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Swedish buffer fund AP2 seeks to grow timber, agricultural portfolio

Swedish buffer fund AP2 seeks to grow timber, agricultural portfolio | Timberland Investment | Scoop.it

Sweden's second buffer fund hopes to increase its agricultural and timberland investments beyond the current 10% strategic benchmark for real estate, the fund's chief investment strategist has told IPE.


Speaking shortly after the SEK241bn (€28bn) AP2 announced returns of 13.5% in 2012, boosting its assets under management to the highest-ever level, Tomas Franzén said he was "quite pleased" with the results.

***

"I would say agriculture and timber is probably a better diversifier [than real estate]. So, to the extent we find the investment vehicles we think will add the value we expect, I guess we will continue building that as well."


He said a potential change in the strategic asset allocation would see overall alternatives exposure increased alonside the current 10% real estate ceiling – and that the latter would likely be weighted in favour of agriculture and timber.


"As long as we get the kind of investments we have been getting so far, it will be more valuable for us to tilt it towards timber and agriculture," he said.


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Timberland Investment
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Sponsored by... | Timberland Investment | Scoop.it

Prentiss & Carlisle  is one of the largest timberland asset managers in North America. P&C provides ongoing management services on approximately 1.75 million acres of timberland located in Maine, Michigan, New York, Vermont, Wisconsin, Ontario and Quebec. Nearly every acre under management is certified by the Forest Stewardship Council through either our clients or through P&C itself, which holds FSC certificates for both Forest Management and Chain-of-Custody.

 

P&C provides turnkey land management from long-range forest planning through on-ground forestry, marketing of forest products, harvesting, transportation, road construction and maintenance, stump-to-mill accounting and reporting, client cash management, administration of third-party relationships, public advocacy/representation and strategic asset planning. P&C also provides specialized consulting services in related areas of expertise:

  • Timber inventory design, execution and analysis
  • G&Y modeling and timber harvest scheduling
  • GIS mapping and data management services
  • Timberland valuations and appraisals
  • Acquisition and disposition due diligence
  • Market studies
  • Timber supply modeling

 

About this magazine

Our aim is to provide a gathering place for news and opinion about timberland investing. We cover both publicly traded issues including listed timber companies, real estate investment trusts (REIT's), and exchange traded funds (ETF's), and the more private world of institutional investing in timberland. Our focus is on: the rationale for investing in timberland; performance of publicly traded timber investments; timberland deals and transactions; timber supply, demand and prices, and; public policy issues that impact timberland investing. Not interested in all of these topics? You can easily filter the stories by using the Tags button above.

 

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Some useful links

 

Stock quotes, news and financial metrics

These links take you to customized Google Finance pages for timber REITS, indexes and other publicly traded companies of interest:

 

Prentiss & Carlisle newsletters

Quarterly updates on conditions in our operating regions

 

Timber Mart North 

Lake States price reporting service published by P&C

 

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Timberland Is Poised for Resurgence

Timberland Is Poised for Resurgence | Timberland Investment | Scoop.it

When the U.S. housing market crashed in 2007, demand for lumber plunged along with it. With fewer houses being built, fewer building materials were needed, and investors in U.S. timberlands — who had up until the financial crisis been seeing near-double-digit gains on their timber holdings — felt the blow of lower returns.

 

“We saw that asset suffer quite considerably,” says Neil Woods, portfolio manager at the New Zealand Superannuation Fund, a NZ$36 billion ($25 billion) pension with roughly NZ$2 billion in global timberland investments. “That caught us by surprise.”

 

Even as most other asset classes recovered from the crisis, U.S. timber performance remained “well below the historical average,” says Tom Johnson, a managing director at Timberland Investment Resources. But now, he adds, timber may finally be on the cusp of a resurgence.

 

In the decade since the housing market’s collapse, Johnson says, timber prices have stayed down despite rising levels of housing construction, largely due to a supply glut. The problem arose shortly after the market crashed, when timberland owners responded to falling demand by “storing on the stump” — letting trees continue to grow instead of chopping them down.
***
Robert Flynn, director of international timber at forest data firm and Euromoney Institutional Investor company RISI, says lumber producers have built up a backlog of timber to harvest, with the result that supply has continued to exceed demand even a decade later.

 

“Prices have remained flat,” Flynn says. “That’s really soured some of the major investors on timber.” Flynn points to the California Public Employees’ Retirement System, which is in the process of reviewing its timber portfolio. The pension fund’s forestland assets earned just 1 percent over the fiscal year ending in June 2017, according to preliminary annual report data from CalPERS.
***
“The returns just haven’t been that great,” Flynn adds. “The TIMOs” — timber investment management organizations — “are now in reorganization mode, looking at better options to attract investors.”

 

One of these options has been evergreen, or open-ended, funds, which prolong the time period that timber investment managers hold onto investor capital. Other options have included co-investment and partnership models, like the structure employed by Silver Creek Capital Management-backed Twin Creeks Timber, a $1 billion venture whose investors include the California State Teachers’ Retirement System, the Washington State Investment Board, the Oregon Public Employees Retirement Fund, the Alaska Permanent Fund, and the Maine Public Employees Retirement System. The Twin Creeks fund, Flynn explains, is an example of several large asset owners partnering with a timber operator rather than just hiring a TIMO to manage forest assets.
***
At the New Zealand Super Fund, Woods says they prefer to hold timberlands directly because of the fixed time frames imposed on timber funds. “The investments may take a few years to work, and with direct investing you can hold the assets for the time frame you want,” he says.

 

The bulk of NZ Super’s timber portfolio, in fact, is made up by the pension’s 42 percent stake in New Zealand’s Kaingaroa Forest. The fund first acquired an interest in the property in 2006, when it purchased a stake from Harvard Management Co. Woods says NZ Super also has smaller timberland investments through timber funds, which give the pension exposure to forest assets in Australia, South America, and Asia. A small interest in a property managed by Hancock Timber Resource Group makes up its U.S. holding.

 

Apart from the Hancock stake, Woods says, the portfolio has been performing “about as expected for timber,” delivering around 6 to 8 percent annualized returns over the long term. While lumber prices may be depressed in the U.S., Woods says, demand for wood is high in China — one of the biggest markets for New Zealand lumber.
***
And lumber prices may soon be on the upswing in the U.S. too. According to Johnson, timberland owners are very close to working their way through the supply overhang that built up following the financial crisis. Houses are being built again — if not quite at the same pace as before the market crash — and demand for lumber has remained high in other segments like paper and packaging. Plus, Johnson says, a recent pine beetle epidemic in Canada destroyed a lot of Canadian timber, eliminating a large source of competition for U.S. lumber sellers and further correcting the mismatch between supply and demand.

 

“We are getting closer, just not quite there yet,” he says.

Sam Radcliffe's insight:

This is the only claim I've seen for "timberland owners are very close to working their way through the supply overhang". Others who have empirically analyzed the situation have concluded that the overhang could last another decade or more.

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Nova Scotia Softwood Lumber Excluded from United States Duties

Nova Scotia Softwood Lumber Excluded from United States Duties | Timberland Investment | Scoop.it

Nova Scotia has learned it will be excluded from U.S. import measures on softwood lumber. The United States Department of Commerce issued the ruling, today, Nov 2.

 

“We are pleased the United States government has recognized the legitimacy of our long-standing exclusion,” said Premier Stephen McNeil, who is also Minister of Intergovernmental Affairs. “While this is welcome news for Nova Scotia, we recognize that this is a difficult time for Canadian industry as a whole as many are faced with duties.”

 

Provincial officials have collaborated with industry, federal and U.S. officials since the expiry of the previous Softwood Lumber Agreement to explain why the exclusion should be maintained.

The Canada-U.S. Softwood Lumber Agreement expired in October 2015. It prevented any fees or quotas on lumber harvested from the Atlantic provinces.

 

On Nov. 25, 2016, the United States Lumber Coalition filed petitions with the United States International Trade Commission and the United States Department of Commerce alleging that certain provinces in Canada illegally subsidize lumber producers and that certain producers dump products into the U.S. market. There were no allegations of subsidy relevant to Nova Scotia sawmills.

 

A preliminary ruling on countervailing duties by the Commerce Department this spring temporarily imposed duties of 19.88 per cent on Nova Scotia producers.

 

The U.S. Lumber Coalition subsequently requested that the Commerce Department exclude softwood lumber products produced in Nova Scotia from the ongoing anti-dumping and countervailing duty investigations.

 

In June, the Commerce Department issued preliminary anti-dumping duties of 6.87 per cent. This preliminary ruling also acknowledged that softwood lumber products produced in Nova Scotia, Newfoundland and Labrador, and Prince Edward Island should be excluded from the ongoing investigation. Producers have been paying duties in the form of cash deposits while waiting for the final ruling.

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B.C.'s lumber trade suffers in wake of vicious summer wildfire season

B.C.'s lumber trade suffers in wake of vicious summer wildfire season | Timberland Investment | Scoop.it
Damage that the worst forest-fire season in B.C. has done to the province’s forest industry is showing up in trade statistics that show overall exports down 14 per cent to the end of August, according to B.C. Stats.

Understandably, the fires that raged across B.C.’s Interior and consumed 12,158 square kilometres of forests, pushed timber companies out of the woods, diverting their employees to fight forest fires instead of harvesting logs for processing.

“This is almost unprecedented,” said Peter Hall, vice-president and chief economist for Export Development Canada. “When something like that happens, clearly, you’re not going to be able to ship as much, “you’re not going to be able to work those woodlots.”

However, he views the damage as a temporary hit on B.C.’s trade and that, barring a damaging resolution to the Canada-U.S. softwood trade dispute, the province’s exports will rebound in line with a recovering U.S. housing-construction market.

B.C. Stats crunches Statistics Canada figures, and showed that B.C. exported 17 million cubic metres of lumber to the end of August, down considerably from almost 20 million cubic metres over the same period in 2016, with the biggest declines accumulating over the fire-ravage months of May through August.

Exports to the U.S. took the biggest hit with the 10.6 million cubic metres of exports south of the border to the end of August representing a 20-per-cent decline from the same period a year ago. Shipments to China, B.C.’s second-biggest export market, were also down six per cent to 3.7 million cubic metres of lumber.
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Weyerhaeuser (WY) Q3 2017 Results - Earnings Call Transcript

Weyerhaeuser (WY) Q3 2017 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

***

Mark Weintraub - The Buckingham Research Group, Inc.

Okay. And any updated thoughts on Southern saw timber pricing and the outlook for next year. It does seem there's been an acceleration of capacity announcements for additional lumber. And just wanted to get your updated thoughts on where that supply-demand balance in saw timber is and when an inflection point might conceivably be reached and we get some improvement in pricing? 

 

Doyle R. Simons - Weyerhaeuser Co.

Yeah, Mark. And we do think there's some potential for some pricing traction as we enter 2018, really driven by four things. Number one, as we mentioned, housing demand continues to grow and we are constructive on housing as we move into 2018. Secondly, as you just highlighted, more capacity is being added, and I'm particularly encouraged by number of recent announcements, ... . And all of that is on top of about 1.2 billion board feet of additional lumber capacity that's happening in 2017. ...

The other thing I would point out – or two other things I'd point out is the Softwood Lumber Agreement. We do fundamentally believe there's going to be less lumber coming in from Canada, either as a result of final duties or hopefully a negotiated agreement. And then the final factor is we're really encouraged by the development of the Southern export markets. We are now shipping to India out of Charleston, South Carolina. We're shipping to China out of the Wilmington, North Carolina. We're continuing to work to develop exports out of other ports including some in the Gulf South. And while it's still early on that, those volumes as we've previously said could be equivalent to a small mill in the 2018 timeframe. 
***
Mark Connelly - Stephens, Inc.

Thanks. Doyle, you said that the Southern land didn't get much damage from the weather. Do you have a sense of other people's Southern land? People we've been talking to don't seem to see a lot of damage in general.

 

Doyle R. Simons - Weyerhaeuser Co.

Yeah. I would agree with that, Mark. And talking to some of our competitors, I think, unlike some previous hurricanes where you've been around a long time as I have, there was extensive timberland damage. I think that was mostly avoided with these two hurricanes. So, I think from an overall timberland perspective, we were very fortunate as an industry.
***
Paul Quinn - RBC Capital Markets

Hey. Two questions. One on Timberland portfolio. You guys have done a number of things in the quarter – in the past, selling Uruguay, redeeming Twin Creeks, selling $100,000 in the U.S. South. What can we expect going forward here on your portfolio? And I'm specifically thinking about the North, which historically hasn't been part of the Weyerhaeuser portfolio?

 

Doyle R. Simons - Weyerhaeuser Co.

And so, Paul, what I'd tell you and what we've consistently said is we're constantly reviewing our overall Timberland portfolio. We do feel good about the moves we made, both through Uruguay and Twin Creeks, as Russell said earlier, to focus and simplify our portfolio. But we'll continue to look for ways to create value for our shareholders going forward, whether that's through potential acquisitions or potential dispositions from a portfolio perspective.

 

Paul Quinn - RBC Capital Markets

Okay. And then, maybe just a question on softwood lumber. Canadian companies seem pretty pessimistic on an agreement. In fact, West Fraser went as far as to say that Coalition seems unwilling to negotiate. I don't want you to get into negotiation on the call. But just from your perspective, what's stopping the agreement at this point?

 

Doyle R. Simons - Weyerhaeuser Co.

I'm not sure anything is necessarily stopping an agreement at this point, Paul. As we said, we continue to be hopeful that we will be able to reach an agreement with the Canadians. We're working very closely with the Coalition and the Department of Commerce. We fundamentally believe that a quota-based agreement is the best option going forward for all parties involved because of the certainty and the simplicity that it brings to the tables. So that's how we're thinking about it and we'll continue to pursue and hopefully be able to reach an agreement with the Canadians going forward.

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GOP Targets Environmental Rules After Wildfires

GOP Targets Environmental Rules After Wildfires | Timberland Investment | Scoop.it

House Republicans are targeting environmental rules to allow faster approval for tree cutting in national forests in response to the deadly wildfires in California.

 

Majority Leader Kevin McCarthy, R-Calif., said Thursday that lawmakers will vote next week on a bill to loosen environmental regulations for forest-thinning projects on federal lands. The GOP argues the actions will reduce the risk of fire.

***

The GOP bill is one of at least three being considered in Congress to address wildfires. Republicans and the timber industry have long complained about environmental rules that make it harder to cut down trees to reduce fire risk.

 

 

Democrats and environmental groups decry GOP policies they say would clear-cut vast swaths of national forests, harming wildlife and the environment.

 

"We must ask ourselves: What kind of future are we leaving for the next generation when we have failed to conserve federal forests that overwhelm the sky with thick smoke and ash when they burn?" asked Sen. John Barrasso, R-Wyo., chief sponsor of the Senate GOP bill and chairman of the Senate Environment and Public Works Committee.

***

The flurry of legislation comes as the Forest Service has spent a record $2.4 billion battling forest fires in one of the nation's worst fire seasons. Wildfires have burned nearly 9 million acres across the country, with much of the devastation in California, Oregon and Montana.

 

***

The other measures in Congress include a bipartisan Senate bill that would authorize more than $100 million to help at-risk communities prevent wildfires and create a pilot program to cut down trees in the most fire-prone areas. Under a streamlined approval process, forest managers would "thin" pine forests near populated areas and do controlled burns in remote regions. The bill also calls for detailed reviews of any wildfire that burns over 100,000 acres.

 

Another bill by Senate Republicans would waive environmental reviews for projects up to 6,000 acres and overturn a federal court decision that forced more consultation between the Forest Service and the Fish and Wildlife Service on forest management projects.

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UGA study says biomass energy not feasible in U.S.

UGA study says biomass energy not feasible in U.S. | Timberland Investment | Scoop.it
Wood pellets used for biomass energy, an alternative to fossil fuels, are produced right outside of Athens, but do not expect to see biomass energy adopted here. Those pellets are shipped straight to Europe, and new University of Georgia research shows why.

“With global warming, we really want to reduce carbon emissions,” said Dr. Richard Bin Mei, co-author of a study on biomass-produced electricity. “In the United States, unfortunately, we do not have the mandate or government subsidies, so our study looked at whether it is economically feasible to co-fire wood pellets with coal to produce power, and the answer is no, unless the government does the same thing as the EU.”

Bin Mei , a professor in the UGA Warnell School of Forestry and Natural Resources, and researchers from Purdue University, examined the economics of transitioning to biomass use in a recent study published in the journal Energy Economics.

They determined that it is economically prohibitive to convert coal firing plants to biomass in the United States without government subsidies.

According to Bin Mei, Europe has widely adopted biomass energy as a replacement for coal in energy plants in order to cut harmful fossil fuel emissions. European nations receive nearly five million tons of wood pellets each year from the U.S. for their energy plants, but the U.S. itself has not adopted the cleaner method because of the cost. Under the U.S.’s Clean Power Plan, in the next 25 years, power plants are expected to lower their carbon emissions by 32 percent from 2005 levels.

While burning wood for energy can have negative consequences for deforestation and air pollution, biomass is generally considered to be less harmful than burning coal or other fossil fuels. Growing trees for the pellets offsets emissions from burning wood, and if fast growing tree species are selected, deforestation can be avoided.

According to Bin Mei, it would be unrealistic for U.S. companies to totally abandon their coal firing plants, so the study examined the cost for coal firing plants to switch to a co-firing setup where biomass is burned alongside the coal.

 However, according to Bin Mei, the costs to convert plants to a co-firing method would either require the government to subsidize the conversion or customers would have to pay a cost.

Effectively, plants will remain only coal burning due to no incentive to convert. Bin Mei said the required subsidies would cost the government roughly the same amount as it currently spends on subsidies for other alternative forms of energy like solar and wind.

“All else equal, the government could consider wooden biomass as an alternative fuel to feed traditional coal based power plants,” Bin Mei said. “By design, a coal power plant is designed for 30 to 50 years. It is not economically feasible just to abandon the coal plant, but if you convert it to co-firing, you just add a small percentage of pellets to the furnace. It is not that hard, you just pay a conversion cost and achieve a certain reduction in carbon emission production.”
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ROSEBURG TO SELL ITS CALIFORNIA TIMBERLANDS TO NEW FORESTS

ROSEBURG TO SELL ITS CALIFORNIA TIMBERLANDS TO NEW FORESTS | Timberland Investment | Scoop.it
Roseburg Resources Co. today announced an agreement to sell its California timberlands to a timberland investment vehicle managed by New Forests. The transaction includes 170,000 acres in northern California, largely in Siskiyou and Shasta counties.

Roseburg’s California timberlands are investment-grade with a long history of professional management.

“The sale of our California timberlands would not be possible without the contributions of our California resource team,” said Scott Folk, Roseburg’s Senior Vice President of Resources. “Thanks to the team’s work, these lands will remain working forest timberlands under the new management of New Forests, a leading timberland investment organization focused on long-term growth.”

Founded in 2005, New Forests manages more than 2 million acres of land and forests around the world, with assets under management of more than $3 billion. Headquartered in Sydney, Australia, New Forests has offices in San Francisco, Singapore and New Zealand. The sale is expected to close in early 2018.

“The sale of this property allows Roseburg to pursue strategic growth opportunities in regions with stable markets and strong demand for timber,” Roseburg CEO Grady Mulbery said. “This transaction is part of a larger effort to expand Roseburg’s national footprint, which now includes our engineered wood plant planned for Chester, S.C., and our recent purchase of timberland in Virginia and North Carolina.”

Roseburg Forest Products will retain ownership of its veneer facility located in Weed, Calif.
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The Math of Timberland Returns and Our Unease with Rational Thought

The Math of Timberland Returns and Our Unease with Rational Thought | Timberland Investment | Scoop.it

Professor Richard Thaler won this year’s Nobel Prize for Economics, in part, for research confirming that we (humans) believe we are smarter and more rational than we actually are.
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Reading Thaler’s research raises issues relevant to investing in timberland and forest industry stocks. We may believe we have superior insight into the value of an asset or the wisdom of a strategy, and that this belief in our own insight – as opposed to subjecting the insight to a suitable gauntlet of tests – gives license to act and a means to profit. This encourages us to overweight our assessment of values and market plays, while discounting the reality that hundreds or thousands of other (humans) are looking at the same data at the same time and coming to similar conclusions.

 

When too much capital chases too few assets, it creates its own momentum. And this momentum of the institutional conscious can lead to overvaluing assets. ***

From NCREIF data on institutional timberland investments:

  • In mid-1997, timberland values averaged $1,001 per acre, with 1-year total returns of 14.2%. About 7.1% from appreciation and 7.1% from income.
  • In mid-2007, timberland values averaged $1,500 per acre, with 1-year total returns of 11.5%. About 3.8% from appreciation and 7.7% from income.
  • As of mid-2017, timberland values average $1,823 per acre, with 1-year returns of 3.3%. About 0.7% from appreciation and 2.6% from income.


What can we expect from timberlands for future returns? Logic and data indicate that, at best, we can expect modest returns. The multiple between values and total returns moved from about 7 to 13 to over fifty. While this snapshot provides an incomplete story, it affirms that we pay significantly higher prices today for each unit of expected returns in the future.

 

If timberlands are historically expensive, it reminds us that investing relies on relative performance and differing objectives. U.S. 30-year government bonds, a “riskless” alternative, yield 2.9%. Low interest rates, in part, reflect a low demand for money and higher demand for savings and investment. Timberland, like bonds, provides a way to preserve wealth and store value. Which makes us consider risk and things to worry about.

 

For timberland, I worry less about regional or asset class-specific values and much more about individual properties and local timber markets. Timberland price-to-value metrics depend critically on the local wood basin and forest stocking level of the given property. For example, over the past four years, key changes in valuation drivers include (1) the continued accumulation of forest supplies in the South and (2) the role of technology and efficiency at wood using mills. In addition, values depend highly on the selection and application of an appropriate discount rate.

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Prentiss & Carlisle Q3 Update Published

Prentiss & Carlisle Q3 Update Published | Timberland Investment | Scoop.it

P&C's 3rd quarter newsletter contains an overview of market conditions in Maine, snippets of news from the broader industry, and an essay "Re-examining the Case for Timberland". An excerpt from the latter:

 

In summary, although a given property may present an attractive investment opportunity, we think that the general case for including timberland as a portfolio asset cannot be made as it has for the past thirty years. Maybe steady low returns are good enough – might timberland be an absolute return asset? There is also a case to be made for timberland as an impact investment. But are either of these rationales appealing to institutions who are already  underfunded with respect to long-term liabilities?


Clearly there are timberland properties that would perform well both as stand-alone investments and as portfolio enhancers. But we believe these properties should be sold on their own individual merits, not on the rationale that they are members of a desirable asset class.

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Quebec’s Solifor acquires Maine forest for $36 million

Quebec’s Solifor acquires Maine forest for $36 million | Timberland Investment | Scoop.it

To further secure the supply of quality fibre for Québec sawmills and processors, Solifor is continuing its expansion outside Quebec with the acquisition of Ste-Aurelie Timberlands, a 24,910-hectare forest property in Maine. The $36-million deal is Solifor’s second outside Quebec, bringing its out-of-province investments to $65 million.

 

Located at the border of Maine and Québec, this property, subject to forest management, is characterized by a mixed forest cover (coniferous and hardwood) and is in full development. The territory’s main customers and users are Québec companies, including Maibec and Groupe Lebel. With transportation being an important cost for Québec sawmills, this transaction will contribute to a better bottom line, according to a Solifor statement. 

 

An initiative of the Fonds de solidarité FTQ, Solifor has invested $200 million to date to acquire 153,000 hectares of forest land in Québec, in the Bas-Saint-Laurent, Lotbinière, Charlevoix, Saguenay, Portneuf, Mauricie and Abitibi regions, as well as Maine.

“Solifor is planning other acquisitions to further secure the fibre supply for Québec companies, making it a partner of choice for the Québec forestry industry,” says Raynald Arial, president, Solifor.

Sam Radcliffe's insight:

Note the $36 million is Canadian dollars.

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New Zealand forestry a first test in nationalist party's protectionist agenda

New Zealand forestry a first test in nationalist party's protectionist agenda | Timberland Investment | Scoop.it
Some New Zealand forest owners are suspending replanting of trees and re-thinking investments as the country’s third-largest export earner finds itself in the sights of maverick politician Winston Peters’ protectionist agenda.

The election king-maker last week said he would prioritise a restructure of the forest industry in closely-watched coalition talks with major parties after last month’s inconclusive election result.

The plan includes a possible quota system which would force growers to favour local mills over a higher-paying export market. Exports of forest products totalled around NZ$4.75 billion (£2.5 billion) in 2015, with China the top destination.

That has put the Pacific nation’s lucrative forestry sector at the heart of concerns that New Zealand First in power will spell greater government intervention in New Zealand’s small, outward facing economy.

“Every time the government has done something like that we get what you call a hole in the supply of timber and we’re going into a hole now, an undersupply,” said Joe Carr, the owner of a privately-held logging business managing 500 hectares of forest in the far north of the country.

Carr is holding off replanting 60 hectares of his land due to the possible restrictions and said on average growers were paid a third less to sell logs locally than to export them. He said his son was re-thinking whether his family should stick to forestry after 44 years in the business.
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US timberland transactions poised to double over five years

US timberland transactions poised to double over five years | Timberland Investment | Scoop.it

Investors frustrated by the dearth of primary timberland transactions in the US will soon have reasons to cheer, according to specialist manager New Forests.

 

In its biennial update on the forestry market, the Australia-based firm observes that assets acquired “in the heyday” of 2003-2008 are now starting to be sold back into the secondary market. Rising interest rates may also put pressure to improve cash yields, creating volatility for returns and prompting investors to delist assets. Taken together, these trends will help bring annual timberland transaction turnover in the US from about $1 billion over the past seven or eight years – net of big consolidation deals – to $2 billion over the next half-decade, New Forests said.

 

Not every investor, however, will be inclined to part ways with assets held in the vehicles they back. “It is likely that most funds will sell down their holdings, but there may be some instances where a follow-on vehicle will be used to roll over the assets,” David Brand, chief executive of New Forests, told Agri Investor. “We understand there are some LPs looking to hold on to underlying assets – particularly for large, quality assets – even amidst fund exits.”

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Canada Steps Up Fight Over U.S. Lumber Tariffs

Canada Steps Up Fight Over U.S. Lumber Tariffs | Timberland Investment | Scoop.it

Canada on Tuesday said it intends to escalate its legal fight against the U.S. Commerce Department’s decision to slap tariffs of roughly 20% or more on Canadian lumber imports.

 

The Canadian government filed a notice to set up a dispute-resolution panel under the terms available through North American Free-Trade Agreement. These expert panels have the power to overturn or sustain tariffs imposed by the U.S., Canada or Mexico on goods from one of its Nafta partners.

 

The Trump administration wants to largely repeal the dispute-settlement system in talks to renegotiate Nafta, which restart later this week in Mexico.

 

A spokesman for Canadian Foreign Minister Chrystia Freeland said the U.S. decision to impose duties against Canadian lumber imports is “unfair, unwarranted and deeply troubling.” He added Canada “will forcefully defend” its lumber industry, including through litigation.

***

Before this month, U.S. and Canadian officials worked with industry representatives to come to an agreement to avoid the tariffs, first unveiled last April. The tariffs—at a proposed 20% or more depending on the Canadian mill—will take full effect if a U.S. trade body confirms the Canadian practices injured the U.S. industry. That decision is expected some time this month.

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DuPont to sell cellulosic ethanol plant in blow to biofuel

DuPont to sell cellulosic ethanol plant in blow to biofuel | Timberland Investment | Scoop.it

DuPont Industrial Biosciences, a unit of DowDuPont Inc, on Thursday said it halted operations at a two-year-old ethanol plant and will sell it, dealing another blow to efforts to create biofuels without using food crops.

The decision to shut the Iowa plant comes as political winds are undercutting efforts to produce ethanol from plant waste and wood shavings. The U.S. Environmental Protection Agency (EPA) this year has pushed to lower the amount of cellulosic biofuels that need to be blended into the nation's fuels under a 2007 mandate, arguing the industry has not produced enough.

The EPA predicted in 2007 that U.S. cellulosic ethanol production could hit 1 billion gallons by 2020, but output this year is expected to reach only 7 million gallons, according to Renewable Fuels Association (RFA), a trade group.

High production costs and still-maturing technology have undercut the rationale for cellulosic biofuel, part of the original goal to use biofuels to help reduce the nation's dependence on foreign oil.

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Railroad sues over millions of defective railroad ties

Railroad sues over millions of defective railroad ties | Timberland Investment | Scoop.it
Norfolk Southern Railway, one of the largest railroads in the U.S., says it must replace millions of wooden railroad ties under its tracks, claiming they’re degrading at a faster rate than expected.
 
In a federal lawsuit, Norfolk says Boatright Railroad Products failed to use proper protective coating on over 4.7 million railroad ties. Norfolk claims Boatright told its employees to "make the ties black by whatever means necessary" so they only appeared to be treated.
 
Motor oil, anti-freeze, paint and other substances which would not adequately preserve the wood were used on the ties instead of creosote — the chemical which should have been used, Norfolk alleges.
 
The lawsuit also alleges that Boatright provided misleading samples to a Norfolk quality assurance consultant. Norfolk says Boatright employees were told to take the consultant out hunting when he was to be inspecting the ties.

 

Norfolk says properly treated railroad ties are essential to the entire railroad's operation. Untreated ties can degrade prematurely, potentially jeopardizing the safety of the rail network.

Boatright has not yet publicly responded to the claims.
 
Boatright Railroad Products, Inc. engages in manufacturing, distributing, and selling forest products primarily in Alabama. The company’s products include building poles, fence posts, lumber, building squares, and railroad materials; and industrial railroad and bridge timber. It offers commercial, farm, residential, and lath wood fencing products; and pallets, skids, and pine lumber products.
 
In 2014, Boatright was acquired by Stella-Jones Inc., a leading producer and marketer of pressure treated wood products. Stella-Jones supplies North America's railroad operators with railway ties and timbers, and the continent's electrical utilities and telecommunication companies with utility poles.
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U.S. Department of Commerce Makes Final Determinations on Dumping and Subsidization of Imports of Softwood Lumber from Canada

U.S. Department of Commerce Makes Final Determinations on Dumping and Subsidization of Imports of Softwood Lumber from Canada | Timberland Investment | Scoop.it

Today, the U.S. Department of Commerce announced the affirmative final determinations of the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of softwood lumber from Canada.

 

While significant efforts were made by the United States and Canada, and the respective softwood lumber industries, to reach a long-term settlement to this on-going trade dispute, the parties were unable to agree upon terms that were mutually acceptable.  As a result, the investigations were continued and Commerce reached its final determinations. 

 

“While I am disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair and reciprocal trade with Canada,” said Secretary Ross. “This decision is based on a full and unbiased review of the facts in an open and transparent process that defends American workers and businesses from unfair trade practices.”

 

The Commerce Department determined that exporters from Canada have sold softwood lumber the United States at 3.20 percent to 8.89 percent less than fair value.  Commerce also determined that Canada is providing unfair subsidies to its producers of softwood lumber at rates from 3.34 percent to 18.19 percent.

 

As a result of today’s decision, Commerce will instruct U.S. Customs and Border Protection (CBP) to collect cash deposits from importers of softwood lumber from Canada based on the final rates.

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Timber Industry Opposes Plan To Expand N.E. Wildlife Refuge

Timber Industry Opposes Plan To Expand N.E. Wildlife Refuge | Timberland Investment | Scoop.it
A plan to significantly expand a wildlife refuge that covers parts of the Connecticut River watershed in New England is running into opposition from the timber industry and governors in several states.

The U.S. Fish and Wildlife Service earlier this year released a 15-year conservation plan for the Silvio O. Conte National Fish and Wildlife Refuge, which covers more than 37,000 acres in Vermont, New Hampshire, Massachusetts and Connecticut. It identified 197,000 acres that could be added to the refuge either through purchases or other agreements with land owners or nonprofits.

Supporters say an expanded refuge is critical for Connecticut River populations of native species of plants, fish and wildlife. But the governors in Vermont and New Hampshire have raised concerns that the plan would take lucrative land off the tax rolls.
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Farmland Prices Disconnected From Commodity Prices

Farmland Prices Disconnected From Commodity Prices | Timberland Investment | Scoop.it
As written by Chain Reaction Research, following the financial crisis of 2007-2008, there has been a growing investor interest in farmland around the world. In Brazil, this interest has been most pronounced in the Cerrado, a large tropical savanna biome that covers more than 20 percent of the country. Here, institutional investors such as pension funds and private equity, real estate firms and agribusinesses have adopted business models that aim to produce value from land appreciation by acquiring land, clearing it from its native vegetation and transforming it into farmland. While land prices in the Cerrado have increased nearly fivefold between 2003 and 2016, there are signs that the farmland real estate market is currently overheated.
Sam Radcliffe's insight:

Sounds like a familiar story to anyone who has observed the disconnect between timberland prices and softwood sawtimber stumpage prices in the US South.

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Potlatch and Deltic Timber to Combine to Create Leading Timberland REIT and Lumber Manufacturer

Potlatch and Deltic Timber to Combine to Create Leading Timberland REIT and Lumber Manufacturer | Timberland Investment | Scoop.it

Potlatch Corporation (NASDAQ:PCH) (“Potlatch”) and Deltic Timber Corporation (NYSE:DEL) (“Deltic”) today announced that they have entered into a definitive agreement to combine in an all-stock transaction and create a leading domestic timberland owner and top-tier lumber manufacturer. The combined company will be named PotlatchDeltic Corporation and its shares will trade on the Nasdaq Stock Market under the ticker PCH.

 

Based on the closing stock prices of Potlatch and Deltic on October 20, 2017, the combined company is expected to have a pro forma equity market capitalization of approximately $3.3 billion and a total enterprise value of more than $4.0 billion, including approximately $700 million in net debt. Following completion of the transaction, the combined company will have more than 1,500 employees serving over 200 customers through operations across its extensive timberland and lumber manufacturing portfolio.

 

Under the terms of the agreement, which has been unanimously approved by the Boards of Directors of both companies, Deltic stockholders will receive 1.80 common shares of Potlatch stock for each common share of Deltic that they own. Following the close of the transaction, Potlatch stockholders will own approximately 65% of the combined company, and Deltic stockholders will own approximately 35% on a fully diluted basis.

The agreement also provides for Deltic to convert to a REIT structure, effective at the closing date of the transaction, ensuring the combined company achieves the most efficient tax structure.

***

The combination brings together two leading timberland owners and lumber manufacturers. Together, the combined company will have a highly productive and diverse timberland portfolio of approximately 2 million acres, with approximately 1.1 million acres in the U.S. South, 600,000 acres in Idaho, and 150,000 acres in Minnesota. In addition, upon completion of the transaction, the company will operate eight wood products manufacturing facilities, including six lumber manufacturing facilities, one medium density fiberboard (“MDF”) facility and one industrial plywood mill. In total, the combined company will have lumber capacity of 1.2 billion board feet, making it one of the leading producers in the U.S. Furthermore, the company’s lumber capacity will be heavily weighted towards high-margin southern yellow pine lumber, with over half of the company’s capacity being produced at its three southern mills. The transaction also combines two highly complementary and successful real estate businesses.

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OSB Prices Spike as Lumber Increases Tap the Brakes

OSB Prices Spike as Lumber Increases Tap the Brakes | Timberland Investment | Scoop.it

Budgeting direct input costs on materials and labor for 2018 could hardly be more challenging. Policy uncertainties on immigration, on trade, on taxation, on regulation make projecting expenses a fool's errand.

Not to mention how nature keeps changing plans about what's going to be built, and rebuilt, and where, all of which will have material impact on the timing and cost and direction of materials supply over the next several months at least.

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Here's a report from National Association of Home Builders economics department analyst David Logan on key readings from the lastest Bureal of Labor Statistics Producer Price Index (PPI), focusing on two important commodities for builders, OSB and softwood lumber.

Logan zeroes in on OSB specifically because it seems to have de-coupled from a number of other materials costs, even as economy-wide producer prices inched up 0.4% in September. He writes:

"The price of OSB increased 4.4% in September and has risen 19% and 38% since September and January 2016, respectively. The surge was in contrast with moderate increases in prices paid for gypsum products (+0.3%) and ready-mix concrete (+0.2%). The price of softwood lumber fell 0.9% in September."

Producer prices as tracked by the BLS mask the experience builders and remodelers have when they're buying materials like OSB and softwood lumber. 

***

Two important factors drive the disparities between price changes builders have experienced and the PPI index changes:

  • The producer price index tracks prices paid by wholesalers, distributers, and retailers rather than what those businesses charge customers.
  • The index does not include prices paid for Canadian products as it does not include imports (just as the consumer price index does not reflect prices paid for exports).
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Keweenaw Land Association, Limited Announces Update On The Strategic Review

Keweenaw Land Association, Limited Announces Update On The Strategic Review | Timberland Investment | Scoop.it

On December 27, 2016, Keweenaw Land Association, Limited (OTCPink:KEWL) announced the formation of a Special Committee to consider strategic alternatives available to the Company, including a possible equity recapitalization or sale of the Company.  As part of the Special Committee's efforts, the Company retained Stifel, an investment banking firm, to assist in a strategic process.

 

After soliciting proposals and receiving indications of interest, the Special Committee and the Board determined that the Company should command a higher price than reflected in the indications from the parties engaged in the sale process.  Accordingly, the Company has directed Stifel to suspend the sale process.

 

Supporting this view are the results of a recently completed comprehensive timber cruise, the first in the history of the Company, which indicates substantially higher standing timber volumes than previously estimated, which should allow for significantly higher annual allowable harvest in the future.  At the present time, following the timber cruise and after taking into account recent acquisitions, the Company estimates that the standing timber volume is approximately 30% higher than reflected in the Company's most recent appraisal, which was completed in 2015 and summarized in the Company's 2015 Annual Report.  The Company will update the shareholders with additional information once such information is available.

 

In light of the foregoing, the Company has commenced implementation of additional elements of its strategic plan, including several initiatives designed to increase value.

 

Additional elements of the strategic plan include:

  • Evaluating the feasibility of converting to a Real Estate Investment Trust (REIT) for the 2018 tax year;
  • Review of the annual harvest with the intention to materially increase future annual harvests while staying within sustainability parameters; and
  • Exploration of additional initiatives to increase current cash flows, including a review of (i) the Company's cost structure, (ii) potential conservation easements, and (iii) monetization of non-core assets.

 

The Special Committee and the Board believe that the Company has an attractive asset base that should generate positive real growth and provide investors with long-term inflation protection.  The initiatives described above are intended to result in increased cash flows and better position the Company for the future.  While there are no assurances that any of the foregoing initiatives will result in a material event for the Company, the Board is optimistic that moving ahead on these items will provide the best opportunity for realizing additional value for shareholders.

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Taaleri to sell the estates of its first forest fund to AXA Investment Managers

Taaleri to sell the estates of its first forest fund to AXA Investment Managers | Timberland Investment | Scoop.it

Taaleri Private Equity Funds Ltd which is managing Taaleri Metsärahasto I Ky has signed a binding agreement with AXA Investment Managers - Real Assets, acting on behalf of its clients, to sell estates of Taaleri’s first forest fund. The final closing is expected by year end. Upon realisation of the transaction, Taaleri will record a net income of some MEUR 2.7.

 

The total area of the estates owned by the forest fund is over 14,000 hectares of which the amount of forest land is about 12,500 hectares. Taaleri established the forest fund in late 2012 and it has 140 investors.

 

”Taaleri’s first forest fund was established about five years ago to enable clients to benefit from the attractive investment opportunity that forestry presents. This has been a strongly performing portfolio, in what is one of the prime forestry regions in the Nordics,” says forestry expert Jyrki Ketola.

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INDEPENDENT COMMISSION RECOMMENDS NEW APPROACHES TO FOREST SECTOR RESEARCH IN U.S.

INDEPENDENT COMMISSION RECOMMENDS NEW APPROACHES TO FOREST SECTOR RESEARCH IN U.S. | Timberland Investment | Scoop.it

A report by the Blue Ribbon Commission on Forest and Forest Products Research and Development in the U.S. in the 21st Century (BRC), released today by the U.S. Endowment for Forestry and Communities (Endowment), calls for changes in the way forest and forest products research is addressed.
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Among the report’s findings are that forest sector R&D in America is unfocused and underfunded. To address shortcomings the BRC recommended changes and enhancements to spur innovation including:

  • Development of a “national” R&D plan across USDA Forest Service, National Institute of Food and Agriculture, National Science Foundation, and the Department of Energy along with forest sector input that avoids wasteful duplication and sets a clear direction for the future; and,
  • Institution of a new model where federal scientists serve more as team leaders engaging private sector, university, and federal researchers to increase speed, flexibility, and delivery of needed
    solutions.
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Twin Creeks Timber Acquires 121,000 Acres of Timberland in the U.S. South and Pacific Northwest

Twin Creeks Timber Acquires 121,000 Acres of Timberland in the U.S. South and Pacific Northwest | Timberland Investment | Scoop.it

Twin Creeks Timber LLC (“Twin Creeks”), a joint venture originally formed in 2015 in part by Silver Creek Capital Management (“Silver Creek”), a $6.3 billion alternative investment manager, to enable institutions to directly invest in high quality timber assets alongside a timberland operator, today announced that it will add 121,000 acres of timberland to its portfolio. Twin Creeks will purchase 100,000 acres located in the Southern U.S. from Weyerhaeuser Company (“Weyerhaeuser”) and receive a contribution of 21,000 acres located in the Pacific Northwest from Green Diamond Resource Company (“Green Diamond”). Through the addition of these timber assets, Twin Creeks will increase its Southern portfolio to 360,000 acres and add the Pacific Northwest to its portfolio. The timberland transactions are expected to close by year end.

In conjunction with these timberland transactions, Twin Creeks also announced that it has repurchased Weyerhaeuser’s equity interest in the joint venture and will replace Weyerhaeuser as the joint venture’s timberland manager with a new manager effective January 1, 2018. Green Diamond will become a new equity partner in Twin Creeks and Green Diamond Management Company, a wholly-owned subsidiary of Green Diamond, will become manager of Twin Creeks’ timber assets portfolio. 
***
“We established Twin Creeks with the goal of taking a differentiated approach to institutional timber ownership by pairing sophisticated institutions directly with an operating partner. Green Diamond is well-recognized as a leading owner and manager in the forest products industry for over 125 years, and we are pleased to be partnering with them to build the Twin Creeks business for decades to come,” said Bob Ratliffe, President of Silver Creek and the Co-Portfolio Manager of Twin Creeks.
***
Ratliffe concluded: “We are thrilled to have this series of transactions completed as it sets Twin Creeks on a path for success and further growth with a well-aligned set of partners. We believe we have found an attractive combination and alignment with Green Diamond and a very supportive group of existing institutional partners, including a final one who has committed $250 million. We are well prepared to grow and expand our portfolio of timber assets well into the future.”

Sam Radcliffe's insight:

According to RISI, Weyerhaeuser received $2,020 per acre for its 100,000 acres. The new $250 million institutional investor is the California State Teachers Retirement System.

 

BMO's comment:  "Valuation on WY's residual 21% interest suggests an ~8% reduction in per acre value since the creation of Twin Creeks in early 2016. We think the near-term risk on southern timber values is to the downside. Trade reports also suggest increased investor differentiation between A, B, and C grade lands."

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Touching wood for timber REITs

Touching wood for timber REITs | Timberland Investment | Scoop.it

A mix of powerful factors have injected sap into REIT returns this year. Yet US interest rate rises could soon start tilting the balance toward their private peers.

 

The S&P 500 shot past the 2,500 mark for the first time in its history this month as the US Federal Reserve chief Janet Yellen hinted at a tightening of monetary policy, boosting treasury yields and US equities in the process.

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Less noticed has been the strong performance of timber real estate investment trusts. The Forisk Timber REIT index, which tracks all publicly traded timberland-owning REITs, is up about 12 percent in 2017. That not only beats the S&P 500, it also vastly surpasses both the NAREIT All REIT index and NCREIF Timberland, which covers timber transactions in the private markets.
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What’s driving such appetite? Start with the permanent. Timber REITs have an edge over private alternatives in that they are more liquid: their shares can be bought or sold on a daily basis, while the direct acquisition of timber holdings typically requires longer time frames, higher overheads and starting capital. They also pay no corporate tax on their earnings, with taxes being levied instead on shareholders’ dividends.
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Listed timber companies are also being buoyed by solid demand for wood. The main driving factor is the recovering US housing sector. Home builders are reporting a spike in housing starts: these are up 4 percent overall and 8 percent for single-family starts in 2017.
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But timber REITs have also benefitted from more specific factors. First is what they did to shore up their value: maximizing operating revenues and consolidating higher quality portfolios, which led them to divest non-core assets and bolster cash efficiency.

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Second is a more arcane matter. In July, Vanguard, the world’s second-largest provider of exchange trade funds, asked shareholders to swap the index it uses for its $35 billion real estate ETS to a different index that includes timber REITs. Insiders reckon this is pushing hundreds of millions of fresh capital into the asset class.


Yet the outlook is more uncertain. While the economic recovery looks sturdy, other factors may prove to be one-off boosts. And timber REITs could soon be hitting a bump: markets currently put odds for a December US interest rate hike at 80 percent; timber REITs, which tend to trade on a multiple of cash yield, could be cast in a less favorable light than unlisted timber, which is typically backed by investors seeking to maximize total returns. REITs could find themselves under pressure to improve cash yields, making returns more volatile.

 

Historically, this has been the case. Only privately held timberland demonstrated positive returns each year of the period 2012-16, according to Forisk. This is in part because private valuations, done more periodically, tend to be less volatile; it is also because markets tend to discount the value of listed illiquid assets. Timberland REITs have a had a good run so far this year. Upcoming pressures, however, may prompt some assets to branch off and go private.

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