Indufor is closely involved with forest valuation. We routinely conduct such work in over 20 countries, involving planted and natural forests. Our client base is diverse, and includes Timber Investment Management Organisations (TIMOs), Real Estate Investment Trusts (REITs), a broad range of other funds, private owners, and vertically integrated timber-owning companies.
Our role in valuation has especially grown in response to the forays of TIMOs outside North America. The institutional investors whose funds TIMOs handle are increasingly aware of how timberland can be usefully added to their portfolios. This awareness has triggered a demand to value forests on an internationally consistent basis. Just as important now is the requirement to explain forest valuation in terms that are consistent with wider financial analysis.
Asset valuation standards stipulate that the valuer considers three main methods – comparable sales, the income approach, and the cost approach. Indufor meets this requirement, testing the corroboration that the respective methods provide. Almost universally we find that a discounted cashflow framework is warranted. We project woodflows and cashflows using a forest estate model.
Forest valuation is a fast-evolving discipline. This has especially been the case as the available technology has advanced and allowed forest resources to be represented with greater refinement. Indufor remains at the forefront of the practice, and is actively involved in addressing topical issues. These include:
- The partitioning of value between trees and land
- Matching the forest woodflows to the available markets
- The term of cashflow projections, and investment fundamentals of the current and future rotations
- Including carbon sequestration and other aspects of climate change where they impinge directly or indirectly on the forest value
- Forest investment risks, and the capacity to model them
- The cost of capital for forest investments
- Reporting forest value within financial reporting standards.
Indufor observes the increasing downstream integration of timberland and processing assets into a single owner. This requires clearly defining the approaches valuing each component of an asset, being land, trees and processing.
Indufor applies approaches that were developed by completing valuations of stand-alone processing assets, recognising transactional evidence of processing valuations, and creating a cashflow framework emulating the processing asset’s financial performance. In particular, the Indufor valuation approach for integrated assets notes the differing requirements to value each asset type, which is reflective of market behaviour and reporting standards. This approach allows the asset values to be treated in an additive form.