Forestry sturdy in stormy climate

Investors sickened by the volatility of investments could find a little solace in the green and placid woodlands of a forestry investment.

Although share prices may have plummeted, the trees investors planted across the country just carry on growing, and with harvest more than a decade away for most, the financial turmoil of today means little to those pondering the value of their holdings.

"The trees aren't feeling the recession," said Matthew Barton of Te Kuiti-based Greenplan, which has around 7500 mum and dad investors with units in more than 60 forest partnerships. "They aren't doing any worse than they were six months or one year ago." Most mum and dad investors in managed forestry investments are 12 years or more away from their forests being harvested, Barton said, which means the current financial turmoil can be easily ignored.

There had also been little impact on the resale value of units in Greenplan's forests on the secondary market it operates for its investors, but trades were so infrequent it was hard to draw conclusions from that.

Rowan Kearns, from Nelson- based Forestlands, said most investors had been lured into "paper thin" investment products such as finance companies and share funds, often as a result of high commissions paid to financial advisers.

Their troubles contrasted starkly to forest investment.

With trees, he said, people were investing in something solid, and Forestlands, which is just capital- raising for its 15th forestry investment, had an "open gate" policy under which any investor could go and view their land and trees at any time.

"Our investors could go and have a look at the trees. They can see them, touch them, sit under them and have a picnic," he said.

But even as other investments imploded, the media was paying little attention to forestry. "Their biggest downfall is that they are not flashy and they are not pretentious." Neither did they pay commission to financial advisers.

Investing in retail managed forestry investments is in principle relatively straightforward. Investors either put in capital (it can be as little as $5000) to plant a forest (in the case of Greenplan investors, they own the crop of trees not the land), and then they have to spend on average around $7 per tree to manage it through to harvest some 25 or so years later. Forestlands tends to buy established forests around 10-15 years from harvest and sells shares in the trees and land.

The return comes at harvest time, and so depends on variables such as the exchange rates on the day, shipping costs and log prices, as well as the quality of the wood, which means investors need to pick a company they trust to grow high- quality, knot-free wood.

The average radiata pine export price for a pruned log over the four years to the end of October was $151, according to Maf, although investors need to understand the prices achieved can vary significantly, particularly for smaller operators.

Over time that is expected to rise due to a number of factors, including continued world population growth.

Kearns said investors who understood the concept thought of it like putting down a few thousand today to buy a house worth hundreds of thousands of dollars they would get the use of in the future. "It is so cheap to get into and it just keeps growing," he said.

However, the financial crisis could have an impact on the availability of retail managed forestry investments.

In the past few years there has been a lull in new offers to the public, the result of uncertainty about ownership of forestry carbon credits and a huge spike in land prices as high dairy prices have made it possible to convert marginal forestry land to dairying.

Land prices are now on the way down, meaning managed forestry investments become easier to offer, said Barton. Similarly, investors are anticipating a significant return on the carbon credits their forests will earn, although, as yet, no one really understands how that will work. Kearns said currently investors see carbon credits as the cherry on the cake. The return on forests has been traditionally the value of the mature trees plus rises in land values.

Kearns said the financial crisis was creating forced forest sellers, meaning many smaller forests, which were not big enough to interest huge overseas investors, were on the market, making it a good time to buy.

- © Fairfax NZ News