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New Forests forest funds presentation.TRANSCRIPT
New Forests Investment StrategiesTimber Plus & Eco Products
Presentation at “Boosting Investments in Biodiversity and Ecosystem Services,” Nyenrode University, Amsterdam
November 11, 2009
David BrandChairman and Managing DirectorNew Forests Pty [email protected]+61 2 9406 4100www.newforests.com.au
About New Forests
Slide 2
Investment Strategies
Slide 3
Forestry Plus Model: Tarrangower, New South Wales, Australia
Cattle grazing property Returns driven by long-term
timber products with “upside” from carbon credits, biodiversity enhancement, water rights, and possibly renewable energy
Client: Cambium Global Timberland (AIM:TREE)
Slide 4
Forestry Plus Commercial Model
Figures in AU$ Millions (Assume NPV based on 7% discount rate, hypothetical case)
Slide 5
--20
0
20
OriginalInvestment
-20 20
7
RenewableEnergy
Carbon Credits
Timber BiodiversityGrant
0.5
2 1
Water Rights
10.5
PotentialNet Gain
Eco Products Strategy: Central Indiana Mitigation Bank
Wetlands mitigation bank regulated under U.S. Clean Water Act
Restoration of 100 acres of cropland to natural wetlands system
Permitted by U.S. Army Corps of Engineers to produce wetlands mitigation credits for sale to Indiana Department of Transportation
Slide 6
New Forests REDD Project: Papua, Indonesia
Two sites totaling 200,000 hectares
100,000 hectares under license for conversion to oil palm
Project is being implemented under new Indonesian national REDD legislation
Expect 22 million tonnes of carbon credits over 15 years
Slide 7
New Forests Biobank Project:Malua Biobank
Voluntary endangered species bank located in Sabah, Malaysia
Critical habitat for Orangutan, Rhino, Elephant, Sun Bear, Clouded Leopard and many other species
Up to $10 million investment in rehabilitation from logging
Biodiversity Conservation Certificates = 100 sq
Slide 8
Eco Products Commercial Model
Create “eco products” from ecosystem services – e.g. carbon credits, nutrient trading, biodiversity conservation certificates, mitigation banking credits
Embed conservation actions into development or production activities to achieve no net loss
Slide 9
New Forests’ Investment Strategies
Timberland investment model diverging into multiple strategies
Original aim of providing “pure” exposure to timber price volatility is being replaced by a total return emphasis
Over-investment in U.S. timberland has been supported by declining cap rates and real estate price appreciation—these factors are now breaking down
Main opportunities for sound risk-adjusted returns will be outside U.S. and from exposure to emerging eco products markets
Slide 10
Eco Products Driving the Future
Kyoto Protocol largely ignored role of forests in carbon markets
Regional and voluntary markets made progress on resolving issues and now forest carbon will be the next major extension of the global carbon market
Mitigation banking in the U.S. now relatively mature Agribusiness under severe pressure to reduce or
compensate for ecosystem impacts—beef, soy, palm oil are key industries to watch
Market-based solutions now also driving water quantity and water quality policy
Slide 11
Where to Invest for the Future?
Slide 12
Retu
rn (r
eal I
RR)
Size of asset class
Return range
US Carbon
REDD and Biobanking
United States TimberlandAustralia-New Zealand Timberland
Latin American Timberland
Asian Timberland
Mitigation Banking
10%
20%
30%
40%
50%
Australia New Zealand Forest
Fund
Tropical Forest Fund
Eco-Products Fund
Evolution of Forestry Asset Class Returns
Slide 13
Retu
rn (r
eal I
RR)
5%
10%
15%
20%
- 5%
1980 to late
90’s
Late 90’s to 2008
US Timberland
today
-10%
Emerging Timberland
markets
Timberland
Timberland
HBU
CAP Rate
Timberland
CAP Rate / Real
EstateAU
S &
NZ
Asia
Timberland
Timber Plus
(Australia)
Eco Product markets
Net Return
Carbon
Fore
st C
arbo
n
Miti
gatio
n Ba
nkin
g RED
D
New Forests Strategy
Other
Latin
Am
eric
a
30%
Investment Models for a Changing World
Global timber production shifting to southern hemisphere and tropical regions, away from U.S.
Asia leading demand growth Rise of REDD, biobanking, and other conservation finance
could exceed timber asset value Expectation that REDD could be 20% of the global carbon
market by 2030, with 5 billion tonnes per annum in reductions—potentially a $100 billion per annum market with an underlying asset value of $1 trillion
Note that all institutional and private equity investment in forestry to date has been $40 billion
Investment allocation will need to reflect these realities
Slide 14
Conclusions
Past performance of timberland asset class will not be a guide to the future
Timber markets will restructure towards high productivity plantations located in southern hemisphere and tropics
Emerging market timberland and emerging market eco-products will provide main opportunities for capital deployment, diversification for existing timberland investors, and a new round of cap rate compression benefits
Slide 15
www.newforests.com.au