PERFORMANCE MEASUREMENT OF TIMBERLAND INVESTMENTS

Transcription

1 PERFORMANCE MEASUREMENT OF TIMBERLAND INVESTMENTS Den Danske Finansanalytikerforening May 23, 2013 Strictly for professional use and not for public distribution

2 IWC OVERVIEW LONG TERM EXPERIENCE IWC was founded in 1991 STRONG FOCUS Exclusively timberland investments for institutional investors SIZEABLE PRESENCE Advises on, and manages, a total of USD 3.1bn (NAV *) of institutional timberland investments Approximately 5% of the institutional private timberland investment universe EFFICIENT AND SCALEABLE ORGANIZATION Strong and diverse organization with 23 investment professionals Headquarters in Copenhagen, regional offices in Singapore and North Carolina ALIGNMENT OF INTEREST A stable company, majority owned by its employees and board members 55% owned by employees and board members 45% owned by Danish Teachers Fire Insurance Co. STABLE AND FOCUSED ORGANIZATION LONGSTANDING TIMBERLAND EXPERIENCE * Net Asset Value based on value as of Q

3 USD 3.1 BILLION PORTFOLIO ACROSS THE WORLD Europe $272 mn Oceania $538 mn Asia $16 mn US PNW $271 mn US North East $275 mn US South $763 mn Central America $86 mn South America $809 mn Africa $41 mn Value of assets is in USD millions and is based on equity market value as of Q

4 TIMBERLAND PORTFOLIO PERSPECTIVE The asset specific return drivers contributes to clear portfolio benefits through: Correlation of annual returns ( ) RETURNS: competitive risk adjusted returns characterized by a balance between capital gains and regular distributions US CPI LOW CORRELATION AND DIVERSIFICATION: supported by harvest flexibility and biological growth Real Estate INFLATION PROTECTION: land prices (real asset) and the ability of timber prices to pass on / respond to end price increases Historically positive correlation with inflation ADDITIONAL BENEFITS: climate change supported by carbon sequestration, resource sustainability, and social and ecological benefits Global Bonds Emerging Market Stocks Global Stocks -10% 0% 10% 20% 30% 40% 50% 60% 70% EXPERIENCED TIMBERLAND PLATFORM PRIVATE TIMBERLAND COMPLIMENTARY PORTFOLIO BENEFITS Sources: IWC, NCREIF Timberland Index, NCREIF Property Index, MSCI World, MSCI Emerging Markets, EFFAS Government Bond Indices - Global Bond Series 4

5 TIMBERLAND CHARACTERISTICS Timberland investments: Plantations (planted forest established mainly for wood production) Semi natural forest sustainably managed for both wood production and non-wood products (carbon sequestration and environmental benefits) Timberland assets comprised of both land and growing timber (fee simple) Timber on leased land Timber harvesting rights 5

6 INVESTMENT VEHICLES Direct Investment The owner has full access to and full management right of the forest Fund structure Structured by a Timber Investment Management Organization (TIMO) Typically more than one investor The TIMO earns a management fee Tax efficient structure REITs Listed or unlisted May offer higher liquidity but also greater correlation with stock markets 6

7 TIMBERLAND RETURN DRIVERS Timberland returns are primarily driven by the following drivers Overview of return drivers BIOLOGICAL GROWTH: growth in volume and value over time are the main drivers Ingrowth: growth of trees to higher value products TIMBER PRICES: driven by exposure to multiple input areas, and factors such as economic growth, housing, and population growth LAND VALUES: local supply and demand, also impacted by land productivity, timber prices and alternative use DISCOUNT RATE COMPRESSION: gradually capitalize on market maturity in developing regions and maturing forests Biological growth Timber price changes Land price changes DR compression Others 7

8 TIMBERLAND RETURN DRIVERS The return partly generated through a combination of regular income from harvest (timber price * volume) and capital appreciation (change in asset value from incremental volume and discount rate changes reflecting changes in risk-adjusted return expectations) Value [USD/ha] Ingrowth - example - stages of pine 6000,0 5000,0 4000,0 3000,0 2000,0 1000,0, Year Pulpwood Chip & saw Sawtimber 8

9 TIMBERLAND RETURN DRIVERS Annual reported return (%/year) since 1987 for the NCREIF Timberland Index. 30% 25% 20% 15% 10% 5% 0% -5% -10% Income return Capital Appreciation 9

10 Discount rate RETURN DRIVERS DISCOUNT RATE COMPRESSION Examples of regional discount rates Africa China Asia, other Brazil South America, other New Zealand Australia U.S GDP per capita USD (2012) Source: Pöyry (2011) 10

11 VALUATION METHODS All IWC Funds are appraised annually by independent third party appraiser Three methods may be used: 1. The Cost Approach 2. Sales Comparison Approach 3. The Income Approach using a DCF analysis The final value of a property is usually derived through a combination of the three approaches Appraisers adhere to industri valuation standards such as USPAP (Uniform Standards of Professional Appraisal Practice) Most Funds are valued in USD introducing translation effects from currency movements 11

12 DATA POINTS As unlisted investments IWC Funds are valued only quarterly With an outset in the third party appraisal the subsequent quarters NAV s are adjusted for: Contributions Distributions Realized gains or losses Cash flow from timber sold Depletion In general only 4 NAV data points annually 12

13 CALCULATION METHODS TWR using original or modified Dietz method Only 4 annual calculations All sub periods have equal weights Challenges when initial cash flows are registered before first NAV Can produce returns <-100% IRR Size and timing dependent Potential nonsense results in start-up period being diluted over time Gross/net of leverage Some Fund apply use of leverage Gross/net of management and performance fees Data capture the amounts paid by either the Fund or by the investors directly 13

14 CALCULATION METHODS Why TWR? Alignment with public available market indices Equal weighting of quarterly returns Less exposed to timing of cash flows Allow for TIMO comparison Suitable as basis for IWC performance calculation Why IRR? True investor return True value weighted Alignment with industry recommandation 14

15 BENCHMARKS What constitutes a Benchmark? Sepecified in advance Appropriate Measurable Unambigous Reflective of manager s current investment opinions Accountable Investable No suitable public benchmarks exists Tailored benchmarks return requirements Fund target return at inception 15

16 BENCHMARKS NCREIF provide indices based on US Timberland Property Index (Timberland Property Index) Fund Index (Timberland Fund & Separate Account Index) Both indices US only Timberland NCREIF: National Council of Real Estate Investment Fiduciaries 16

17 Index level NCREIF INDICES TPI and TFSAI value weighted return indices 1850,0 1600,0 1350,0 1100,0 850,0 600,0 350,0 100,0 TPI gross TFSAI gross Annualized gross TWR Volatility TPI 12.3% 8.2% TFSAI 11.5% 7.3% 17

18 CONTACT INFORMATION The International Woodland Company Amalievej Frederiksberg C Denmark Phone: Claus Adelhardt Senior Portfolio Manager cad@iwc.dk THE INTERNATIONAL WOODLAND COMPANY 18