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%
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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
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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
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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
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Timber Market Overview
US Forest Production by Region
Altius Associates| December 2010
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Key Global Driver
Recovery in US housing markets
Altius Associates| December 2010
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Questions?
Altius Associates| December 2010
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