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Today, we’ll look at KPMG’s effort to determine who exactly the investors in timberland are, what their underwriting assumptions are, and what are their expectations for the coming 12 months.
The firms surveyed included North America’s timberland investment market participants with five different structures: appraisal or consulting organizations; integrated forest products companies; investment fund managers; real estate investment trusts; timberland lender.
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By way of a geographical analysis, the report stipulated that more than half of the participants were active in the coastal northwest and Alaska. The southeastern U.S. was the second more popular region for these respondents, and the northeast was third.
Observations from the survey include the following:
- Compared to results from the year-before survey, discount rates shifted downward from the summer of 2015 to that of 2016;
- Significant investment from outside of North America continues to trend downward;
- A majority of participants expect that the price of logs will remain the same or increase slightly over the next 5 years;
- The majority of respondents also say that they use no real growth rate for harvesting costs, since inflation is stagnant in the United States.
Respondents were asked “what discount rate do you use when evaluating new acquisitions of timberland assets?” Nobody uses a discount rate higher than 8%, or lower than 4%. The most frequently used discount rate range used is from 5% up to, but not including, 6%. The particulars are [see chart above].
