfall vs long term average Source: Australian Bureau of Meteorology Annual rainfall Long term annual average

16 Macquarie Forestry Update of 2 Casterton Actual rainfall vs average 12 1 Rainfall (mm) Jan Mar May Jul Sep Source: Australian Bureau of Meteorology Actual Average Land update The onset of the global financial crisis (GFC) in 29 and the subsequent collapse of a number of large operators of agricultural managed investment schemes led to a flattening of rural land prices and in some parts of Victoria, a decrease in land prices. The recent administration and subsequent liquidation of the Gunns group of companies could place more pressure on forestry land prices as was the case after the collapse of Timbercorp and Great Southern Plantations. As a result of the low current price for woodchips it is unlikely that prospective buyers of the land will continue using such land for growing timber and as a result, are likely to seek to convert (or repatriate) the land to alternate uses. Any such repatriation will require the removal of the stumps which will have a negative effect on the price prospective buyers are prepared to pay for the land. In anticipation of this issue, MAAML has set out a process whereby quotes are obtained for the removal of stumps and repatriation of the land so that it can be determined if returns will be maximised by selling the land as is (ie with stumps in) or by incurring the cost of repatriation and then selling the land in a cleared state. At the time of sale, Expressions of Interest (EOI) will be requested for properties on a stumps in and stumps out basis. A successful offer will maximise the value to investors having regard to the extended time to conclude a sale if repatriation works are undertaken by the Land Trust as well as the risk of changes in land prices in that time. If it is determined that there is value for the Land Trust in repatriating the land and selling later as clear land then Macquarie will engage contractors to perform the repatriation. The costs of repatriation will come out of 23 Land Trust sale proceeds. Expressions of Interest have been sought for three Ballarat properties which make up the 23 Land Trust and in these instances, the offers to acquire with stumps in represent the best value for investors. The offers for these three properties ranged between $1,75 to $4,65 per plantable hectare. The various Land Trusts own properties in six different regions of Victoria and as the EOI above shows, the variation in sale price within regions let alone between regions can be large. This makes it very difficult to provide investors with an accurate value of their land units.

17 Macquarie Forestry Update of 2 The below graphs show land price movements for the different regions from 2 to 212. As potential purchasers are likely to seek to repatriate the land, when analysing these graphs the cost of repatriation should be considered. Repatriation costs will vary from property to property depending on qualities such as the gradient of the land, soil type, stump size and future land use requirements. These variables can result in a cost of repatriation between $1,5 to $2,5 per hectare. Hamilton Region Hamilton & Western Districts (Mean) Trend Analysis (2-212) > 2ha $6, 24 $/ha $5, $4, $3, $2, Volume of Transactions $1, 4 $ Source: Colliers International Research and RP Data Volume of Transactions Land Growth $/ha (real) Land Growth $/ha (nominal) Linear (Land Growth $/ha (nominal)) Linear (Land Growth $/ha (real)) Southern Grampions Region Glenelg, Southern Grampians, Moyne and West Wimmera (Mean) Trend Analysis (2-212) > 2ha $7, 21 $/ha $6, $5, $4, $3, $2, Volume of Transactions $1, 3 $ Source: Colliers International Research and RP Data Volume of Transactions Glenelg $/ha real growth Southern Grampians $/ha real growth Moyne $/ha real growth West Wimmera $/ha real growth

18 Macquarie Forestry Update of 2 Ballarat Region Ararat, Pyrenees & Golden Plains Shires (Mean) Trend Analysis (2-212) > 2ha $7, 15 $/ha $6, $5, $4, $3, $2, Volume of Transactions $1, 15 $ Source: Colliers International Research and RP Data Volume of Transactions Ararat $/ha real growth Pyrenees $/ha real growth Golden Plains $/ha real growth Otways Region Colac Otways & Corangamite Shires (Mean) Trend Analysis (2-212) > 2ha $9, 225 $8, 2 $/ha $7, $6, $5, $4, $3, Volume of Transactions $2, 5 $1, 25 $ Source: Colliers International Research and RP Data Volume of Transactions Colac Otways $/ha real growth Corangamite $/ha real growth

19 Macquarie Forestry Update of 2 East Gippsland Region East Gippsland and Wellington Shire Land Value (Mean) Trend Analysis (2-212) > 2ha $7, 21 $/ha $6, $5, $4, $3, $2, Volume of Transactions $1, 3 $ Volume of Transactions East Gippsland $/ha real growth Wellington $/ha real growth Source: Colliers International Research and RP Data Benchmark Disclosure In accordance with the recommendations issued by the Australian Securities & Investments Commission (ASIC) in Regulatory Guide 232 we have prepared a review of the Macquarie Forestry Investments against ASIC s benchmarks and disclosure principals for agribusiness schemes. Our review is available on our website macquarie.com.au/mgl/au/ advisers/products-platforms/investments/ closed/forestry. We will update this information annually and at any earlier time where there is a material change to the information. These updates will also be made available on our website. Geddes Management Pty Ltd Geddes Management Pty Ltd is a South Australian based independent management consultancy company, specialising in plantation forestry. David Geddes, principal of Geddes Management Pty Ltd, has a Bachelor degree in forestry and is a qualified forester with more than 38 years of practical plantation forestry experience in Australia including; nursery management, site selection, site preparation, plantation management, forestry research, harvesting and timber processing. David has been providing independent hardwood and softwood plantation consultancy services since Geddes Management Pty Ltd has consultancy experience in all plantation regions of Australia. David Geddes is currently Chair of the South East Resource Information Centre, past President of Australian Forest Growers and is the former Presiding Member of the Natural Resource Management Board in SE South Australia. He is also a member of several professional associations including the Institute of Forester of Australia, the Australian Institute of Management and the Australian Organisation for Quality. David has accreditation through the Institute of Foresters of Australia as a Registered Professional Forester. Geddes Management Pty Ltd is not in any way related to MAAML, Midway or McEwans but has been engaged as an Independent Forester for the Macquarie Eucalypt Projects to inspect and review a sample of plantations in each Project and is paid a fee in respect of these services.

20 Macquarie Forestry Update of 2 Keep up to date If you have any questions regarding your investment, please contact your financial adviser or the Macquarie Client Service Team by ing structuredinvestments@macquarie.com or on free call You can safely and easily monitor your Macquarie investments by logging onto GearUp, our secure online site, at macquarie.com.au. Simply use your Macquarie Access Code (MAC) to login Click Login Click Personal Enter your MAC and password At the myhome@macquarie page, click the account that you wish to view. This information has been prepared by Macquarie Alternative Assets Management Limited ABN , AFSL , (MAAML) and Macquarie Financial Products Management Limited ABN , AFSL , (MFPML) and is current as at 1 February 215. This information has been prepared for general information purposes and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This newsletter has been prepared in good faith with all reasonable care. However, certain parts of the information in this document may have been obtained or may be based upon information obtained from third parties which may not have been checked or verified and consent may not have been obtained from all relevant stakeholders. Macquarie believes these sources to be reliable but does not make any representation or warranty that the information is accurate, complete, verified or up to date. To the extent permitted by law, none of MAAML, MFPML, any other company in the Macquarie Group or their respective directors, employees, consultants and agents makes any warranty as to the accuracy or suitability of this information or accepts any liability for errors or misstatements, negligent or otherwise or any loss or damage suffered by any person arising out of or in relation to this newsletter. Past performance is not an indication of future performance and no guarantee is given in respect of the performance of, or return of capital from, an investment or any fund. Investments in the Macquarie Forestry Investments are not deposits with, or other liabilities of, Macquarie Bank Limited ABN (MBL) or any Macquarie Group company and are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Neither MBL nor any other member of the Macquarie Group guarantees any particular rate of return, the performance of, or the repayment of capital from the Macquarie Forestry Investments. For the purposes of the newsletter the Macquarie Group shall mean Macquarie Group Limited and its related bodies corporate. Macquarie Group.