Hokoroa and Hokoroa North Forests Combined Meeting, 3 December 2017 - - PowerPoint PPT Presentation

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 1

Hokoroa and Hokoroa North Forests

Combined Meeting, 3 December 2017

Version 3

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 2

Welcome and Introductions

• Good afternoon
• Historic meeting of the Hokoroa and Hokoroa North Forests
• Combined meeting of the two forests as in the past, however with

harvesting underway, the common interests of these adjoining forests align, and we need to discuss our proposals to capture the mutual benefits for both

• Forest Enterprises Team

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 3

Housekeeping

• General Housekeeping
• All mobile phones to silent please
• Note the location of exits and toilets
• In case of emergency, follow our staff in hi vis
• Presentation is being recorded
• Questions
• Questions are welcomed and time slot included at

end of each topic

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 4

Event Program

• This afternoon is the meeting and Business Session
• Tomorrow morning is the Harvest Visit
• Harvest visit tomorrow on a working day

to see the crew in action

• Some of your questions may be best answered

during the harvest visit

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 5

Today’s Meeting Program

• Session 1
• Matters Impacting on the Harvest

(Forest Specific and Gisborne Operating Environment)

• Recommended Solution to Maximise your Harvest Return

(collaborative harvest)

Afternoon Tea (around 2.30 pm)

• Session 2
• Combined Harvest Details
• Second Rotation and Exit Options
• Process from Here
• Harvest Reporting and Distributions
• Financial Status of the Investment
• Other Matters – some of which will be best addressed tomorrow

Conclude around 4.15 pm

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 6

Matters Impacting on the Harvest

• Forest Specific Matters
• Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 7

Matters Impacting on the Harvest

• Forest specific matters start with a

Harvest Plan

• The plan is the infrastructure (roads

and landings) currently identified as necessary to most cost-effectively harvest the two forests

• The plan ignores forest boundaries
• The plan ignores age classes
• The plan has harvesting underway or

planned in both forests this financial year

Forest Specific Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 8

Matters Impacting on the Harvest

• The plan confirms that we should be

able to cost-effectively harvest all of each forest

• The plan is dynamic and will change in

response to conditions on the ground and issues arising during harvest Forest Specific Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 9

• The plan involves building a significant amount of infrastructure
• The plan is to build the infrastructure within the forest

(invest in own forest not neighbours)

Matters Impacting on the Harvest

Forest Specific Matters

Forest Hokoroa Hokoroa North Total

Harvest Road Distance (km) 14 17 31 Metal (m3) 22565 26728 49292 Metal (loads) 1880 2227 4108 Metal Truck Movements 3761 4455 8215 Roading Density (m/ha) 35 39 37 # Total Planned Landings 48 57 105

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 10

Matters Impacting on the Harvest

• The Harvest Plan identifies options and challenges
• Options are good!
• Challenges have to be addressed
• Some of the challenges and options

identified are numbered

Forest Specific Matters

1 2 3 4 5 6

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 11

Matters Impacting on the Harvest

• The Harvest Plan identifies options and challenges

(continued)

• 7. Cross boundary harvest

Forest Specific Matters

7

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 12

Matters Impacting on the Harvest

• Having reflected on the Forest Specific Matters impacting on

harvest we must then consider the constraints posed by the Gisborne Operating Environment –

• 1. Regional issues impacting on harvesting
• 2. Forest Enterprises’ responsibility to all the

Gisborne forests we manage

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 13

Matters Impacting on the Harvest

• Forests were part of the 1990s planting boom
• Key advantage for Hokoroa and Hokoroa North Forests is that these forests

are two of our older forests in the Gisborne area (so opportunity to get ahead) Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 14

Matters Impacting on the Harvest

• 1990s boom plantings have to be harvested and sold –

and not just Forest Enterprises Investors’ trees!

• Where is the increased volume to go?
• 1. Local Mills – very little opportunity
• Wairoa – small quantities
• Juken New Zealand seldom buy wood in
• 2. The extra volume will therefore be exported

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 15

Matters Impacting on the Harvest

• Forest Enterprises is becoming a major customer of our

Gisborne export partner PFP Ltd -

• PFP is one of the two largest log export companies in New

Zealand

• Partnership arrangement with the other major log export company

(TPT Forests Ltd) for Wellington export

• Open book agency at fixed fee

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 16

Matters Impacting on the Harvest

• Where are the potential bottlenecks in the logistics chain if all this wood is to be

harvested and sold?

• Logging contractors
• Log Truck contractors
• Roading contractors

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 17

Matters Impacting on the Harvest

• Where are the potential bottlenecks in the logistics chain if all this wood is to be

harvested and sold (continued)?

• River Catchment Areas – each colour

represents a different river catchment area for planning purposes

• Quotas are being introduced for harvesting

in many Gisborne river catchments

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 18

Matters Impacting on the Harvest

• BUT, the greatest bottleneck is the Eastland Port
• Currently, Eastland Port (Gisborne Port) is handling approximately 2.5 million tonnes of

logs annually

• Eastland Port may soon be the second largest log export

port in New Zealand

• Forest Enterprises is currently exporting from Eastland

Port at an annual rate of 180,000 tonnes

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 19

Matters Impacting on the Harvest

• Capacity of Eastland Port is constrained -
• Currently limited to loading one log ship at a time
• Limited on site storage - offsite storage is already having to

be used (Dunstan Road)

• Port’s objective is to be able to load two ships

concurrently, and supply the wood from both on-site and

• ff-site storage
• The resource consent application has been lodged
• Forest Enterprises is working closely with Eastland Port
• Providing projected annual woodflows for the next 12 years

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 20

Matters Impacting on the Harvest

• Forest Enterprises Projected Port Volume assuming

expansion -

• Current projection is that Forest Enterprises will be able to

secure up to 700,000 tonnes per annum of the increased port capacity

• 700,000 tonnes per annum is similar to the present capacity
• f the largest users of the port
• Forest Enterprises will be a major customer of Eastland Port

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 21

Matters Impacting on the Harvest

• Impact of Port Capacity on Forest Enterprises total harvest

Gisborne Operating Environment Matters

700,000 tonnes

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 22

Matters Impacting on the Harvest

• PLUS, Forest Enterprises cannot plan for the harvest of

individual forests without consideration of all the forests we manage in the Gisborne Region

• A solution for the Hokoroa and Hokoroa North Forests

cannot unreasonably comprise the solution for the other forests we manage

Gisborne Operating Environment Matters

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 23

Forest Enterprises Gisborne Forests Solution

• The solution we come up with must -
• Maximise the investment return for each forest
• Minimise the risks for each forest
• Provide options to address the forest specific

matters in each forest (addressed earlier) AND

• Is also logical for the second rotation
• There will be a second rotation with or without

some or all of the existing Investors

(to be discussed later)

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 24

Forest Enterprises Gisborne Forests Solution

• Our current solution -

700,000 tonnes Year End December 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total Tonnes 181,623 281,623 531,623 700,000 700,000 700,000 700,000 700,000 700,000 700,000 700,000 611,513 361,513 111,513 Forest Group 1 81,623 100,000 100,000 100,000 100,000 67,356 100,000 Forest Group 2 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 3 100,000 200,000 300,000 100,000 100,000 100,000 170,151 217,959 164,643 111,047 100,000 2,506 Forest Group 4 81,623 8,108 108,108 8,108 100,000 88,953 188,953 88,953 100,000 Forest Group 5 50,000 100,000 150,000 200,000 200,000 146,403 46,403 Forest Group 6 91,892

• 40,013

18,468 78,982 178,982 200,000 200,000 191,088 173,371 73,371 Forest Group 7 41,892 6,657 56,657 106,657 156,657 200,000 200,000 131,472 31,472 Forest Group 8 100,000 183,656 83,656 100,000 54,164 38,142

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 25

Forest Enterprises Gisborne Forests Solution

• Key elements of our solution –
• A logical reduction in the number of individual forests from 28 to 8
• Spread of harvest over a longer period of time

(early start and later finish)

BUT MOST IMPORTANTLY

• The solution is achievable !

(based upon the underlying assumptions)

700,000 tonnes

Year End December 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total Tonnes 181,623 281,623 531,623 700,000 700,000 700,000 700,000 700,000 700,000 700,000 700,000 611,513 361,513 111,513 Forest Group 1 81,623 100,000 100,000 100,000 100,000 67,356 100,000 Forest Group 2 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 3 100,000 200,000 300,000 100,000 100,000 100,000 170,151 217,959 164,643 111,047 100,000 2,506 Forest Group 4 81,623 8,108 108,108 8,108 100,000 88,953 188,953 88,953 100,000 Forest Group 5 50,000 100,000 150,000 200,000 200,000 146,403 46,403 Forest Group 6 91,892

• 40,013

18,468 78,982 178,982 200,000 200,000 191,088 173,371 73,371 Forest Group 7 41,892 6,657 56,657 106,657 156,657 200,000 200,000 131,472 31,472 Forest Group 8 100,000 183,656 83,656 100,000 54,164 38,142

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 26

Forest Enterprises Gisborne Forests Solution

Hokoroa and Hokoroa North status in this solution

Year End December 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total Tonnes 181,623 281,623 531,623 700,000 700,000 700,000 700,000 700,000 700,000 700,000 700,000 611,513 361,513 111,513 Hokoroa Hokoroa North 81,623 100,000 100,000 100,000 100,000 67,356 100,000 Forest Group 2 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 3 100,000 200,000 300,000 100,000 100,000 100,000 170,151 217,959 164,643 111,047 100,000 2,506 Forest Group 4 81,623 8,108 108,108 8,108 100,000 88,953 188,953 88,953 100,000 Forest Group 5 50,000 100,000 150,000 200,000 200,000 146,403 46,403 Forest Group 6 91,892

• 40,013

18,468 78,982 178,982 200,000 200,000 191,088 173,371 73,371 Forest Group 7 41,892 6,657 56,657 106,657 156,657 200,000 200,000 131,472 31,472 Forest Group 8 100,000 183,656 83,656 100,000 54,164 38,142

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 27

• Forests are adjoining

(originally part of the same farm)

• The Investments are only separate

because of legal constraints at the time

• Combined harvest program of 830

hectares (great scale for economies and risk

mitigation)

• Forests have the same age classes

(1993 and 1994)

Hokoroa and Hokoroa North Combined Harvest

Why does this Solution Make Sense?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 28

• Harvesting as one program solves the

early and late harvest issue -

• Becomes irrelevant where the early and late harvest
• ccurs between the two forests
• BECAUSE the total harvest still aiming to achieve an

average harvest age for the total program of 27 years

• The younger trees will have less volume and value,

BUT the older trees will have more volume and value

Why does this Solution Make Sense?

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 29

• Harvesting as one program provides -
• More opportunity to address the options and

challenges discussed earlier

(in addition to the quality of the public road access)

• Solves the cross harvest boundary issue
• Creates a forest which is logical for the second

rotation

Why does this Solution Make Sense?

Hokoroa and Hokoroa North Combined Harvest

1 2 3 4 5 6

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 30

• Combined forest will harvest continuously for a further 7 years, finishing in 2024
• Positive outcomes -
• 8 years in the market should deliver the long run

average log price

• Early distributions
• Harvest still completed by 2024

(2 years after 1994 crop is age 28)

• Projected average crop age at harvest still 27.5 years

Consequential Impact on Duration of Harvest

Hokoroa and Hokoroa North Combined Harvest

Year End December 2018 2019 2020 2021 2022 2023 2024 Hokoroa Hokoroa North 81,623 100,000 100,000 100,000 100,000 67,356 100,000

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 31

QUESTIONS

On proposed Hokoroa and Hokoroa North Combined Harvest

Before break for afternoon tea at 2.30pm

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 32

Combined Harvest Details

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 33

• Proposal is NOT to amalgamate for harvest -
• To do so would create harsh and unacceptable tax

consequences

• Proposal is to establish a Joint Venture with
• Agreed share of the total harvest revenue passing

from the Joint Venture to each of the two existing forests

• Existing forests continue to operate as stand-alone

investments

• Looking for an allocation measure

Combined Harvest Details

$

$ $

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 34

• ‘But MY forest is more valuable than YOURS’
• Yes, the money does matter!
• But we do not want a great argument, nor to

have to employ a bus load of consultants!

Combined Harvest Details

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 35

• There is a common sense allocation measure solution

without need for argument, nor consultants

• This is to allocate according to the Forest Crop Value

methodology in the Annual Report Common Sense Solution to Allocation of Harvest Shares

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 36

Common Sense Solution to Allocation of Harvest Shares

• The Forest Crop Value -
• Accommodates differences in -
• Net stocked area
• Age classes
• Forest crop qualities
• Specific infrastructure for each forest area
• Harvest costs
• Assumes theoretical harvest at age 28
• The harvest of each forest in the theoretical perfect

scenario

Hokoroa and Hokoroa North Combined Harvest

Forest Hokoroa Hokoroa North Total

Title Area (ha) 495 595 1090 1981 Crop (ha) 3 3 1993 Crop (ha) 197 246 443 1994 Crop (ha) 206 178 384 Total Crop (ha) 406 424 830 Yield (t/ha) 765 757 Total Tonnes 310414 320786 631200 Harvest Road Distance (km) 14 17 31 Metal (m3) 22565 26728 49292 Metal (loads) 1880 2227 4108 Metal Truck Movements 3761 4455 8215 Roading Density (m/ha) 35 39 37 # Total Planned Landings 48 57 105 NSA per Landing 8 7 Logs (t) 310414 320786 631200 Logs (loads) 10892 11256 22147 Log Truck Movements 21783 22511 44295 % Hauler 78 74 % G/Based 22 26

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 37

• AND the Forest Crop Value –
• Complies with accounting standards
• Complies with NZIF standards
• Is audited
• The Forest Crop Value is an existing and reliable

figure Common Sense Solution to Allocation of Harvest Shares

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 38

• Indicative calculation using last reported figures –
• NOTE –
• These figures are indicative only
• We will carefully review the data assumptions and refresh all the

inputs

• The indicative percentages seem reasonable given the forest

differences (NSA, Projected Yield, Crop Age, Cost of Infrastructure) Common Sense Solution to Allocation of Harvest Shares

Hokoroa and Hokoroa North Combined Harvest

Forest Balance Date Forest Crop Value in Annual Report Percentage of Total Hokoroa 31/12/2016 $6,183,274 49% Hokoroa North 31/12/2016 $6,447,911 51%

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 39

QUESTIONS

On Combined Harvest Details and Allocation of Harvest Shares Combined Harvest Details

Hokoroa and Hokoroa North Combined Harvest

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 40

• @
• As noted earlier –
• There will be a second rotation
• The ideal forest for the second rotation was a factor in determining the

grouping of all the Gisborne Forests for harvest

Second Rotation and Exit Options

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 41

• The Hokoroa and Hokoroa North grouping is ideal for a

second rotation forest because -

• It is contiguous
• Planned to be harvested as one (the Joint Venture),

therefore will be replanted logically for the next rotation, plus harvest challenges addressed

• Excellent size (around 830 net stocked hectares)
• Forest Enterprises’ calculations for the second rotation

identify that the most profitable investment needs to be 600+ hectares

Second Rotation and Exit Options

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 42

• A Radiata pine forest is the most economic use of the

land, especially given the substantial investment in roading and related infrastructure during harvest

Second Rotation and Exit Options

Will the second rotation be Radiata pine?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 43

• The second rotation forest will be planted progressively during

harvest because –

• Harvesting is a controlled activity under the Gisborne Regional

Plan and a standard condition is an obligation to replant

• The forests contain areas of Pre-1990 Forest

under the Emissions Trading (total of 41 hectares). if not replanted, Pre-1990 Forests are deemed deforested requiring surrender of NZUs which would currently cost $14,250 per hectare

• Areas harvested by Christmas will typically be replanted the

following winter

Second Rotation and Exit Options

When will replanting for the second rotation occur?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 44

• Replanting as soon as possible maximises the future value of the

second rotation. This is important regardless of whether –

• You (or your family) are planning to continue for a

second rotation

• You (or your family) are planning to cash up and

exit at the conclusion of harvest

• Replanting has a consequential impact on distributions as some
• f the harvest cash (approximately $1,750 per hectare) will be

used to fund the replant (distributions are discussed later)

Second Rotation and Exit Options

When will replanting occur?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 45

• Logical time is in conjunction with Joint Venture -
• Because Joint Venture harvest program will have an impact on the

value of the component second rotation forests

• Oldest trees likely to have highest value
• Investors can plan the future of the second rotation shares -
• If planning to continue for the second rotation, shares can be held in the

name of the next generation of investors

• If planning to sell some or all of the shares, this can occur at the earliest
• pportunity
• Also means the second rotation trees will be owned by the correct

investment (and any negative tax consequences avoided)

Second Rotation and Exit Options

When is the optimum time to set up the second rotation investment?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 46

• You signed up for 1 investment rotation, therefore you must be

able to exit around the conclusion of harvest

• Forest Enterprises’ responsibility is to meet the expectations
• f all Investors, including those who want to retain the value

invested by the first rotation for future generations

Second Rotation and Exit Options

Investors are not trapped in the second rotation investment!

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 47

• Forest Enterprises is planning to find replacement

Investors to buy the shares from those who wish to exit

• Our increased marketing activity is commencing in 2018
• We need product to sell
• Further details later

Second Rotation and Exit Options

Investors are not trapped in the second rotation investment!

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 48

• If Forest Enterprises does not find replacement Investors
• Plan B would be the sale of the second rotations land and

replanted trees

• The same factors which make the replanted forest an attractive

investment, make it attractive to parties wishing to buy the underlying land and trees

Second Rotation and Exit Options

Investors are not trapped in the second rotation investment!

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 49

1. Each investment grants itself a Forestry Right

• Forestry Right is over the mature trees being harvested under the

Joint Venture which remain the property of each existing investment

(subject to the Joint Venture)

2. Each investment sells its land (subject to the Forestry Right) to the second rotation investment 3. Consideration for the land is shares in the second rotation investment

• No money changes hands

Second Rotation and Exit Options

Mechanics of setting up the second rotation investment

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 50

4. The second rotation shares received by each Investment for the sale of the land -

• Are then allocated to each Hokoroa and Hokoroa North

Investor (or whomever they nominate)

• Could be family members or trust
• Allocation is in proportion to present shareholding

Second Rotation and Exit Options

Mechanics of setting up the second rotation investment

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 51

Investors will therefore -

• Continue to hold their shares in the Hokoroa and Hokoroa

North Investments

• Which will receive distributions arising from the Joint Venture

harvest program

• Also hold shares in the Second Rotation Investment
• Which could be held by family members or trust
• Which will be sold if exiting (details shortly)

Second Rotation and Exit Options

Mechanics of setting up the second rotation investment

+

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 52

How many shares each in the second rotation?

• Our recommendation is
• To use the same allocation methodology used for determining the

shares in the Joint Venture - the respective Forest Crop Values

• This calculation reflects each forest’s relative productive capacity

as a standalone commercial forest, therefore the value each is putting into the second rotation investment

• The value gain from scale etc of the enlarged investment is -
• Additional
• Of benefit to all
• Will fall relative to the proportions of the starting value contributed

Second Rotation and Exit Options

Mechanics for setting up the second rotation investment

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 53

• How much will it cost to set up the second rotation

investment?

• Forest Enterprises will cap the set up cost at the

Real Estate commission cost were the property sold

• Ongoing costs?
• Replanting costs (main cost), which will arise regardless
• Minimal other investment related costs

(total management fees remain the same, but shift as harvest progresses from existing investments to second rotation investment)

Second Rotation and Exit Options

Costs and other matters relating to the second rotation investment

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 54

• Tax outcome
• Harvest income and replanting etc costs still come together for

your tax purposes

• What is the sunk cost related to second rotation investment?
• Establishment cost and the minimal other second rotation

investment related costs

(expectation is that the value of the second rotation investment is worth more than the sum of the separate parts)

Second Rotation and Exit Options

Costs and other matters relating to the second rotation investment

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 55

• At the conclusion of harvest the Hokoroa and

Hokoroa North investments will conclude

• If you are planning to exit (i.e. not continue for the second

rotation), you will plan to sell some or all of your shares in

the second rotation investment

• Sale of these shares releases the cash for -
• Your share of the value of the land
• Your share of the investment made in the second rotation crop

(planted as harvest has occurred)

Second Rotation and Exit Options

Exit Option is to Sell the Second Rotation Shares

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 56

• When will you sell?
• Technically you can sell at anytime however -
• Greatest value will be when the profile of the second rotation crop is

known, which will be near the end of harvest

• Forest Enterprises expects to make a fair offer
• Expect to make offer about 12 months before conclusion of

harvest

• Do not have to sell to Forest Enterprises
• Investors wishing to purchase more shares will have

first refusal at Forest Enterprises’ buy price

• Can sell some of your shares and keep the balance

Second Rotation and Exit Options

Exit Option is to Sell the Second Rotation Shares

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 57

QUESTIONS

On Second Rotation and Exit Options

Second Rotation and Exit Options

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 58

• Decision-making first half of 2018
• Formal decisions by each investment (special resolutions)
• Much work still to be done
• Undergoing similar processes for many other investments we

manage

• Each investment group has some unique characteristics

Process from here?

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 59

• Reporting will commence this month for Hokoroa North
• Copy of the Ormond report is included in the kit of information kit for tomorrow as

an example of the content

• Currently this reporting is monthly (frequency is under review)

Harvest Reporting and Distributions

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 60

• Distributions
• Your money
• Credited to nominated bank account (no cheques)
• Probably moving to standard quarterly distribution dates
• Limited surpluses at the beginning of harvest
• Forward investment in roading
• Funding required for replant
• Approximately $1,750 per hectare
• Billed by Second Rotation Investment
• Distributions are not in two or three lumps, so you must

manage the total yourself

Harvest Reporting and Distributions

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 61

Financial Status of Investments

• Net Calls Paid
• Forest Enterprises has got you to harvest in pretty good financial

shape in respect of amount invested

Investment Prospectus Call Projection Actual Calls Difference Hokoroa $11,969 $13,417 $1,448 Hokoroa North $12,588 $14,178 $1,590 Net Calls @ 33 cents

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 62

Financial Status of Investments

• Projected Financial Return

Forest Balance Date Prospectus Gross Return Projected Gross Return Hokoroa 31/12/2016 $147,552 $91,378 Hokoroa North 31/12/2016 $158,027 $94,303

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 63

Financial Status of Investments

Projected Financial Return (Hokoroa)

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 64

Financial Status of Investments

• Projected Financial Return
• Projecting a solid return for a 30 year investment

Forest Balance Date Prospectus Gross Return Projected Gross Return Actual Investment Hokoroa 31/12/2016 $147,552 $91,378 $13,417 Hokoroa North 31/12/2016 $158,027 $94,303 $14,178

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 65

Any Other Matters

• Partner Preparation for Harvest (tax management)
• Benefits from Second Rotation Scale & Group
• Potential Material Impact of Carbon on the Second Rotation
• Value of Harvest Roads to Second Rotation
• Exchange Rate Management

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 66

Arrangements for Tomorrow

• Please arrive and be registered no later than 8.15am
• Last bus will depart at 8.30am
• Expect to be back for lunch at 1.15 - 1.30pm
• Unlike previous visits we will have a port-a-loo

available for emergency use

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 67

Thank You, see you all tomorrow!

Hokoroa and Hokoroa North Combined Meeting 3 December 2017 Slide 68

It would be helpful to your fellow Investors not present today to gain an indication of your support or not in principle for the two key matters which will require formal decisions next year - 1. The proposed Joint Venture (of Hokoroa and Hokoroa North) for harvest 2. The establishment of a joint forest (of Hokoroa and Hokoroa North) for the second rotation

Straw Poll