Ormond & Te Karaka Forests Combined Meeting, 2 December 2017 - - PowerPoint PPT Presentation

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 1

Ormond & Te Karaka Forests

Combined Meeting, 2 December 2017

Version 2

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 2

Good Morning and Introductions

Forest Enterprises Team Mark Blackburn (formerly Iles and Campbell, Taupo)

Ormond and Te Karaka Forests Combined Meeting 2 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 4

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)

Morning Tea (around 10.30am)

• Session 2
• Combined Harvest Details
• Second Rotation and Exit Options
• Process from Here
• Harvest Reporting and Distributions
• Financial Status of the Investment
• Any Other Matters

Light Lunch (around noon)

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 5

Matters Impacting on the Harvest

• Forest Specific Matters
• Gisborne Operating Environment Matters

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 6

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 three forests

• The plan ignores forest boundaries
• The plan ignores age classes

Forest Specific Matters

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 7

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 8

• 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

Measure Ormond Te Karaka Te Karaka North Total

Harvest Road Distance (km) 15 15 16 46 Metal (m3) 23,241 24,726 25,999 73,966 Metal (loads) 1,937 2,060 2,167 6,164 Metal Truck Movements 3,874 4,121 4,333 12,328 # Total Planned Landings 46 45 53 144

Forests

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 9

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 10

Matters Impacting on the Harvest

• The greatest forest-specific

challenge for the three forests is the quality (poor) of their public road access

• HOWEVER, the fact that the three

forests connect, plus their compatibility from an age class perspective, is a major opportunity Forest Specific Matters

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 11

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 12

Matters Impacting on the Harvest

• Forests were part of the 1990s planting boom
• Key advantage for Ormond and the Te Karaka Forests is that these forests

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 13

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 14

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 15

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

Ormond and Te Karaka Forests Combined Meeting 2 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 (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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 17

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 18

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 19

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 20

Matters Impacting on the Harvest

• Impact of Port Capacity on Forest Enterprises total harvest

Gisborne Operating Environment Matters

700,000 tonnes

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 21

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 Ormond, Te Karaka

and Te Karaka North Forests cannot unreasonably comprise the solution for the other forests we manage

Gisborne Operating Environment Matters

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 22

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)

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 23

Forest Enterprises Gisborne Forests Solution

• Our current 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 Forest Group 1 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 2 81,623 100,000 100,000 100,000 100,000 67,356 100,000 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 38,142 700,000 tonnes

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 24

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)

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 1 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 2 81,623 100,000 100,000 100,000 100,000 67,356 100,000 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

700,000 tonnes

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 25

Ormond, Te Karaka and Te Karaka North

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 Ormond Te Karakas 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211 Forest Group 2 81,623 100,000 100,000 100,000 100,000 67,356 100,000 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

Ormond, Te Karaka and Te Karaka Norths status in this solution

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 26

• Forests are adjoining
• Two public roads for access
• The Te Karakas are only separate

investments because of legal constraints at the time

• Combined harvest program of 1,242

hectares (great scale for economies and risk

mitigation)

• Forests have a complimentary spread of

age classes (1993, 1994, 1995)

• All three have 1994
• Ormond has 1993
• Te Karakas have 1995

Ormond, Te Karaka and Te Karaka North Combined Harvest

Why does this Solution Make Sense?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 27

• Harvesting as one program solves the

early and late harvest issue -

• Becomes irrelevant where the early and late

harvest occurs between the three forests

• BECAUSE the total harvest

still aiming to achieve an average harvest age for the total program

• f 27 years
• The younger trees will have less volume and

value, BUT the older trees will have more volume and value

Ormond, Te Karaka and Te Karaka North Combined Harvest

Why does this Solution Make Sense?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 28

• 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)

• Creates a forest which is logical

for the second rotation

Ormond, Te Karaka and Te Karaka North Combined Harvest

Why does this Solution Make Sense?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 29

• Combined forest will harvest continuously for a further 8 years, finishing in 2025
• Positive outcomes -
• 8 years in the market should deliver the long run

average log price

• Early distributions
• Harvest still completed by 2025

(2 years after 1995 crop is age 28)

• Projected average crop age at harvest still 27 years

Ormond, Te Karaka and Te Karaka North Combined Harvest

Year End December 2018 2019 2020 2021 2022 2023 2024 2025 Ormond Te Karakas 100,000 81,623 150,000 150,000 150,000 144,211 94,211 44,211

Consequential Impact on Duration of Harvest

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 30

QUESTIONS

On proposed Ormond, Te Karaka and Te Karaka North Combined Harvest

Before break for morning tea at 10.30 am

Ormond, Te Karaka and Te Karaka North Combined Harvest

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 31

Combined Harvest Details

Ormond, Te Karaka and Te Karaka North Combined Harvest

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 32

• 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 three existing forests

• Existing forests continue to operate as stand-alone

investments

• Looking for an allocation measure

Combined Harvest Details

Ormond, Te Karaka and Te Karaka North Combined Harvest

$

$ $ $

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 33

• ‘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

Ormond, Te Karaka and Te Karaka North Combined Harvest

$

$ $ $

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 34

• 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

Ormond, Te Karaka and Te Karaka North Combined Harvest

Common Sense Solution to Allocation of Harvest Shares

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 35

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

Ormond, Te Karaka and Te Karaka North Combined Harvest

Measure Ormond Te Karaka Te Karaka North Total

Title Area (ha) 463 485 420 1,368 1993 crop (ha) 194 194 1994 crop (ha) 223 170 166 559 1995 crop (ha) 265 225 489 Total Crop(ha) 417 435 390 1,242 Yield (tonnes/ha) 733 764 769 Total Tonnes 305,844 332,325 300,033 938,202 Harvest Road Distance (km) 15 15 16 46 Metal (m3) 23,241 24,726 25,999 73,966 Metal (loads) 1,937 2,060 2,167 6,164 Metal Truck Movements 3,874 4,121 4,333 12,328 Roading Metres per NSA 35 36 42 37 # Total Planned Landings 46 45 53 144 NSA per Landing 9 10 7 Logs (t) 305,844 332,325 300,033 938,202 Logs (loads) 10,731 11,661 10,527 32,919 Log Truck Movements 21,463 23,321 21,055 65,839 % Hauler 80 66 78 % G/Based 20 34 22

Forests

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 36

• 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

Ormond, Te Karaka and Te Karaka North Combined Harvest

Common Sense Solution to Allocation of Harvest Shares

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 37

• 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)

Ormond, Te Karaka and Te Karaka North Combined Harvest

Common Sense Solution to Allocation of Harvest Shares

Forest Balance Date Forest Crop Value in Annual Report Percentage of Total Ormond 31/12/2016 $8,276,597 34% Te Karaka 31/12/2016 $8,880,803 36% Te Karaka North 31/12/2016 $7,534,580 31%

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 38

QUESTIONS

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

Ormond, Te Karaka and Te Karaka North Combined Harvest

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 39

• 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 40

• The Ormond, Te Karaka and Te Karaka 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 1,242 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 41

• 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?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 42

• 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 64 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?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 43

• 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?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 44

• 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?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 45

• 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!

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 46

• 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!

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 47

• 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!

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 48

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 49

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

• Are then allocated to each Ormond, Te Karaka and Te Karaka

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 50

Investors will therefore -

• Continue to hold their shares in the Ormond, Te Karaka and

Te Karaka 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

+

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 51

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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 52

• 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 53

• 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 54

• At the conclusion of harvest the Ormond, Te Karaka and

Te Karaka 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 55

• 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

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 56

QUESTIONS

On Second Rotation and Exit Options

Second Rotation and Exit Options

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 57

• 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?

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 58

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 Ormond, Te Karaka and Te Karaka North) for harvest 2. The establishment of a joint forest (of Ormond, Te Karaka and Te Karaka

North) for the second rotation

Straw Poll

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 59

• Some reporting has already occurred for Ormond
• Copy of the Ormond report was included in the kit of information distributed
• Currently this reporting is monthly (frequency is under review)

Harvest Reporting and Distributions

Ormond and Te Karaka Forests Combined Meeting 2 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

Ormond and Te Karaka Forests Combined Meeting 2 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 Ormond $12,406 $15,161

• $2,755

Te Karaka $18,625 $17,705

• $920

Te Karaka North $16,118 $15,746

• $372

Net Calls @ 33 cents

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 62

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 Net Investment Ormond 31/12/2016 $129,720 $119,840 $15,161 Te Karaka 31/12/2016 $290,255 $144,158 $17,705 Te Karaka North 31/12/2016 $246,367 $121,865 $15,746

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 63

Any Other Matters and Final Questions

Ormond and Te Karaka Forests Combined Meeting 2 December 2017 Slide 64

Thank you!

Wishing a safe return home to the many of you from out of town