Forestry. Carbon. Nature.
Forestry Acquisition Decisions
Perhaps the biggest decision in a timber growing business is the expenditure required to purchase a forest asset. Forest acquisition decisions require a sound understanding of investment objectives, timber income flows, income potential of timber growing land over the long term, realisation costs, risk, silvicultural and regulatory factors.
Forestry Investment Advisor can put you in touch with local partners, who can draw together information and advice from appropriate professionals and build a business case to support bids on forest assets.
Definition of Forestry Investment Objectives
What is an appropriate return profile for forestry investment?
Are there carbon sequestration or nature based solutions objectives, or purely financial returns as drivers.
A wide range of returns on equity are quoted for forestry investments. These may range from under 5% for the lowest risk regions, perhaps in the Nordics, to over 20% in higher risk areas.
Defining an appropriate rate of return requires both an awareness of the risks of forestry in the region, but also a wider appreciation of where their returns come from.
Returns from forestry investment generally may be sourced from:
biological growth of timber.
timber price change.
land value appreciation.
Income from provision of ecosystem services, such as carbon sequestration, can sometimes contribute to financial returns. Alternatively, as a nature based solution, returns from forest investments may be rather in impact and deliver biodiversity gains or other natural capital growth.
For financially orientated forestry investors, there are different approaches that may be taken to define what target return on owner equity is appropriate. Once a return target is defined it is possible to critique performance.
Also, through analysis it is possible to discern the proportion of returns sourced from different forestry investment elements of biological growth, timber price change and land value appreciation. This means the risk profile of obtaining different levels of return can be considered. For example, there may be a relatively greater assurance of the occurrence of biological growth than land value appreciation.
Appropriate return expectations may vary over time. Therefore, refreshment of return expectations in conjunction with ongoing appraisal of the strategic outlook for a forest asset may provide crucial insight.
Forestry Asset Management
Forestry Asset Management works hand in hand with traditional forest management, or silvicultural management. Forestry Asset Management can ensure that financial returns derived from the asset for the owner are optimised, or that other carbon sequestration or nature based solutions goals are being best delivered.
The weakness of silvicultural forest management alone is correct aligment of objectives within the forest and for the client. For example, a silvicultural objective may be to produce the best quality or quantity of timber over time. However, if the client objective is optimal financial return, maximum carbon sequestered or indeed a nature based solution, then the appropriate asset management decision will likely diverge from what traditional silvicultural management might suggest.
Our Forestry Asset Management critically evaluates options using financial assessment to analyse questions such as:
When should timber crops be considered for sale?
When is the timber price right to obtain optimal returns?
Which management strategy will deliver the greatest carbon storage in the forest?
Which tree species mix should be replanted?
What kind of thinning pattern should be pursued?
Does it make sense to undertake capital expenditure?
What is the financial impact of implementation of a nature based solutions strategy?