Timberland Acquisition and Divestiture
Since its emergence as an asset class, timberland has largely moved out of the hands of forest products companies into the portfolios of institutional investors.
FORSight Resources can assist potential purchasers/sellers of timberland tracts in a variety of ways. Our due diligence services include:
- Financial Analysis & Valuation
- Market Analysis
- Risk Assessment
- HBU Analysis
Where’s the value?
Deal structures, financing options, tax implications and other legal matters are best left to experts in those respective fields. Our services focus on proper valuation of the timberland asset and identification of risks and/or opportunities associated with each potential acquisition. Valuation of timberland is not like valuing other types of real estate. Most real property supports static structures, not dynamic living organisms that can be manipulated any number of different ways through management. Typical real estate appraisals rely on three valuation approaches; income capitalization, comparable sales and sum of the parts valuation. While these methods are also used in timberland valuation, there is a heavy reliance on the income capitalization approach.
FORSight’s experience in the use of income capitalization (discounted cash-flow analysis) is significant. We have valued over 14 million acres of potential acquisitions for a number of different clients since 2004. We are approached by investors, portfolio managers, timber companies and other consultants seeking our assistance in the valuation of potential timberland acquisitions. This is a testament to our expertise, quality of our work and our ability to complete projects in the condensed time frames often associated with acquisitions.
How do you measure success?
Some of our clients have acquired properties, others have not. If asked, all would say they were pleased with the results. After all, basing a purchase price on unrealistic cash flows does not constitute a successful acquisition in anybody’s book. FORSight’s expertise and experience in acquisition due diligence and valuation gives our clients confidence that they know the financial potential of each acquisition and can base their purchase price accordingly.
Surprises are the last thing someone about to purchase a large timberland property wants to contend with. Understanding both the local market as well as trends in the international market could either add to or detract from the value of the asset. FORSight provides market analysis services to determine the factors affecting supply and demand, define the competitive landscape and identify key suppliers and customers. A solid understanding of the market structure in a given region can validate modeling assumptions or cause them to be reformulated.
The investment community has been attracted to timberland as an investment for a variety of reasons. It is viewed as low risk compared to other equity investments. While this may be true, there are certain risks that should be evaluated prior to closing a transaction. The regulatory environment could hinder the ability of the property to achieve target cash flows. Catastrophic losses due to insect outbreaks, wildfires or other natural disasters, while infrequent, are possible. FORSight has access to historical data that can be used to determine the ‘risk’ or probability of catastrophic loss associated with specific timberland assets.
Opportunities to increase the net asset value of a timberland property are possible through conversion to alternate land uses. Development, recreation and conservation are typical uses that can result in net present values significantly higher than commercial timber management.
FORSight has developed data sets and a host of proprietary processes to determine what the HBU opportunities for a given property are. Evaluation of demographic, economic and geographic data can identify specific tracts or parcels that meet strict ‘higher and better use’ criteria. Maps and tabular summarization of findings are created to provide an efficient means of communicating results to the client so the decision making process can be expedited.