Transcript Slide 1

Altius Associates
December 8, 2010
Topics for discussion
• What is the current state of global timberland investments – who, where,
how?
• Where are the major centers of timber production and what is the
demand outlook for paper and wood products?
• What regions do we believe offer compelling investment opportunities?
• Q&A
Altius Associates| December 2010
Page 2
Investment-grade Timberlands by Region
Africa
2%
~Est. Value = $130 Billion
Asia
7%
Oceania
8%
South America
20%
Russia & Eastern
Europe
3%
Altius Associates| December 2010
US & Canada
50%
Western
Europe
10%
Page 3
Institutional Timberland Investments by Region
Total ~ $42 Billion
United States ~ $32 Billion
8%
14%
22%
5%
4%
6%
77%
64%
United States
Other North America
Northwest
Northeast
South America
Oceania
South
Appalachia/Lake States
6/30/2010 Market Value
Altius Associates| December 2010
Page 4
Institutional Investments by Structure
6/30/2006
6/30/2010
Market Value ~ $18 Billion
Market Value ~ $42 Billion
40%
43%
57%
60%
Direct Accounts
Altius Associates| December 2010
Funds
Direct Accounts
Funds
Page 5
Investor Characteristics
Investor Type
Investor Domicile
Fund of
Funds
2%
Family
Offices
7%
24%
Other
19%
Foundations
&
Endowments
19%
Corporate
Pension
10%
76%
Public
Pension
43%
US
Non-US
6/30/2010 Market Value
Altius Associates| December 2010
Page 6
Topics for discussion
• What is the current state of global timberland investments – who, where,
how?
• Where are the major centers of timber production and what is the
demand outlook for paper and wood products?
• What regions do we believe offer compelling investment opportunities?
• Q&A
Altius Associates| December 2010
Page 7
Timber Market Overview
Population = Demand
Altius Associates| December 2010
Page 8
Timber Market Overview
Timber Harvests vs Paper and Wood Products Production by Region, 2009
40%
Timber Harvests
35%
Paper and Wood Products
Production
30%
25%
20%
15%
10%
5%
0%
US & Canada
Altius Associates| December 2010
Russia & Eastern
Europe
Asia
Western Europe
South America
Oceania
Page 9
Timber Market Overview
US Forest Production by Region
Altius Associates| December 2010
Page 10
Key Global Driver
Recovery in US housing markets
Altius Associates| December 2010
Page 11
Key Global Driver
China demand growth greatly exceeds domestic timber supplies
180
Million m3 Round Wood
Equivalent
160
140
120
100
Changes
in trade patterns
80
60
40
20
0
1997
1998
1999
2000
2001
Timber Product Imports
Sources: China Customs Data and Forest Trends Analysis 2007
Altius Associates| December 2010
2002
2003
2004
2005
2006
2007
Pulp and Paper Imports
Note: As a benchmark, the total pine harvest in the
U.S. South in 2008 was ~180 million m3
Page 12
Key Global Driver
Economic viability of Russian timber supplies
Topography is challenging with high-cost cold winter logging & high logistics costs to market. Significant
capital required for expansion.
Altius Associates| December 2010
Page 13
Key Global Driver
Potential development of energy-related markets
Altius Associates| December 2010
Page 14
Topics for discussion
• What is the current state of global timberland investments – who, where,
how?
• Where are the major centers of timber production and what is the
demand outlook for paper and wood products?
• What regions do we believe offer compelling investment opportunities?
• Q&A
Altius Associates| December 2010
Page 15
RMS Core Investment Regions
Altius Associates| December 2010
Page 16
Risk-Return Profile of Target Countries
EXPECTED RETURN
(real, net)
LOW
Altius Associates| December 2010
RISK
MODERATE
Page 17
Brazil
Forest Plantations: Location & Species
Scale has been developed in many regions, for both pine and eucalyptus
Currently:
• Eucalyptus: 4.3 million ha.
• Pine: 1.9 million ha.
Eucalyptus region
Legend
Pine Belt
>76% of total plantation area
<24% of total plantation area
Altius Associates| December 2010
Source: ABRAF, Sao Paulo Institute of Agricultural Economics and STCP, 2009
Page 18
Investment Summary: Brazil
Globally competitive with highly productive hardwood and softwood forests and manufacturing.
Growing domestic economy providing demand support.
Markets
• Softwood markets are transitioning from US export emphasis to globally diversified customer focus.
Increasing growth in domestic markets in response to government sponsored infrastructure and housing
initiatives.
• Premier global producer of bleached eucalyptus kraft pulp. Growing domestic MDF consumption, along
with energy markets, are generating fiber price pressure.
Investment Opportunities
• Wealthy family ownerships reaching generational tipping point. Many are involved in forest products
manufacturing and facing financial pressures to monetize timberlands. Significant opportunities to acquire
assets in $25 - $50 million USD range.
• Major pulp and paper companies in early stages of shift from fully integrated model through sale of “nonstrategic” assets.
• Incremental consolidation of small ownerships creating scale can also be achieved.
Political/Legal
• It’s Brazil…difficult, but not impossible.
• Highly regulated labor, environmental, tax and legal systems add process cost.
Altius Associates| December 2010
Page 19
New Zealand
Forest Plantations: Location & Species
New Zealand’s forest resource is dominated by radiata pine.
Currently:
• Radiata Pine: 1.57 million ha.
• Other: 0.18 million ha.
Source: MAF National Exotic Forest Description, 2008
Altius Associates| December 2010
Page 20
Investment Summary: New Zealand
Key supplier of sustainable softwood for rapidly growing Asia-Pacific markets.
Markets
• Well-positioned to supply growing demand in China and India, both countries having large supply deficits.
Cost increases of competing supplies will be an incremental price driver:
– Russia: Increasing remote logistics costs, environmental restrictions and export taxes.
– Canada: Reduced harvest from mountain pine beetle mortality.
• Continued demand by New Zealand and Australian domestic economies.
Investment Opportunities
• Majority of timberland ownership held by investors, will provide ongoing acquisition opportunities.
• Remaining medium size companies seeking timberland sales and long-term wood supply agreements as
part of strategic shift of capital and management from fully integrated model to focused manufacturing for
the supply of domestic and Asia-Pacific markets.
• Consolidation of regional fragmented forest tracts creating scale can be achieved.
Political/Legal
• Very favorable foreign investment climate.
• Highly transparent regulatory and legal system.
Altius Associates| December 2010
Page 21
Australia
Forest Plantations: Location & Species
Forest plantations are concentrated around coastal regions, providing excellent growing conditions
Legend
Forest Plantation Regions
Source: National Forest Inventory 2008
Altius Associates| December 2010
Page 22
Investment Summary: Australia
Strong domestic softwood market and major hardwood chip exporter.
Markets
• Strong softwood markets driven by domestic consumption for construction, outdoor and appearance
products. Inadequate domestic supply supplemented by imports, mainly from New Zealand.
• Largest supplier of hardwood chips to rapidly growing Asia-Pacific markets.
Investment Opportunities
•
Privatization of large public forests has begun and will provide significant opportunities to acquire quality
softwood assets.
•
Liquidation of overly leveraged MIS schemes may provide opportunities to acquire eucalyptus plantation
assets.
Political/Legal
•
Very favorable foreign investment climate.
•
Highly transparent regulatory and legal system.
Altius Associates| December 2010
Page 23
China
Forest Plantations: Location & Species
Four broad forest regions can be identified based on six major species groups.
Species Group
Larch
Softwood
Hardwood
Oak
Oak
Ash
Ash
Birch
Birch
Aspen
Aspen
Forest Region 1
Larch and Birch
Forest Region 2
Poplar
Fibre
Forest Region 3
Pines and fir
Forest Region 4
Eucalypts
Spruce
Spruce
Pine
Pine
Fir
Hemlock
Fir
Hemlock
Masson
Massonpine pine
Chinese fir
Chinese
fir
Southern pines
Hardwood
Hardwood & &
Rainforest
Rainforest
Source:
RMSAnalysis 2007
Source:Pöyry
Pöyryand
& RMS
Altius Associates| December 2010
Guangxi and Guangdong
provinces have been the focus
for many forest plantation
development projects
Page 24
Investment Summary: China
Strongest growing global forest products market that is sustained by domestic growth with a
perennially large and increasing fiber supply deficit.
Markets
• China’s strong demand growth is pulling increasing imports, equivalent to US Southern pine harvest.
• Domestic sawlog and pulp log pricing is based on import parity.
Investment Opportunities
• Estates accumulated by medium to large size companies to assure fiber supply are becoming
available as owners shift capital and management from a fully integrated model to leading edge
manufacturing. These former owners will provide market stability as a major customer.
• Incremental consolidation with smaller acquisitions creating scale can also be achieved.
Political/Legal
• Forests can be privately owned with long term leases and are transferable.
• Sustainable commercial forests and associated rural manufacturing have strong political support.
• Transparency of the tax and regulatory systems has substantially improved with WTO entry.
• Legal protection, tax minimization and capital repatriation supported with Hong Kong structures.
Altius Associates| December 2010
Page 25
Questions?
Altius Associates| December 2010
Page 26