KPMG's Timberland Investor Sentiment Survey - A prosperous outlook with the global recovery - assets.kpmg
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
KPMG’s Timberland Investor Sentiment Survey A prosperous outlook with the global recovery Fall 2016 kpmg.com
Contents Executive summary 1 Demographics 3 Investment assumptions 5 Investor sentiment 13 International interests 17 KPMG’s Forest Products practice 19
Executive summary Investment in timberlands has been an attractive alternative investment strategy over the past several years, with investors continuing to act as net buyers of timberland assets despite ongoing volatility in global economies. With U.S. housing starts approaching all time highs and forecasts expecting U.S. housing starts to exceed record levels, demand for timber continues to be robust. Annual housing starts are expected to reach 1.5 million in 2019, which is higher than the pre- recession level of 1.3 million in 2007. Other growth will be driven by demand from China, who is set to phase out commercial logging of natural forests by 2017, which will lead to an increase in demand in exports to China as it is expected that 40 percent of China’s timber demand will have to be filled by timber imports by 2020. We still observe a rising number of institutional investors, hedge funds, and private equity funds increasing allocations to timber investments throughout the United States and the rest of the world. Our experience working with investors and managers confirms the attraction to stable cash flows, current yields and inflation hedging characteristics. An increasing number of market investors has led to significant investment in the industry and a rise in sophistication on the part of investors. KPMG’s Timberland Investor Sentiment Survey provides insight into investor profiles, attitudes and certain underwriting criteria, as well as forward looking sentiment on timberlands as a distinct investment class. The KPMG survey KPMG LLP’s (KPMG) Forest Products practice conducted a survey of a broad array of entities that invest in timberland assets throughout North America. Overall observations include: —— Discount rates have shifted downward, on average, compared to 2015 KPMG survey results. —— While respondents continue to be net buyers of timberland, significant investment outside North America continues to follow a downward trend. —— The majority of survey participants expect log pricing to remain the same or increase slightly in the next 5 years, as prices have started to trend to pre-recession levels. —— The majority of respondents noted they utilize no real growth rate over the term of their investment for harvesting costs as inflation stagnates for the United States. Survey objectives The survey’s objectives are to accumulate and evaluate feedback from a variety of market participants regarding key investment underwriting assumptions and forward-looking investment sentiment relative to timberland investments over the next 12 months. Methodology KPMG conducted a Web-based survey during July 2016. The survey was distributed to timberland executives. Survey results are distributed in this annual publication on a blind basis to ensure confidentiality for survey participants.
KPMG’s Timberland Investor Sentiment Survey 2
Demographics
1 Please describe your firm’s structure.
9%
Timberland/ Appraisal/ Consulting Organization
9%
Integrated Forest Products Company
39%
Timberland Investment Fund Manager
Real Estate Investment Trust
22% Timberland Lender
22%
May not equal 100% due to rounding
2 Please describe your role.
13% Timberland Valuations Professional
33% Chief Executive Officer
Asset Management
Chief Financial Officer/Controller
25%
Chief Investment Officer
29%
May not equal 100% due to rounding
Where in North America are your Timberland Investments
3 located? (Select all that apply)
100
80
60 54%
46%
38%
40 33% 33%
25%
21% 17%
20 13%
0
Coastal Northwest and Alaska Midwest Not Applicable
Southeastern United States California
Northeastern United States Canada
Interior West Southwestern United States
Multiple Responses Allowed
KPMG’s Timberland Investor Sentiment Survey 4Investment assumptions
What real discount rate do you use when evaluating new
4 acquisitions of timberland assets?
100
Discount rates on average continue
75% to shift downward
80
60
40
20
13%
8%
4%
0% 0% 0%
0
3% to 4% to 5% to 6% to 7% to 8% to 10% or
less less less less less less more
than 4% than 5% than 6% than 7% than 8% than 10%
May not equal 100% due to rounding
Over the next 2 - 3 years do you expect the real
5 discount rate to increase, decrease or stay the same?
13% The vast majority of this year’s
Increase respondents expect real discount
Decrease rates to remain relatively flat over
17% Stay the same the next few years. However,
some respondents are expecting
discount rates to further decrease
71%
compared to results from the 2015
KPMG Survey.
May not equal 100% due to rounding(Among those who expect the real discount rate to change over the
5a&b next 2-3 years) By how much do you expect it to change:
100% 100%
100
80
60
40
20
0
Increase Decrease
0% to less than 2% 6% to less than 8%
2% to less than 4% 8% to less than 10%
4% to less than 6% 10% or more
What is the typical investment term you utilize The majority of respondents
6 in your analysis? continue to utilize an investment
term between 0 to 20 years, followed
100 by an increase in the number of
respondents utilizing an investment
80 term of more than 50 years.
The respondents are generally
60
utilizing the same investment term
compared to the 2015 KPMG Survey
38% results for the other investment
40
terms. However, the shift to using
17% 21% 0 to 20 years or greater than
20 13% 50 years likely represents the effort
8%
4% to model another full economic
0 cycle as the timber industry reaches
2016 & 11 – 20 21 – 30 31 – 40 41 – 50 More than
0-10 years years years years years 50 years pre-recession levels.
May not equal 100% due to rounding
KPMG’s Timberland Investor Sentiment Survey 6What growth rate for timber harvest costs (on a real basis) do
7 you assume per annum over the term of your investments?
100
The majority of respondents noted
they utilize no real growth rate
80 over the term of their investment,
which is close to the current rate of
60
50%
inflation of 1.0 percent.
40 33%
20 13%
4%
0% 0% 0%
0
0% Greater 2% to 4% to 6% to 8% to 10% or
than 0% less less less less more
to less than 4% than 6% than 8% than 10%
than 2%
May not equal 100% due to rounding
What growth rate for operation and management costs (on a real
8 basis) do you assume per annum over the term of your investments?
100
80
60 54%
40
29%
17%
20
0% 0% 0% 0%
0
0% Greater 2% to 4% to 6% to 8% to 10% or
than 0% less less less less more
to less than 4% than 6% than 8% than 10%
than 2%
May not equal 100% due to roundingWhat growth rate do you assume for log prices (on a real basis)
9 per annum over the term of your investments?
100
The majority of respondents
80 indicated they assume a real growth
71%
rate greater than 0 percent to 2
percent over the investment term.
60
40
17%
20
8%
4%
0% 0% 0%
0
0% Greater 2% to 4% to 6% to 8% to 10% or
than 0% less less less less more
to less than 4% than 6% than 8% than 10%
than 2%
May not equal 100% due to rounding
Over the next 5 years do you expect log prices (on a real basis) to
10 increase, decrease or stay the same?
0%
The increase in the log price growth
rate can be attributed to the increase
17% Increase in housing starts. US housing starts
Decrease in 2016 are expected to continue
Stay the same increasing over the next five years
to 2021 indicating a strong current
demand in the future for log prices.
83%
May not equal 100% due to rounding
KPMG’s Timberland Investor Sentiment Survey 8(Among those who expect the log prices (on a real basis) to change
10a&b over the next 5) years By how much do you expect log prices to:
40
30%
20%
20 15% 15% 15%
5%
0
Increase Decrease
Greater than 0% to less than 2% 6% to less than 8%
2% to less than 4% 8% to less than 10%
4% to less than 6% 10% or more
Do you expect market export volume to increase
11 or decrease in the next 3-5 years?*
Increase
Decrease
35%
Stay the same
57%
9%
Does not equal 100% due to roundingDo you expect an increase or decrease in the number of
12 domestic sawmills in operating circles over the next 3-5 years?*
Increase
25%
Decrease
Stay the same
71% 4%
How long do you assume it takes to market
13 and sell your timberland investments?
100
A growing number of respondents
80
79% expect marketing to take less than
one year compared to the 2015
KPMG Survey.
60
40
17%
20
4%
0% 0% 0%
0
Less than 1 year 2 years 3 years 4 years 5 years
1 year or more
KPMG’s Timberland Investor Sentiment Survey 10What is the most significant variable to your risk profile? For each, please rate on
14 a 1 to 10 scale, where 1 is not significant, 5 is significant and 10 is very significant.
100 96%
Government
involvement
79%
80 75% continues to be the
67% most significant
63% 63% 63%
factor to respondents’
60 risk profiles while
50%
changes in forestry
40
practices replace
29% 29%
33% changes in land use
22% 21%
as the second most
21% 21%
20 17% 17% significant factor
8% 8%
11% when compared
4% 4%
0% 0%
to the 2015 KPMG
0 Survey. Increasing
1–4 5–7 8–10
spread of disease and
Government involvement in the industry Changes in Land Use invasive pests, and
Changes in Forestry Practices (i.e. HBU, conservation easement, global warming are
alternative land use)
Changes in Product Types (i.e. plywood vs. OSB) the least significant
Increasing spread of disease and
Changes in Sawmill Technology invasive pests (i.e. Pine Beetle)
factors.
Global Warming (fire, floods, drought)
Other
May not equal 100% due to roundingKPMG’s Timberland Investor Sentiment Survey 12
Investor sentiment
15 What is your current portfolio species mix?
2% The portfolio species mix is
5% 2% similar to the ideal mix with
12%
Douglas Fir the exception that respondents
Pine prefer Pine and Hemlock and
Other Hardwoods
more Douglas Fir and Cedar.
47% Hemlock
16% Other Conifer
Cedar
Red Alder
16%
Data is calculated by taking the average of percentages
16 What is your Ideal portfolio species mix?
4%
2%
5%
Douglas Fir
9% Pine
Other Hardwoods
51% Hemlock
17% Other Conifer
Cedar
Red Alder
12%
Data is calculated by taking the average of percentagesIn 2017 do you anticipate being a net buyer
17 or net seller of timberlands?
The majority of respondents,
71 percent, continue to be net
Net Buyer buyers of timberlands, indicating
29% Net Seller that acquisition targets will have
multiple bidders.
71%
Do you plan on making any significant
18 timberland acquisitions in the next 12 months?
55 percent of respondents plan
on making significant timberland
Yes acquisitions in the next twelve
No months. This represents an
45% 18 percent decrease from the
2015 KPMG Survey.
55%
KPMG’s Timberland Investor Sentiment Survey 14What percentage of your annual harvest do
19 you plan for export in the upcoming year?
A majority of respondents
27% 0 to less than 25% surveyed plan to export little to
25% to less than 50% none of their annual harvest over
50% to less than 75%
the next year indicative of strong
75% or more
domestic demand.
5% 64% N/A
5%
Do tax rates influence your investment decision
20 making process? (buy, hold, sell strategy)
Respondents continue to
indicate that taxes influence their
Yes decision making process.
No
38%
63%
May not equal 100% due to roundingOn a scale of 1 to 10 (with 10 being the highest influence), how influential
20a is the consideration of taxes in the investment decision process?
13%
1–4
5–7
33% 8–10
53%
May not equal 100% due to rounding
20b Does the U.S. proposed tax reform affect your investment decisions?
Yes
33% No
67%
KPMG’s Timberland Investor Sentiment Survey 16International interests
Do you have significant timberland
21 interests outside North America?
More respondents indicated
17% they do not have significant
Yes
investments outside
No
North America, a continued
trend since the 2012 KPMG
Survey results.
83%
May not equal 100% due to roundingKPMG’s Timberland Investor Sentiment Survey 18
KPMG’s Forest
Products practice
KPMG’s experience serving clients in the forest products
industry is extensive. The size and scope of our Forest Products
practice makes KPMG one of the most effective service providers
for the forest products industry in North America. KPMG has
long had a commitment to and extensive involvement with the
forest products industry (including timber, wood products, pulp,
paper, and packaging).
Our dedication to the industry is evidenced by KPMG’s KPMG’s commitment to the forest products industry means
Global Center of Excellence for the Forest Products Industry. that we have the experience and knowledge to help our
The Center’s role includes developing a worldwide market clients understand and address the issues affecting their
focus, recruiting experienced personnel, staying abreast business. Our Forest Products practice professionals have
of issues affecting the global forest products industry, extensive experience in the industry. They are committed to
developing products that add value to the industry, and staying current on emerging technical and business topics,
providing thought leadership. KPMG provides professional and KPMG continually invests in new technology, tools, and
services to over 65 percent of the world’s largest forest other resources to support them.
products organizations and audits 70 percent of the top 10
Our focus is on serving companies in your industry and
F1000 Forest Products companies.
your value chain so they can bring immediate value to
Our Forest Products practice serves a wide spectrum of your business. Importantly, we can provide perspectives
companies in the industry, including entities that are treated on industry-leading practices to examine key issues and
as C corporations, S corporations, and partnerships for mitigating risks, thereby adding value to our engagements
federal and state tax purposes. beyond generic accounting and tax matters.KPMG’s Forest
Products team
For more information about KPMG’s Forest Products
practice or KPMG’s Timberland Investment Sentiment
Survey, please contact the following KPMG professionals:
James Yerges
Principal, Economic & Valuation
Services
E: jyerges@kpmg.com
T: 206-913-6505
Ann Nelson
Partner, Audit
E: anelson@kpmg.com
T: 208-389-6557
Rich Callahan
Partner, Audit
E: rcallahan@kpmg.com
T: 503-820-6610
Mari Wruble
Senior Manager, Economic
& Valuation Services
E: mwruble@kpmg.com
T: 206-913-4209
KPMG’s Timberland Investor Sentiment Survey 20Contact us James Yerges Principal T: 206-913-6505 E: jyerges@kpmg.com Ann Nelson Partner, Audit T: 208-389-6557 E: anelson@kpmg.com Rich Callahan Partner T: 503-820-6610 E: rcallahan@kpmg.com Mari Wruble Senior Manager T: 206-913-4209 E: mwruble@kpmg.com kpmg.com/socialmedia © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS 606943
You can also read
