by Peter Chappell, Forestry Investment Advisor at Tilhill
1. Forestry is a form of primary production
Acquiring a forestry asset is a bit like buying a factory which produces timber and other wood products; except without the high energy requirements. Soil, water and sunlight are all the forest needs to be productive. Making tangible goods that are critical to everyday functioning like Pallet wood, wood fuel and construction timber spurred the UK Government recently to label forestry workers as ‘essential’. So, as an investor you can have assurance that there is an underlying demand, with a degree of inelasticity, for the ‘factory’s’ output.
2. Investment forestry is flexible (and can deliver)
The main driver of forestry investment returns is the biological growth of trees– increasing the quantity and value of timber products held within the forest asset annually. This growth is steady and predictable and may offer around 5% value growth p.a. However, forestry investors can also benefit from fluctuation of timber prices over time – as a forest owner you can decide when the moment is right to release timber to market. Timber is a commodity and the price varies, so, by carefully selling timber when prices are heightened, it is possible to boost returns significantly. Over the long term, indices have found that UK forestry investors have gained returns of around 9.2%.
3. Forestry is sustainable
The green credentials of forestry are well established. The production is entirely renewable. Once a crop of trees reaches maturity and is harvested, a new crop of trees is established immediately to continue the cycle. Moreover, UK forestry follows The UK Forestry Standard (UKFS), which ensures that UK forests carefully manage timber production alongside conservation of biodiversity, protection of heritage, due regard for the landscape, local communities, protection of soils and water quality. This all adds up to making forestry a top choice for Environmental, Social and Governance (ESG) conscience investing.
4. Carbon benefits
Tree growth sequesters carbon and reduces the quantity of carbon dioxide in the atmosphere. Carbon that is locked up in wood products is in storage as long as the wood products are in use, so forestry really is an investment that packs a heavy punch in terms of positive impacts for the world. Moreover, if you invest in forestry via ‘afforestation’ or creation of new forests, the additional carbon that you will sequester through conversion of land use to forestry can be sold as a commodity (carbon units) and contribute to your returns.
5. Forestry property has low volatility and can hold long-term
A rotation of conifers in a UK forest might typically be grown for between 30 and 55 years. However, it is not necessary to ‘wait’ for the harvest to realise your return. Biological growth ensures that the value of the asset, all other things being equal, increases annually therefore, in theory, you can exit after only a year if you wish (but most aim to hold for around 10 years+). The long–term nature of the property investment reduces volatility in values, as short-term economic shocks can be ‘ridden out’ by owners and don’t necessarily put off buyers whose outlook is long– term – so forestry properties ‘Beta’ (or measure of volatility) is certainly less than 1 relative to forest product companies and may even be slightly negative.
Tilhill has a dedicated professional Investment & Property team, covering the whole of the UK, who draw not only on their own expert knowledge, but also that of our teams of locally based professional forestry and harvesting managers who are well placed to provide a full end to end service to potential investors.
Once we understand your investment objectives we can help source a suitable property from both ‘on market’ and ‘off market’ opportunities, provide you with a full Acquisition Report including an indicative Cash Flow, professional crop measurement and assessment, advice on pricing and then support you and your other professional advisors through the sale process.
If you think we could help develop your plans for a forestry investment, please get in touch with one of our investment foresters who will be very pleased to help you or leave a message below.
Want to find out more about forestry investment? Tickets for ‘The UK Forest Market Report 2020: The Climate For Woodlands’ are available on Eventbrite at a Super Early Bird offer price of £40.
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