[PDF] - Emerald Hills Forest Group Meeting Sunday, 27 November 2016 PDF Document

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Emerald Hills Forest Group Meeting

Sunday, 27 November 2016

Housekeeping

All mobile phones to silent
Note the location of exits

and toilets

In case of emergency,

follow our staff in hi vis

Presentation is being

recorded and will be available to view online

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Introductions

Forest Enterprises Team Trustees Executors Logic Forest Solutions

Purpose and Structure of Today’s Meeting

Session 1
The best way to practically harvest the Emerald Hills forest
Consequences of this harvest progamme for the 6 investments which

collectively own the Emerald Hills forests Morning Tea

Session 2
The current projected timing of the harvest
The second rotation and exit options for Investors

Light Lunch

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The Best Way to Harvest Emerald Hills Forest

Map 1: The Harvest Plan

The Harvest Plan

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The Harvest Plan

This is the currently identified best way

to harvest the Emerald Hills Forest

This plan is dynamic and will change
Rationale for location of harvest roads?

The most cost effective way to harvest the total area

This is a massive network of roading

Forest Roading kms Total Skids Landings Pads MILW 17.7 44 37 7 GLEW 16.7 38 32 6 LONG 10.3 36 29 7 GOOD 16.3 44 37 7 MAJE/W 14.2 37 33 4 HOME 15.7 55 52 3 Total 90.9 254 220 34

The Harvest Plan

Observations –
The Plan ignores the investment

boundaries

The Plan ignores rights of way
May be possible to remain within

boundaries but doing so would cost a vast amount more and this network is projected to cost $10 million

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Harvest Outside of the Investment Boundaries

Map 2: Cross Boundary Harvesting

Harvest Outside of the Investment Boundaries

Observation
Every investment has areas which will

be harvested from out of the investment boundary

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Harvest Areas Which Use Roads Out of Boundaries

Map 3: Cross Boundary Roading

Connection to the Public Road

Map 4:

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Connection to the public road

Roading network connects to the

public road via 4 main gateways -

Shanks, Kohn, Airstrip, Patuata
All ultimately end up on Waingake

Road to Port

One road to town, even though there

are multiple exits

Potentially, we are also competing

with other forests

Gate Area Utilising Tonnes Truck Loads Truck Movements Airstrip 1,019 730,300 25,625 51,249 Kohn 260 186,700 6,551 13,102 Patuata 100 71,662 2,514 5,029 Shanks 958 686,862 24,100 48,201 Waingake 42 30,004 1,053 2,106 Total 2,379 1,705,528 59,843 119,686

Connection to the public road

Observations
Huge volume to come out the three

main entranceways

So there are practical constraints
Massive volume to go down Waingake

Road

So there are practical constraints

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River Catchment Issues

Map 5: Water Catchment

River Catchment Issues

Resource consent implications
Forest Enterprises is already working

closely with Gisborne District Council

Observations
Need to submit resource consents as

soon as possible for entire catchments (not investments)

Must maximise the Emerald Hills

collective catchment constraints allocation

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The Best Way to Harvest Emerald Hills Forest Questions?

9.45am

Consequences For The 6 Investments

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Why Are There 6 Investments?

Map 6: Harvest Map with Road Network

Why are there 6 investments?

Combination of two main historical

legal reasons -

1. Assumed the best investment amount financially, based upon partnership of Qualifying Companies at the time, restricted to maximum of 125 investors 2. 6-month life span of Prospectus

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Legal Rights of Each Investment

Map 7: Emerald Hills Forest Rights of Way

Is This a Monumental Stuff Up?

No.
Because, in 1993 –
We were looking 25 years into the

future

Not worth the investment at the front in

Harvest Plan

Assumption was that common sense

would prevail at the time (now)

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Is Common Sense Going to Prevail?

Map 8: Harvest Plan Without Boundaries

Effect of Not Co-operating

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Legally, How Can We Harvest As One Forest?

Joint venture
Cannot amalgamate for tax reasons

“But MY investment is more valuable than YOURS!”

Yes, the money does matter!
Two solutions –
Employ a bus load of consultants?
Let common sense prevail?

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Common Sense Approach

Each investment already has a

measure of value of their interest in the Emerald Hills Forest

Indicative value
Why is indicative value a fair

measure?

Investment Millwood 515 19.0% 445 18.7%

19.3%

Glenwood 492 18.1% 424 17.8%

18.5%

Longwood 433 16.0% 397 16.7%

16.4%

Goodwood 440 16.2% 383 16.1%

15.7%

Majestic Pine 412 15.2% 343 14.4%

13.1%

Homewood 422 15.6% 387 16.3%

17.0%

Total 2,715 100% 2,379 100%

100%

Title Area (ha) Crop Area (ha)

Indicative Value

Common Sense Approach

Investment Millwood 515

19.0%

445

18.7%

19.3%

Glenwood 492

18.1%

424

17.8%

18.5%

Longwood 433

16.0%

397

16.7%

16.4%

Goodwood 440

16.2%

383

16.1%

15.7%

Majestic Pine 412

15.2%

343

14.4%

13.1%

Homewood 422

15.6%

387

16.3%

17.0%

Total 2,715

100%

2,379

100%

Title Area (ha) Crop Area (ha)

Indicative Value

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Consequences For The 6 Investments Questions?

10.30am

Projected Timing of the Emerald Hills Harvest

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Projected Timing of the Emerald Hills Harvest

When reflecting on the timing of

harvest, we must remember –

1. The scale of the forest 2. The limited number of road entrances 3. That there is only one road to town being used by Emerald Hills and

ther forest owners

4. That there will be resource consent constraints 5. Other harvest timing issues

Regional Wood Volumes

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Where is all the wood going?

1. Local mills – very little opportunity

Wairoa – small quantities
JNL – seldom buy

2. Export – the vast majority is to be exported

Eastland Port

Currently, Eastland Port (Gisborne Port) is handling approximately

2.5 million tonnes of logs annually

May soon be the second largest log export port in New Zealand
Forest Enterprises is currently exporting approximately 40,000

tonnes per annum out of this port

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Capacity of Eastland Port Constrained

Currently limited to loading one

log ship at a time

Limited on site storage so

already offsite storage being used (Dunstan Road)

Objective is to be able to load

two ships concurrently and supply the wood from on-site and

ff-site storage
Forest Enterprises is already

working closely with Eastland Port

Forest Enterprises Projected Port Volume

Current projection is that Forest

Enterprises will be able to secure up to 700,000 tonnes per annum

f the increased port capacity
700,000 tonnes per annum is

similar to the present capacity of the largest users of the port

Forest Enterprises will be a

major customer of Eastland Port

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Impact of Port Capacity on Harvest

Port capacity is a major constraint on harvest timing

Realistic Scenario Base Case Woodflow

Period

When Do Investors Expect Emerald Hills to Be Harvested?

Prospectus set out the simplistic scenario based upon harvesting

at age 28

Age 28 has harvest occurring in 2022 and 2023
We have always stressed that the simplistic scenario will not

happen

Annual Reporting has continued to set out this simplistic scenario,

but highlighted in the assumptions that harvest will likely commence earlier and finish later

Have stated at previous forest visits that harvest could start 2 to 3

years early and finish 2 to 3 years later than the simplistic scenario

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Current Timing Projection for Emerald Hills Harvest

Having now completed our preliminary forward planning, the

current projection for the Emerald Hills Forest is –

1. Commence 2018/2019 – just over 1 year’s time 2. Finish 2028/2029 3. 2028 is 5 years after 2023

The important factor in this projection is that this harvest spread

maintains an average harvest age of 28 years

Impact On Your Investment Return

Maintaining an average harvest age of 28 years is important

because –

1. The younger trees harvested will have less than the average volume therefore return less value 2. BUT, the older trees will have higher than the average volume/value

The overall value outcome is consequentially about the same

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Impact on distributions from harvest

Distributions are likely to occur from 2018/2019 through until

completion of harvest in 2028/2029

This is a 10 year spread of what are likely to be regular distributions
Distributions will be impacted in the early years because of the

substantial forward investment in roading and related infrastructure

Projected Timing of the Emerald Hills Harvest Questions?

11.20am

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Second Rotation and Exit Options for Investors

Harvest is a controlled activity under the Gisborne Regional Plan
A standard condition of harvest is an obligation to replant
A Radiata pine forest remains the most economic use of the land,

especially given the substantial investment in roading and related infrastructure which will be made during harvest

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Pre-1990 Forest Land

Map 9: Pre-1990 Forest Land

Pre-1990 Forest Land

There are 232 hectares of Pre-1990

Forest Land within the Emerald Hills Forest

Not replanting Pre-1990 Forest Land

requires accounting for the deemed carbon emissions

At the present value of NZUs, this

could equate to $16,000 per hectare

Forest Pre 1990 Area MILW 97.0 GLEW 27.6 LONG 40.0 GOOD 29.7 MAJE/W 29.2 HOME 8.5 Total 232.0

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Implications of Replant on Distributions

Forest areas harvested by Christmas are typically replanted

the following winter

The replanting has to be funded and this funding will come

from the harvest proceeds

Instead of being able to distribute $30,000 to $35,000 per

hectare, $28,000 to $33,000 will be available for distribution

Implications of Replant on Distributions

Funding the replant is an

investment in the second rotation treecrop However Those wishing to exit at the conclusion of harvest will be paid for this treecrop investment when the land is sold

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When Will the Land Be Sold?

The Prospectus anticipated the land being sold in the last year of

harvest

Like the timing of harvest, this is the simplistic scenario
We would expect the land to be sold no later than 2023, some 5

years before the conclusion of harvest

When Will the Land Be Sold?

Why 2023?

Because by that date, approximately 50% of the forest will have been harvested and replanted so a buyer has a degree of certainty over what they are buying

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Options for Selling the Land

1. Sell on the open market (together with the treecrop at the date

f sale)

2. Sell to a new investment with –

Those Investors (or their families) wishing to remain for a second

rotation doing so

Those Investors wishing to cash up and exit having the opportunity to

do so

Forest Enterprises has implemented option 2 for two investments to date, and is in the course of doing so for another 8 investments in 2017

Why Might You or Your Family Be Interested in the Second Rotation Investment?

The analysis we have done
n a Wairarapa forest

group indicates this increase could be as high as 52% because –

1. First rotation investment in the roading and related infrastructure 2. Increased volume 3. Other factors

All other factors being equal, a second rotation forestry

investment will generate a much higher return

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On leaving you will receive a copy of a Report setting out this

calculation

This analysis was done on a Pre-1990 Forest in the Wairarapa
The Emerald Hills Forest is primarily a Post-1989 Forest

Why Might You or Your Family Be Interested in the Second Rotation Investment?

As Post-1989 Forest you are currently enjoying the benefits of a

carbon lease rental

No Calls required
Majestic Pine is a little different because of choice to retain

borrowings

Forest Enterprises expects to be able to put in place a new carbon lease for the entire second rotation which is expected to fund much of the second rotation expenditure

Impact of Carbon Lease

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What are we going to recommend?

Establishment of a second rotation investment in 2018 before

replanting commences - tax reasons for this timing

Existing Investors will be allocated shares in this investment (with no

cash required)

Sale of these shares will provide the exit option for those wishing to

do so

What are we going to recommend?

This approach still leaves open the opportunity to sell the land and

replanted trees as one big forest

Investors have flexibility regarding the future, with NO risk of being

locked into a second rotation investment

More details will follow in 2017

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Process from here

Formal approval process
Approval of Forest Enterprises’ fee
Timing of approval process – 2017 and 2018

Second Rotation and Exit Options for Investors Questions?

12 noon

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Thank you!

Enjoy the rest of your stay in Gisborne Wishing you safe return home to those from out of town On leaving, you will receive a full copy of all slides from today’s presentation