REVIEW OF TIMBERLAND INVESTMENT DRIVERS, GROWTH AND …
Transcript of REVIEW OF TIMBERLAND INVESTMENT DRIVERS, GROWTH AND …
Jib A. Davidson, C.F.Columbia Timber & Environmental Services
United County Real Estate and AuctionsGainesville, FL • 352-375-1473
REVIEW OF TIMBERLAND INVESTMENT DRIVERS, GROWTH AND TIMBER PRICES
TIMBERLAND INVESTMENT DRIVERS
•A driver has a material effect upon the activity of another entity¹
•Drivers are unique •Landowner objectives create drivers •Maximize net income, IRR & NPV
¹Kenton, Will (2018). Investopedia. Retrieved from www.Investopedia.com/terms
CAULFIELD DRIVERS
• Jon P. Caulfield, Professor of Forest Business at Warnell School of Forest Resources at UGA
•“Timberland Return Drivers and Investing Styles of an Asset That Has Come of Age” The Quarterly Review of Commercial Finance Techniques. Volume 14, Number 4. Winter 1998.
KPMG DRIVERS
•KPMG International•Operates in 153 countries•207,000 employees•Supply audits, assurance practices, mitigates risk, identifies opportunities
INTERNATIONAL WOODLAND DRIVERS
•International Woodland invests in agriculture and timberland
•Manage 4.5 billion dollars of institutional portfolios
INTERNATIONAL WOODLAND DRIVERS
•Focus on asset management & alternative investments
•Study rates of return and risk
INTERNATIONAL WOODLAND DRIVERS
•Land appreciation: 2 – 5%•Timber price changes: 25 – 30%•Biological growth: 65 – 75%
COLUMBIA TIMBER COMPANY DRIVERS
•Land appreciation•Asset management•Timber price changes•Biological growth
COLUMBIA TIMBER COMPANY DRIVERS
75% Biologicalgrowth
Land Appreciation
Timber prices
AssetManagement
3%10%
12%
Historical and Current Land Management Practices
0
50
100
150
200
250
1940 1950 1960 1970 1980 1990 2000 2010
Establishment period
Volu
me
at h
arve
st (t
ons/
acre
)
Clonal andbiotechnologyTree improvement
Weed control
Fertilization
Site preparation
Planting
Natural stand
Adapted from Fox, T.R., Jokela, and Allen. 2004
ESTABLISHING OPTIMAL ROTATION
CRITERIA FOR SELECTING “PROPER” AGE• Landowner objectives• Age for the “best” size – all timber markets are local• Age for total maximum volume• Age for maximum rate of growth• Maximum economic returns
ESTABLISHING OPTIMAL ROTATION
TRADITIONAL METHODS• Faustmann• Land expectation value, site expectation value, soil
rent & bare land value• Forest rent (maximizes stumpage)• Fisher rotation age (ignores opportunity costs)• Hartman rotation age (non-timber values)• MAI/CAI (no economics)
MEAN ANNUAL INCREMENT = CURRENT ANNUAL INCREMENT
Zhang, D., &Pearse, H. P. (2011). Figure 7.1 Growth in volume and stumpage vale of a forest stand at it increases in age. Forest Economics. UBC Press, Vancouver, B.C.
CAIMAI
MEAN ANNUAL INCREMENT = CURRENT ANNUAL INCREMENT
Zhang, D., &Pearse, H. P. (2011). Figure 7.1 Growth in volume and stumpage vale of a forest stand at it increases in age. Forest Economics. UBC Press, Vancouver, B.C.
CAIMAI
GROWTH & YIELD EXAMPLE
-
2
4
6
8
10
12
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Gro
wth
tons
/acr
e
Years
GROWTH & YIELD LOBLOLLY PINE
CAI
MAI
SQ = 80600 T/A
GROWTH & YIELD EXAMPLE
-
2
4
6
8
10
12
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Gro
wth
tons
/acr
e
Years
GROWTH & YIELD LOBLOLLY PINE
CAI
MAI
SQ = 80600 T/A
Rotation age = 15
TMS DATA
y = 1.0307x + 22.147R² = 0.9569
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8
NE FL DELIVERED TIMBER PRICES PULPWOOD
TMS DATA
y = 22.734e0.0353x
R² = 0.9546
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8
NE FL DELIVERED TIMBER PRICES PULPWOOD
TIMBER PRICE GROWTH RATE
•LINEAR 3.1% •EXPONTIAL 3.5%
THIS IS A NOMINAL GROWTH RATE…IT INCLUDES INFLATION
HISTORICAL INFLATION
-15
-10
-5
0
5
10
15
20
15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 0 5 10 15
INFLATION 1915 - 2018
HISTORICAL INFLATION
-15
-10
-5
0
5
10
15
20
15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 0 5 10 15
INFLATION 1915 - 2018
INFLATION LAST 10 YEARS2008 – 2018
1.6%
REAL TIMBER GROWTH RATE
LINEAR EXPO AVERAGE
TIMBER GROWTH 3.1 3.5 3.3LESS INFLATION (1.9) (1.9) (1.9)REAL TIMBER GROWTH
1.2 1.6 1.4
COMBINE TIMBER PRICE WITH GROWTH
$-
$500
$1,000
$1,500
$2,000
$2,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DOLL
AR V
ALU
E
YEARS2 TONS/A/YR 5 TONS/A/YR 8 TONS/A/YR
DOLLAR GROWTH WITH NO TIMBER PRICE INCREASE AT $16 PER TON
COMBINE TIMBER PRICE WITH GROWTH
$-
$500
$1,000
$1,500
$2,000
$2,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DOLL
AR V
ALU
E
YEARS2 TONS/A/YR 5 TONS/A/YR 8 TONS/A/YR
DOLLAR GROWTH WITH NO TIMBER PRICE INCREASE AT $16 PER TON
P₁ = $16P₁₈ = $16
COMBINE TIMBER PRICE WITH GROWTH
$-
$500
$1,000
$1,500
$2,000
$2,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DOLL
AR V
ALU
E
YEARS2 TONS/A/YR 5 TONS/A/YR 8 TONS/A/YR
DOLLAR GROWTH WITH NO TIMBER PRICE INCREASE AT $16 PER TON
P₁ = $16P₁₈ = $16
IRR = 22%
IRR = 28%
IRR = 32%
COMBINE TIMBER PRICE WITH GROWTH
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DOLL
AR V
ALU
E
YEARS
DOLLAR GROWTH WITH 1.4% REAL PRICE INCREASE AT $16 PER TON
2 TONS/A/YR 5 TONS/A/YR 8 TONS/A/YR
COMBINE TIMBER PRICE WITH GROWTH
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DOLL
AR V
ALU
E
YEARS
DOLLAR GROWTH WITH 1.4% REAL PRICE INCREASE AT $16 PER TON
2 TONS/A/YR 5 TONS/A/YR 8 TONS/A/YR
IRR = 24%
IRR = 30%
IRR = 34%P₁ = $16P₁₈ = $21