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Comparison between
Farmland & Timberland Investment
2
• Farmland investments consist of direct investments in rural land along with crop and livestock assets that
produce food, fiber and energy.
• Focus on the productive capacity of the land base.
• The returns are based on the biological growth of crops and livestock as well as appreciation of land and
related assets.
• Investments are grouped into three general categories:
Row Crop Permanent Crop Livestock
• An investment instrument used primarily by large institutional investors (such as public and private
pension funds).
• The two main assets that underlie timberland investments are tree farms and managed natural forests.
• The returns on these forestland investments come from biological growth, upward product class
movement, timber price appreciation and land price appreciation
Source: : 1GMO white paper, FAO 2011, Global AgInvesting Research & Insight Estimates 2012, Macquarie Agricultural Funds Management 2012, 2Investopedia.
Introduction
3
Value of investment opportunity
Institutionally owned
Institutionally owned
Total land value
Investable universe
estimate*
Agriculture
Timber
Source: FAO 2011, GMO 2011, HNRG 2012, Global AgInvesting Research & Insight Estimates 2012, Timberland Investment Resources 2012, Macquarie Agricultural Funds Management 2012.
* Investable universe estimate - The total land value is reduced to the investable universe due to a range of factors that significantly restrict or prevent institutional investment including a lack of basic infrastructure, adverse governmental policies or unacceptable social and
environmental risks.
Investable universe
estimate*
$1,000bn
Total land value
$8,300bn
$35bn $60
bn
$425bn
$300bn
4
Farmland v/s Timberland
Farmland potentially provides
investors with an annual income
stream, usually through lease
payments from tenant farmers on the
other hand because trees take years
to reach maturity, timberland doesn't
provide the regular income potential.
Timber is inextricably tied to the
housing market. For that reason, and
unlike farmland, both lumber prices
and timberland values remain below
historical norms. That, to some
observers, is a bullish signal. "It
could be a buying opportunity," says
Moon
Farmland Timberland
- Dennis Moon,
Head of the
Specialty Asset
Management
team at U.S. Trust
- Dennis Moon,
Head of the
Specialty Asset
Management
team at U.S. Trust
5
Risk Return Profiles for U.S Farmland
& Timberland
January 1994 – December 2013
Source: Morningstar, NCREIF
5
1. Farmland provides a high level of capital security and a low level of risk
2. An effective inflation hedge
3. A stable income producing asset
4. Farmland investment delivers lower income volatility
5. It delivers high total returns
6. Has superior risk adjusted returns
7. An attractive portfolio diversification tool
8. Performs well in times of market turmoil
9. Direct investment in farmland is simple and transparent
10.Farmland has a number of benefits over other real estate investments
• Fundamental Limits to Supply
• Resilient and Rising Demand
• Price / Earnings and Yield
• Farm Sector Debt
11. Farmland investment provides tax planning opportunities
Source: http://www.landcommodities.com/investment-benefits-of-farmland/
Investment Benefits of Farmand
6
1. An effective inflation hedge
2. Timber returns beat stocks
3. Has superior risk adjusted returns
4. An attractive portfolio diversification tool - negatively correlated with other
investment instruments such as stocks and bonds
5. Performs well in times of market turmoil
6. Investment in land as an appreciating asset
Investment Benefits of Timberland
Source: http://www.investopedia.com/articles/stocks/08/timber-investment.asp
7
8
Risks of Farmland Investment
Risks involved in owning farmland properties can be separated into two broad categories:
Endogenous Risks Exogenous Risks
Those risks having an internal origin relating to specific
crops, on-site management and site location.
Those risks having an external origin such as commodity
prices, extreme climatic events and international trade
policies
1
2
3
4
5
General Investment Risk
Commodity Prices
General Agricultural Risk
Geographic Risk
Liquidity Risk
6
7
8
9
10
Regulatory Risk
Inflation / Deflation Risk
Currency Risk
Counterparty Risk
Asset Specific Risk
Source: : Report - DGC Asset Management - Farmland as an Alternative Investment Asset Class, 2012
BePro. Business Special Template
9
1
Risks include factors
affecting the volume and
quality of timber, such as
fire, insects, and disease.
2
Risks include those affecting
the price of inputs, including
fertilizers and seedlings, and
outputs, such as pulpwood,
sawlogs, and the
timberlands themselves.
4
Risks may arise from land
use regulations, green
certification, and social
pressures, all of which have
policy implications.
3
Risks include factors
affecting the day-to-day
operability on the
timberlands, from weather
impacts and access issues.
Risks of Timberland Investment
Physical Financial Operational Regulatory
Source: Timberland Report – James W. Sewall Company
10
Billions of institutional investment dollars are being allocated to farmland assets by a number of large Institutional
Investors and Sovereign Wealth Funds which continue to acquire large farm properties all over the world including
Source: DGC Asset Management - Farmland as an Alternative Investment Asset Class, 2012
11
• Timber Investment Management Organisation ( TIMO) is an investment management group that manages forestry and timber
investments on behalf of large institutional investors such as pension funds, hedge funds, university endowments and family offices.
• Due to the large capital investment required by TIMOs, non-institutional investors interested in adding forestry assets to their
portfolio are better off considering direct investments or forestry funds that facilitate smaller investments, either in single property
acquisitions or across a managed portfolio of timber assets.
• Apart from TIMOs which invest privately, there are also publicly traded timber investment companies structured as Real Estate
Investment Trusts (REITs)
Forest Investment Associates
Some of the largest and longest established Timber Investment Management Organisations
Source: http://www.dgcassetmanagement.com/investing/agriculture/forestry-timber-investment/timos
Source: FAO 2011, GMO 2011, HNRG 2012, Global AgInvesting Research & Insight Estimates 2012, Macquarie Agricultural Funds
Management 2012
1 Hancock Timber Resource Group
Until recently, agriculture and farmland did not
have a natural home in the investment
portfolios of the mainstream institutions. This
is now changing and has the potential to make
significant changes to capital ownership
structures in the industry and the quantum of
investment in the sector over time.
• Agricultural land assets sit at an estimated $8.3 trillion in total value
with an estimated $1 trillion of that being investable. This represents a
compelling opportunity for institutional investors.
• Demand for timber is expected to increase as economies in the U.S and
abroad continue to grow. Environmental pressures will also continue to
shrink global timber supplies.1
• While growth in investor interest has been strong, there has been a
moderated translation into investment flows.
• Gradually, the industry is developing a track record and investors and their
advisors are developing a deeper understanding of the opportunity.
12

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Investment Research Presentation

  • 1. Comparison between Farmland & Timberland Investment
  • 2. 2 • Farmland investments consist of direct investments in rural land along with crop and livestock assets that produce food, fiber and energy. • Focus on the productive capacity of the land base. • The returns are based on the biological growth of crops and livestock as well as appreciation of land and related assets. • Investments are grouped into three general categories: Row Crop Permanent Crop Livestock • An investment instrument used primarily by large institutional investors (such as public and private pension funds). • The two main assets that underlie timberland investments are tree farms and managed natural forests. • The returns on these forestland investments come from biological growth, upward product class movement, timber price appreciation and land price appreciation Source: : 1GMO white paper, FAO 2011, Global AgInvesting Research & Insight Estimates 2012, Macquarie Agricultural Funds Management 2012, 2Investopedia. Introduction
  • 3. 3 Value of investment opportunity Institutionally owned Institutionally owned Total land value Investable universe estimate* Agriculture Timber Source: FAO 2011, GMO 2011, HNRG 2012, Global AgInvesting Research & Insight Estimates 2012, Timberland Investment Resources 2012, Macquarie Agricultural Funds Management 2012. * Investable universe estimate - The total land value is reduced to the investable universe due to a range of factors that significantly restrict or prevent institutional investment including a lack of basic infrastructure, adverse governmental policies or unacceptable social and environmental risks. Investable universe estimate* $1,000bn Total land value $8,300bn $35bn $60 bn $425bn $300bn
  • 4. 4 Farmland v/s Timberland Farmland potentially provides investors with an annual income stream, usually through lease payments from tenant farmers on the other hand because trees take years to reach maturity, timberland doesn't provide the regular income potential. Timber is inextricably tied to the housing market. For that reason, and unlike farmland, both lumber prices and timberland values remain below historical norms. That, to some observers, is a bullish signal. "It could be a buying opportunity," says Moon Farmland Timberland - Dennis Moon, Head of the Specialty Asset Management team at U.S. Trust - Dennis Moon, Head of the Specialty Asset Management team at U.S. Trust
  • 5. 5 Risk Return Profiles for U.S Farmland & Timberland January 1994 – December 2013 Source: Morningstar, NCREIF 5
  • 6. 1. Farmland provides a high level of capital security and a low level of risk 2. An effective inflation hedge 3. A stable income producing asset 4. Farmland investment delivers lower income volatility 5. It delivers high total returns 6. Has superior risk adjusted returns 7. An attractive portfolio diversification tool 8. Performs well in times of market turmoil 9. Direct investment in farmland is simple and transparent 10.Farmland has a number of benefits over other real estate investments • Fundamental Limits to Supply • Resilient and Rising Demand • Price / Earnings and Yield • Farm Sector Debt 11. Farmland investment provides tax planning opportunities Source: http://www.landcommodities.com/investment-benefits-of-farmland/ Investment Benefits of Farmand 6
  • 7. 1. An effective inflation hedge 2. Timber returns beat stocks 3. Has superior risk adjusted returns 4. An attractive portfolio diversification tool - negatively correlated with other investment instruments such as stocks and bonds 5. Performs well in times of market turmoil 6. Investment in land as an appreciating asset Investment Benefits of Timberland Source: http://www.investopedia.com/articles/stocks/08/timber-investment.asp 7
  • 8. 8 Risks of Farmland Investment Risks involved in owning farmland properties can be separated into two broad categories: Endogenous Risks Exogenous Risks Those risks having an internal origin relating to specific crops, on-site management and site location. Those risks having an external origin such as commodity prices, extreme climatic events and international trade policies 1 2 3 4 5 General Investment Risk Commodity Prices General Agricultural Risk Geographic Risk Liquidity Risk 6 7 8 9 10 Regulatory Risk Inflation / Deflation Risk Currency Risk Counterparty Risk Asset Specific Risk Source: : Report - DGC Asset Management - Farmland as an Alternative Investment Asset Class, 2012
  • 9. BePro. Business Special Template 9 1 Risks include factors affecting the volume and quality of timber, such as fire, insects, and disease. 2 Risks include those affecting the price of inputs, including fertilizers and seedlings, and outputs, such as pulpwood, sawlogs, and the timberlands themselves. 4 Risks may arise from land use regulations, green certification, and social pressures, all of which have policy implications. 3 Risks include factors affecting the day-to-day operability on the timberlands, from weather impacts and access issues. Risks of Timberland Investment Physical Financial Operational Regulatory Source: Timberland Report – James W. Sewall Company
  • 10. 10 Billions of institutional investment dollars are being allocated to farmland assets by a number of large Institutional Investors and Sovereign Wealth Funds which continue to acquire large farm properties all over the world including Source: DGC Asset Management - Farmland as an Alternative Investment Asset Class, 2012
  • 11. 11 • Timber Investment Management Organisation ( TIMO) is an investment management group that manages forestry and timber investments on behalf of large institutional investors such as pension funds, hedge funds, university endowments and family offices. • Due to the large capital investment required by TIMOs, non-institutional investors interested in adding forestry assets to their portfolio are better off considering direct investments or forestry funds that facilitate smaller investments, either in single property acquisitions or across a managed portfolio of timber assets. • Apart from TIMOs which invest privately, there are also publicly traded timber investment companies structured as Real Estate Investment Trusts (REITs) Forest Investment Associates Some of the largest and longest established Timber Investment Management Organisations Source: http://www.dgcassetmanagement.com/investing/agriculture/forestry-timber-investment/timos
  • 12. Source: FAO 2011, GMO 2011, HNRG 2012, Global AgInvesting Research & Insight Estimates 2012, Macquarie Agricultural Funds Management 2012 1 Hancock Timber Resource Group Until recently, agriculture and farmland did not have a natural home in the investment portfolios of the mainstream institutions. This is now changing and has the potential to make significant changes to capital ownership structures in the industry and the quantum of investment in the sector over time. • Agricultural land assets sit at an estimated $8.3 trillion in total value with an estimated $1 trillion of that being investable. This represents a compelling opportunity for institutional investors. • Demand for timber is expected to increase as economies in the U.S and abroad continue to grow. Environmental pressures will also continue to shrink global timber supplies.1 • While growth in investor interest has been strong, there has been a moderated translation into investment flows. • Gradually, the industry is developing a track record and investors and their advisors are developing a deeper understanding of the opportunity. 12