Zack Geer. Todd Hockman. Timber Opportunity Advisors

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2 GROWTH With timber it never stops. Today s saplings become tomorrow s resources resources with real value. Timber doesn t feel the political and economic pressures of the market. It grows. And what we plant today will advance into a higher product class. Always. 54

3 Zack Geer Zack Geer has been a licensed real estate agent since 2004, and is licensed in both Georgia and Florida. A native of Southwest Georgia, Zack has extensive experience assisting with the purchase, management, and sale of agricultural, plantation, and timber properties as well as managing his family s quail and timber plantations, Oakland and Covey Pointe. Prior to his real estate career, Zack worked with Carlton Company, a Caterpillar distributor. While at Carlton, he was a member of the executive committee, served as vice president of sales and service, and was product sales and service manager. Zack is a 1997 graduate of Valdosta State University with a Criminal Justice degree, and a 2000 graduate of the Texas A&M Executive Development Program. Timber Opportunity Advisors The management team of Timber Opportunity Advisors possesses many qualities which add real value for our investors. Our team members have diverse experience in the areas of finance, law, real estate, and timber management. Perhaps our greatest strengths are our presence and years of experience in the geographic area where we operate. Our network of contacts - foresters, landowners, timber buyers, mill owners, realtors, appraisers, bankers, and other professionals - enables us to make prudent decisions regarding land purchases and sales, timber management, and timber sales. Zack now lives in Ponte Vedra Beach, FL with his wife Jenny, son Zack IV, and a baby boy due in June He is a member of Christ s Episcopal Church and a volunteer and contributor to various veteran s and family programs including: Children of Fallen Patriots, Wounded Warrior Project, United Way, Ronald McDonald House, and Wolfson Children s Hospital in Jacksonville, FL. Todd Hockman Todd Hockman is an attorney, Real Estate Broker, and small business owner. Todd graduated from the University of Georgia in 1993 with a Bachelor of Business Administration in Finance. After graduating he returned to his hometown of Albany, GA and worked in his family s peanut brokerage business. Todd returned to the University of Georgia in 1998 to earn a Master s degree in Accounting. In 2000 he enrolled in Georgia State University s College of Law and was awarded his Juris Doctor in After passing the bar exam, Todd worked as a corporate and transactions attorney with the law firm Kirbo & Kirbo, PC in Albany, GA between 2003 and He opened Hockman & Company, LLC in 2005 specializing in business consulting, valuation, and sales, and real estate property management and sales. In 2008 he started The Hockman Law Firm, LLC to handle business transactions and legal counseling for select clients. In 2010 Todd and a partner started Gold Star EMS, LLC, a fully licensed ambulance service operating in the state of Georgia. In 2011 Todd and his partner started EMS Reimbursement Xperts, an ambulance claims billing service. Todd has been married to his wife Katie for seven years and has a two year old daughter named Claire. Todd serves on the executive committee and is the Treasurer for The Albany Museum of Art, which is accredited by the American Association of Museums. He is a member of First United Methodist Church. 6

4 Paul F. Mott Paul F. Mott is a retired forestry consultant with a long and successful career in the forest products industry. Paul graduated from the University of Florida School of Forest Resources in After graduating, he worked for Buckeye Cellulose Corp., a Division of Procter & Gamble Co., in Perry, Florida, holding various positions in Timberland Management, Wood Procurement and Forest Product Sales. Paul relocated to Americus, Georgia, in 1982 to lead Buckeye s Georgia Timberland Acquisition and Management Group. Weyerhaeuser Company bought P&G s Georgia Timberlands Operations in 1992, and Paul was employed by Weyerhaeuser to continue leading the Georgia Timberland Acquisition and Sales program in Georgia. He retired in 2004 after leading Weyerhaeuser s efforts to sell all of their timberland in Georgia. Paul is a member and Past President of the Georgia Forestry Association. Paul and his wife, Carole, continue to live in Americus. They have two daughters, two sons in law and four grandchildren all living in the Atlanta area. He is a member of Central Baptist Church in Americus and has led many mission teams to Central and South America. He is Treasurer of the Friendship Baptist Association and Chairman of the Friendship Camp Development Committee. Mike Matre Mike Matre is a Consulting Forester and Real Estate Broker. Mike holds a Bachelor of Science degree in Forest Resources and a minor equivalent in real estate, both from the University of Georgia. While in college, Mike participated in internships with St. Joe Paper Co. and Mead Paper Company, and worked part time for the UGA forestry school assisting graduate and doctorate students with forestry research. He gained additional experience at Hogan Forest Services of Waynesboro, GA; Atterbury Consultants of Beaverton, OR; and F&W Forestry of Albany, GA. In 1999, Mike established Matre Forestry Consulting Inc (MFC), which today is a leading full service forestry consulting and land brokerage company in Georgia. The fact that he continues to attract new clients while providing excellent service to his older client base is a testament to the impeccable reputation Mike has established for MFC. Mike now brings his invaluable passion for sound forestry and his strong work ethic to TOA. He is a member of the Georgia Forestry Association, where he serves on the Timber Theft Task Force; the Society of American Foresters; and the Association of Realtors. Mike also writes the Matre Forestry Newsletter, is a contributing writer to Georgia Forestry Today, and has spoken publicly for the Georgia Forestry Association and the Alabama Forest Landowners Association. Mike lives in Albany, GA with his wife, Joy, and their four daughters. Mike and his family are members of Americus Baptist Temple. Chad McGrath Chad McGrath is a 1996 graduate of the University of Georgia with a Bachelor of Science degree in Agricultural Economics. He has worked in the financial services industry since 1999, serving as a Financial Advisor to both individual and institutional investors. In this capacity, Chad was able to offer comprehensive financial advice, including asset allocation and portfolio management strategies, to a diverse group of clients. He has extensive knowledge of financial markets, risk management strategies, and economic analysis. Chad lives in Albany, GA with his wife, Alyssa, and their two children, Jack and Maura. He is a member of St. Paul s Episcopal Church, where he is actively involved in the music ministry. TOA is committed to operating under the standards of the Sustainable Forestry Initiative. SFI Inc. is an independent, nonprofit organization that is solely responsible for maintaining, overseeing and improving the internationally recognized Sustainable Forestry Initiative (SFI ) program. Across Canada and the United States, more than 240 million acres (100 million hectares) are certified to the SFI forest management standard, the largest single forest standard in the world. The SFI program s unique fiber sourcing requirements promote responsible forest management on all suppliers lands. SFI chainof-custody (COC) certification tracks the percentage of fiber from certified forests, certified sourcing and post-consumer recycled content. SFI on-product labels identify both certified sourcing and COC claims to help consumers make responsible purchasing decisions. SFI Inc. is governed by a three-chamber board of directors representing environmental, social and economic sectors equally. 8

5 The Inspiration for TOA The Swamp of Toa - also known as the Chickasawhatchee Swamp - is one of the largest remaining, relatively intact, fresh-water swamps in the Southeastern United States. The swamp is a critical site for migratory birds, freshwater fish and mussels, and other animal and plant communities. The swamp is also a major recharge area for the Floridan Aquifer, which provides water for agricultural, industrial, and residential use in Southern Georgia and Northern Florida. Protection of the swamp is considered critical for maintaining adequate supplies of healthy water to communities that rely on the aquifer. Trees grow every year regardless of the economic and political climate. - Zack Geer, TOA Spanish explorer Hernando DeSoto visited a nearby Indian town called Toa during his North American expedition in the 1540s, so Chickasawhatchee is also known as the Swamp of Toa. The swamp s expansive bottomland and hardwood forests are dotted with uplands featuring pines over 100 feet tall. Much of the swamp was used for tree and cattle farming from 1900 until 1956, when it was purchased by the St. Joe Paper Co. as a timberland investment. The State of Georgia now owns and protects over 20,000 acres of the swamp, which is designated as a Wildlife Management Area. 10

6 TIMBERLAND AS INVESTMENT Timberland has a long history as an investment for corporations, institutional investors, and wealthy individuals. Due to the volatility and uncertainty of other financial assets, investing in timberland can provide much-needed diversification to an investor s portfolio. With twenty-five years of documented historical returns, we can make a realistic comparison with other financial asset classes. Returns Timberland offers good returns, low volatility, and low or negative correlation with most other financial and real assets. The National Council of Real Estate Investment Fiduciaries, or NCREIF, has been tracking returns generated by timberland since NCREIF maintains regional indexes as well as a national index of timberland investments. From 1987 through 2012, the NCREIF South Timberland Index has produced an average annual return of 9.83 percent.* Volatility Timberland investors have enjoyed low volatility compared to other asset classes. From 1987 through 2012, annual returns for the NCREIF South Timberland Index were subject to a standard deviation of 7.29 percent. During the same period, the standard deviation for the S&P 500 index was percent. More importantly, the worst annual loss for the NCREIF index was percent, compared to the S&P 500 s worst year of -37 percent. The relative stability of timberland prices and returns is a very effective tool to diversify a portfolio of financial assets. *See appendix on page 19 for annual data. Low Correlation Virtually no correlation exists between timberland returns and returns from other financial assets. This fact offers investors a unique tool to enhance returns while simultaneously lowering the risk profile of an investment portfolio. Inflation Protection Recent years have seen unprecedented levels of accommodative policy from the United States Treasury and the Federal Reserve. Historic levels of government debt combined with trillions of dollars of bond purchases by the FED could cause serious inflation in the near future. Timberland returns have shown a positive correlation with inflation over time.* Tax Benefits Current Federal tax laws allow income from timber harvesting to be treated as capital gains. Federal law also gives timberland owners a tax deduction, known as depletion, which is the annual cost assigned to timber harvested. Depletion is similar to the annual depreciation allowance for tangible assets such as plant and equipment. Please consult your tax advisor before making investment decisions. *Source: Jack Lutz, phd, Forest Research Group 12

7 TIMBER INVESTMENT OVERVIEW LAND ACQUISITION Land to grow and manage timber is acquired at the lowest price possible. The current recession that started around 2007 has driven prices for land and timber downward, creating an opportunity to acquire land at attractive prices for a timber-growing investment. Prior to the recession, it was necessary to pay a significant premium for recreational, speculative, and/or higher and better use (HBU) associated value. Now, due to economic conditions, those premiums are minimal, making timberland investments especially attractive and safe. Land prices and timber prices are expected to rise as the economy improves over time, adding to the investment potential. The growing timber commodity can be stored on the stump at no cost until conditions are favorable for a timber sale. - Mike Matre, TOA INCOME FROM THE LAND BASE Income from the land base is generated primarily from timber revenues. Secondary income sources, from established markets such as hunting leases and pine straw leases, provide further income potential. There are also emerging markets such as carbon credits, conservation easements, wetland credits, fuelwood, and solar leases that are potential sources of income. The annual and periodic income from operations is used to cover operating expenses, and excess income is either reinvested and/or distributed to the investors. APPRECIATION OF LAND AND TIMBER Over time, a successful timberland investment should appreciate due to sound acquisitions, biological growth, prudent management, growth in timber prices, and growth in land values. PRUDENT MANAGEMENT A qualified team of managers work with diligence and foresight to make informed management decisions, and to keep management costs as low as possible without sacrificing growth. By maximizing growth and minimizing costs the management team plays a critical role in generating returns for investors. STRATEGIC LAND DISPOSITION After a predetermined period of holding and managing the land base, a strategic disposition of the timberland ownership is executed by the management team. Ideally, this should occur when markets for timber and timberland are favorable. The holding period is approximately ten years, but could be as short as five years or as long as fifteen years, depending on market conditions. The net revenues of the disposition are then distributed to investors. 14

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9 Timber investments are true green investments. - Todd Hockman, TOA FOREST MANAGEMENT BENEFITS HEALTHIER FORESTS Common management practices which benefit forest health are site specific reforestation strategy, properly timed and executed thinnings, competition control via herbicides and/or prescribed fire, and nutrient management through fertilization on certain sites. ECONOMIC GAIN Well-managed forests generate income through timber harvests, non-timber products and a return on investments in land and forest management. Emerging markets for biofuels and carbon offset projects are creating new sources of income for landowners. IMPROVED WILDLIFE HABITAT Southern forests are productive, dynamic, and diverse, supporting a vast array of wildlife communities. Forest management can directly enhance habitat for wildlife including both game and non-game species. Managing multiple age classes of timber, maintaining both planted and natural timber, protecting streams with forested Streamside Management Zone (SMZ) buffers that serve as wildlife corridors, leaving some areas in wildlife openings, prescribed burning, removing invasive species, and other common forestry practices all add to habitat diversity WATER QUALITY PROTECTION Forests produce clean water by absorbing rainfall, refilling aquifers, slowing stormwater runoff, and reducing floods. Careful management practices leave or create buffers in streamside and wetland areas to filter runoff, remove pollutants and provide tree cover to keep streams cool and improve fish habitat. With 80 percent of the freshwater resources in the United States originating in forests, having healthy forests is critical to having clean water. The quality of water draining from forested watersheds is typically the highest in the country. RECREATION Forest management practices can create inviting forests, open areas, trails and road access that can provide recreation and enhance natural beauty. Well-managed forests increase opportunities to enjoy outdoor activities such as hiking, hunting, fishing and bird watching. CARBON SEQUESTRATION Forests remove carbon dioxide from the air and convert it during photosynthesis into carbon. The carbon is then stored in the form of wood, bark, branches, roots, and other forest vegetation, a process referred to as carbon sequestration. Through this natural process the world s forest ecosystems store tremendous amounts of carbon: more than one trillion tons. This is twice the amount of carbon dioxide found floating free in the atmosphere. RENEWABLE AND ENERGY-EFFICIENT BUILDING PRODUCTS More attention is being paid than ever before to how buildings impact the environment, including the choices of materials used in construction and how those materials help conserve energy during operation. Wood is the perfect green building material because it is renewable, stores carbon that reduces greenhouse gases, and is energy efficient. 18

10 INDUSTRY OVERVIEW The Timber industry has always been an important part of the economy of the United States. Forest products have been used throughout history for fuel, building materials, paper, and many other essential uses. Our quality of life is very dependent on the diversity of products produced from timber resources. The United States is the world s largest producer and consumer of softwood lumber. The U.S. forest products industry employs over 887,000 Americans, and generates forest products with an annual value of over $239 billion. This represents about 9% of total U.S. manufacturing shipments. (source: American Forest and Paper Association) There are approximately 514 million acres of timberland in the United States -106 million of these acres are corporately owned, and 250 million acres are privately owned. The balance is owned by the National Forest System and other public entities. Traditionally, integrated forest products companies have owned a large percentage of U.S. timberland. In recent years, there has been a fundamental change in timberland ownership as institutional investors have purchased large tracts of land from forest products companies. These institutional investors are a diverse group of public and private pension funds, endowments, foundations, and high-net-worth individuals. (source: American Forest and Paper Association) Productive timberland in the United States is concentrated in two geographic areas: the Pacific Northwest and the Southeast. Our focus is on the Southeastern market, where we live, work, and have extensive knowledge of the industry. The South is the primary producer of timber products in the U.S. and the world. This positive environment for forest investment provides economic opportunities for landowners. Timberland can increase in value even if land and timber prices remain constant. - Paul F. Mott, TOA The South has more than 208 million acres of forestland that contain some of the most diverse and productive ecosystems in the world. Southern forests provide clean air and water, wildlife habitat, clean energy, recreation opportunities and a stronger economy. In addition to the many wood products used for building, furniture and paper, forests produce nontimber products such as medicines, food, specialty products and pine straw. Approximately 89% of the South s forestland is privately-owned, making it the nation s stronghold for private forestland ownership. (source: Southern Group of State Foresters) 20

11 TIMBER INVESTMENT VEHICLES OVERVIEW Direct Ownership of Land ADVANTAGES: Complete control of assets Flexibility of cash flows from harvests Recreational enjoyment of properties DISADVANTAGES: Requires substantial cash commitment and/or financing to purchase a diverse portfolio Requires substantial time commitment, expertise, or third-party consulting to properly manage properties Difficult to achieve age-class and geographic diversification Limited liquidity - individual properties may not be easily liquidated in some situations Timber Real Estate Investment Trust (REIT) ADVANTAGES: Low minimum investment Liquidity: most Timber REITs trade on public equity exchanges. Regular income - REITs are generally required to disburse 95% of annual income to shareholders. Diversification - Timber REITs own and manage very large and diverse portfolios of timber assets. DISADVANTAGES: Leverage: most REITs carry significant amounts of debt. Rising interest rates will have a negative effect on financial performance. Volatility: the price of REIT shares has historically been much more volatile than the price of the underlying timber assets. Income-producing management strategies may conflict with long-term growth strategies. NCREIF South Timberland Index Annual Return % % % % % % % % % % % % % % % % % % % % % % % % % % AVERAGE 9.83% Timber Investment Management Organization (TIMO) ADVANTAGES: Manager has flexibility to maximize long-term returns for investors. Age-class and geographic diversification Dedicated management allows for low expenses, prudent acquisitions, and timely liquidations of assets. Lower minimum investment compared to direct ownership DISADVANTAGES: Lack of liquidity: ownership interest may not be transferable except in specific circumstances. No direct control of assets Cash flow from harvests may be irregular. 22

12 GLOSSARY ACRE - A unit of land measurement, 43,560 square feet or 10 square chains. A square acre measures feet on each side. BEST MANAGEMENT PRACTICES (BMP) - A practice, or combination of practices, that is determined after problem assessment and examination of alternatives, to be most effective, practical means of preventing or reducing the amount of pollution generated by non-point sources to a level compatible with water quality. BOARD FOOT - A lumber measurement defined as being a piece of sawn wood measuring 1 inch x 1foot x 1 foot. The term is also used as a measure when estimating the amount of lumber in trees, sawlogs, and veneer logs. Board foot volume in a piece of lumber is determined by: BF = length in feet X width in inches X thickness in inches) BOTTOM LANDS - Lands, usually flood plains, adjacent to a river or watercourse. This land is often highly productive for both pine and hardwoods, but can often be difficult to manage and harvest because of drainage problems. BUFFER STRIP - A barrier of permanent vegetation established or left undisturbed downslope from disturbed forest areas to filter out sediment from runoff before it reaches a watercourse. CHIP-N-SAW - Generally, pine trees larger than pulpwood size, but smaller than sawtimber trees (often between 9-12 DBH). These trees are used to produce pulp chips and lumber. CLEARCUT - A silvicultural system in which all merchantable trees are harvested over a specified area in one operation. CONSERVATION - The protection, improvement, and wise use of natural resources to provide the greatest social, economic, and environmental value for the present and future. CONTROLLED BURNING - Any burning that has been started intentionally by a landowner to accomplish some particular purpose, and over which he exercises some surveillance or control. ECOLOGY - The science that deals with the relation of plants and animals to their environment and to the site factors that control their distribution and growth. ENERGY WOOD - Wood that is used for heating or other energy products. It includes forest, industrial, urban, and other wood wastes as well as whole tree chips for energy. ENVIRONMENT - The existing condition of the surroundings that results from a combination of climate, soil, water, topography, and other plants and animals. An organism s environment influences its form and survival. EVEN-AGED FOREST - A forest containing trees that are about the same age (usually within 10 years). Pine plantations are even-aged forests that result from clearcut harvesting and reforestation with seedlings. FORESTER - A professionally trained individual who supervises the development, care, and management of forest resources to include timber, soil, water, wildlife, and recreation. FOREST MANAGEMENT - (1) Giving the forest proper care so it stays healthy and vigorous and provides the products and values the landowner desires. (2) Technical definition: Applying technical forestry principles and practices and business techniques (such as accounting, benefit-cost analysis, etc.) to a forested area. HARVEST - Removing trees on an area to (1) obtain income from the wood products; (2) develop the environment necessary to regenerate the forest. MERCHANTABLE HEIGHT - Refers to the height (length) of a merchantable tree from a point six inches above the groundline to a point on the trunk where the diameter becomes too small to obtain a particular product. The product being cut from the timber determines the merchantable height. For example, if the minimum usable diameter of pulpwood is 4 inches, the merchantable height of a pulpwood tree would be its height up to a stem diameter of 4 inches. MERCHANTABLE TIMBER - A stand of timber of sufficient size and volume per acre to be harvested profitably. MULTIPLE USE FOREST - A forest that is managed for two or more objectives, such as timber production, forage production, wildlife habitat, recreation, and aesthetics. NATURAL STAND - A stand of trees resulting from natural seed fall or sprouting. PINE - A descriptive name given to a particular group of needle bearing trees. In the Southeastern states they are known for their valuable lumber 24

13 GLOSSARY Timber terms, cont d. The expansive and well-established timber industry is rooted firmly in the free market. - Chad McGrath, TOA and pulp qualities. Common pines species include loblolly, Virginia, slash, longleaf, and Eastern white pines. PLANTATION - A forested area established by planting or direct seeding. It is usually made up of a single species, most often pine. POLE TIMBER - (1) Trees at least 5 inches in diameter breast height, smaller than sawtimber size, and of good form and vigor. (2) Trees of sufficient size and form to produce power poles when manufactured. PRESCRIBED BURNING - The controlled use of fire to achieve forest management objectives. Prescribed fire can be used to reduce hazardous fuel levels, to control unwanted vegetation, improve visibility, improve wildlife habitat, and prepare soils for seed fall in natural regeneration. PULPWOOD - Wood cut or prepared primarily to make wood pulp, paper, fiberboard, or other products. Trees over 5 DBH that are unsuitable for sawtimber because of size, crook, or other defect are sold as pulpwood. REFORESTATION - Re-establishing a forest by planting, seeding or natural regeneration methods on a harvested tract of land. SAPLINGS - Live trees of commercial species that are 1.0 to 5.0 in diameter at breast height and of good form and vigor. SAWTIMBER TREES - Trees containing at least one 12 sawlog or two separate 8 sawlogs, and meeting mill specifications for quality. Softwood trees must be at least 9 DBH and hardwood trees 11 DBH to be considered sawtimber trees. SEEDLING - A young tree less than 1.0 inch in diameter. Seedlings are usually less than three years of age. SILVICULTURE - The scientific practice of establishing, tending, and reproducing forest stands with desired characteristics. It is based on the knowledge of tree characteristics and environmental requirements. SITE INDEX - A measure of the productive capacity of a particular site. For natural stands, site index is defined as the total height (in feet) of the dominant trees at 50 years of age. For planted stands, site index is the height of the dominant trees at 25 years of age. Site index is one of the best indicators of forest productivity for a given site and tree species. SITE PREPARATION - Preparing land for planting, direct seeding, or natural regeneration by clearing, herbicide application, burning, disking, bedding, windrowing, and/or raking. STUMPAGE - (1) The Value of timber as it stands uncut in the woods; or, in a general sense, the standing timber itself, or (2) The sum paid the owner for the tree as it stands on the stump. THINNING - Removing some of the trees from a stand to encourage growth among the remaining timber. Commercial thinnings provide the landowner some financial return, while noncommercial thinnings do not. Methods used for thinning timber include row thinning where every third or fifth row of trees is harvested, selection thinning where only selected trees are harvested, and combination thinning where both row and selection methods are used. TIMBER STAND IMPROVEMENT (TSI) - Improving the quality of a forest stand by removing cull trees and brush, leaving a stand of good quality trees. Cull trees may be removed by chemicals, fire, girdling, or cutting. TRACT - (1) An acreage containing one forest type; (2) An acreage enclosed by a fence and managed separately; or (3) A segment of forest having undergone some change making it distinctly identifiable. A manageable forest tract is usually 25 acres or more. WHOLE-TREE CHIPPING - A harvesting process of converting whole trees into chips for use as pulp material or fuel for energy. This system can result in substantially lower reforestation costs than conventional harvest systems. WILDFIRES - Fires burning out of control, regardless of how or why they started. See prescribed burning. WINDROW - Logging debris and unmerchantable woody vegetation which has been piled in rows to decompose or be burned; or the act of constructing these piles. 26

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15 RESOURCES To find out more about the timber industry, consult the following: American Forest and Paper Association Forest Landowners Association Forest Research Group Georgia Forestry Association Georgia Forestry Commission Warnell School of Forestry - University of Georgia National Association of State Foresters Southern Forest Products Association Southern Pine Council Southern Group of State Foresters Sustainable Forestry Initiative U.S. Forest Service CONTACT TOA TIMBER OPPORTUNITY ADVISORS P.O. BOX Albany, GA