Forestry has proven to be an attractive alternative asset for long-term investors as it provides the opportunity to benefit from the value of naturally growing, renewable products and the security of ownership of the underlying land. Valuing forest assets requires a long-term view and a prescient projection of forest growth and yield, as well as future opportunities and risks. Timberland appraisals and investment analyses address this need, and attention to the assessment of existing tree crops and their estimated future performance is essential for accurate valuations and successful investment outcomes.
Indufor is at the leading edge of the forestry sector, providing thought leadership and insight on current and future trends so that our clients are prepared for paradigm shifts in their industry and changing demands on their businesses. Our Forest Investment and Asset Valuation practice covers the entire global value chain for forestry and bioenergy industries, from raw material supply to end-product demand. When valuing assets, we draw from deep sectoral knowledge and extensive expertise to make detailed predictions of future wood flows and cash flows.
Indufor has decades of experience performing forest valuations on both planted and natural forests in more than 20 countries. Our diverse client base includes Timber Investment Management Organisations (TIMOs), Real Estate Investment Trusts (REITs), and a broad range of other funds, private owners, and vertically integrated timber-owning companies. Our team of forestry experts conducts valuations as part of a broader financial analysis that incorporates investor-specific economic, geographic, and political considerations.
Our valuation activity has grown rapidly in recent years as TIMOs have increasingly ventured outside of North America. Institutional investors whose funds TIMOs handle have become more and more aware of how timberland can be valuable parts of their portfolios. This elevated awareness has triggered a rising demand for forest valuations in many countries.
Standard asset valuation incorporates three main approaches: comparable sales, the income approach, and the cost approach. Indufor uses all three approaches and conducts sensitivity analyses that test the robustness of each method’s results. We generally find that asset valuation requires a discounted cash flow analysis, and we produce both projected wood flows and cash flows using a forest estate model.
Forest valuation is a fast-evolving discipline, as technological advancements allow us to refine assessments of forest resources. Indufor remains at the forefront of the practice and is actively involved in advancing the field of research. Our innovative work includes:
- Asset partitioning between trees and land value
- Matching forest wood flows to available markets
- Delineating the term of cash flow projections, and investment fundamentals of current and future rotations
- Incorporating carbon sequestration and other aspects of climate change where they directly or indirectly affect forest value
- Modeling and assessing forest investment risks
- Determining the cost of capital for forest investments
- Reporting forest value using industry reporting standards.
Indufor has extensive experience in valuing industrial assets, specifically processing facilities for forest products. This includes valuing industrial assets that form part of a vertically integrated group, i.e. in which the timberland and industrial assets have a single owner. In these settings, Indufor clearly defines the approaches and methods used to value each component of an asset, be it land, forests (trees) and the processing capital.
Indufor uses approaches developed by completing valuations of stand-alone industrial assets, recording transactional evidence of valuations and creating a cash flow model that predicts the asset’s financial performance. Indufor’s valuation method for integrated assets distinguishes each asset type’s differing valuation requirements, which reflect market behavior and reporting standards. This case-specific approach allows us to accurately assess the value of all kinds of forest-related assets.