Forestry. Timberland. Woodland.
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 project manage your acquisition, drawing together information and advice from appropriate professionals and build a business case to support bids on forest assets.
To browse a sample of acquisition opportunities, check out our Forests for Sale page.
Definition of Forestry Investment Objectives
What is an appropriate return profile for forestry investment?
A wide range of returns on equity are quoted for forestry, timberland and woodland investments. These may range from under 5% for the lowest risk regions to over 20% in higher risk areas. However, for an individual investor to use an appropriate rate of return for their equity 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 three areas:
timber price change.
land value appreciation.
There are different approaches that may be taken to define what target return on owner equity is appropriate. However, definition of a return target is a crucial element of successful forestry investing, since without an appropriate target it is not possible to critique performance.
Also, through analysis it is possible to discern the proportion of returns required to be sourced from the three 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 as to when is the best time to divest or further invest.
Forestry Asset Management
Forestry Asset Management works hand in hand with traditional forest management, or silvicultural management. The objective of Forestry Asset Management is to ensure that financial returns derived from the asset for the owner are optimised. Forestry Asset Management and Forestry Investment Management are similar concepts, but in our analytics Forestry Asset Management concerns optimising the financial performance of forestry property, whilst Forestry Investment Management is focused on the clients' own investment objectives, and how these may be addressed by forestry.
Silvicultural forest management can define what actions are best undertaken in the forest to, for example, produce the best quality or quantity of timber over time. However, using only silvicultural forest management may not deliver the optimal financial return. Indeed, in some cases there may be a significant divergence between what makes the best sense silviculturally versus financially.
Forestry Asset Management generally entails scrutiny of management options using financial assessment tools to analyse the business merit of silvicultural options such as:
When should timber crops be considered for sale?
When is the timber price right to obtain optimal returns?
Which tree species mix should be replanted for highest long-term profitability?
What kind of thinning pattern should be pursued?
Does it make sense to undertake capital expenditure?
Forestry Asset Management can also encompass overall oversight of local forestry managers, administration and reporting. So, for larger forest owners Forestry Asset Management can provide a convenient solution to the potential problem of direct ownership requiring significant owner input and time to ensure the timber growing business is optimised. Forestry Investment Advisor has no stake in forest operational or timber sale matters and so is well placed to provide Forestry Asset Management in a completely independent and unbiased manner.
Timber Sales - Decision Analysis
A key element of both Forestry Asset Management and Forestry Investment Management is making the right decisions on timber sales. Indeed, after forest acquisition, probably the largest decision any forest owner will need to take is regarding sale of the timber held within their forest. But when is the right time to consider sale of timber in a rotation? And when should forest owners accept, or decline, the timber price offered?
Forestry Investment Advisor can offer ad hoc consultancy to owners considering timber sales to analyse:
Is now the right time to harvest timber?
Should I accept the timber price offered?
What does the offered timber price do to my overall return?
Capital Expenditure - Decision Analysis
After timber sales, the next area of largest possible financial impact on the success of a timber growing business is probably appropriate capital expenditure. Forestry Investment Advisor can offer ad hoc consultancy to owners considering capital expenditure to analyse what the impact of capital expenditure may be.
Areas of capital expenditure may include:
New forest roads / tracks
New forest drains
Forestry Business Analysis
For any existing forest owner who currently is making use only of silvicultural management, Forestry Investment Advisor can offer consultancy in bespoke forest business analysis. The intention of such analysis would be to normally discern forest asset performance as a business. The requirements of such analysis would normally be discussed with the client on case by case basis.