Third Irish forestry fund.

Harry Palmr wrote: »

Don't panic, really. Why do people see plots everywhere?

IrForestryQ wrote: »

If its gonna be a disappointment don't you think they should keep the fund going until it matures then.. I'll be going over the financials with a fine tooth comb.

dan1981 wrote: »

Some rough sums here - nowhere near as stellar as IrForestryQ's (or perhaps optimistic!) - but just having a stab at things...

Across the funds from 2nd to 7th there were 20,000 shares being offered - we can assume they were all sold at £500(punt) each - I know funds I was involved in were over-subscribed.

The total land (without the trees) that's been sold to AXA has been 4094 hectares, equating to 10116.49 acres. 18 months ago The Journal [1] quoted the Farmers Journal saying the average price for an acre of agricultural land was €9088. So the total value of the land as of 18 months ago would be around €92,000,000. Agriland says the value of agricultural land outside Dublin rose sharply in 2018 too [2] - but let's keep to the more conservative (ish) estimate.

So at first principles, if the trees all burned down and the land was all that was left, the value of each share would be averaged out at €4597 a share (assuming you could easily divide the land value by the total number of shares across the funds and no costs were involved). I think this is cause for some optimism.

The CSO have a database with a substantial amount of data on land values in various parts of the country, most forestry activity tends to be in the southwest from experience, where land values are lowest - however if you take the lowest price per hectare, multiply it by the number of hectares sold and divide it by the number of shares across the funds the value for the land alone should yield a significant gain for IFF investors.

The 5th fund seems to the mid-range one (6000 shares sold and seems almost halfway into things) so we could use 20 years as the average number of years across all the funds (easy for some lazy maths here but understand the various funds will have different yields and land values). So I'm working on basis of a return over 20 years.

On Veon's own website they have a calculator for landowners to get an idea of how much they could earn from their land from forestry [3]. I plugged in the full 4094 hectares to see what the annual return would be:
> 4094 hectares for Broadleaf: annual return from Veon of €2,783,920
> 4094 hectares for Conifer: annual return from Veon of €2,456,400

So if you were the landowner (and I suppose in this case the Irish Forestry Fund investors are that's what the money was for) multiplying the two figures above by 20 you'd have either €49m made in twenty years assuming zero inflation, interest, or any change, or €55 million. We should be conservative again here, so let's go with the lower value of €49m.

Excluding any management fees (I know this is a point of contention, but let's set it aside for now) combining the return to the landowner over twenty years (€49m) with the value of the full 4094 hectares (€92m) we're left with a combined value at 20 years (land value and return from the land being worked) of €141 million.

If you divide that figure by the # of shares across the funds (20,000) you end up with a value per share of about €7000 - that's a return of 12.75% on an investment per share of €635(£500).

I'm doubting this all of course too, as that return is pretty close to the 12.5% return estimated for the very fund I've been averaging over, though obviously, the second and third funds had more generous/ambitious returns. That said, I think the land value is something in particular that should reassure investors.

Of course, as others have pointed out the real value growth is between now and full maturation so you would expect a premium over this figure per share if the "summer bonanza" is to be believed as a true return to investors. I would be cautiously optimistic that there is good faith by all involved, and that nobody has been duped, deceived or ripped off, even if Veon stands to continue to benefit from the relationship. It's in everyone's interest I believe for the full value to be sweated from the entire value of the fund, including the land value.

Two further things stick out for me right now, and I know they are leaving me feeling less optimistic than the very rough math above.

The Irish Forest Unit Trust currently estimates the return (including land) of investing in forestry of between 5% and 7% [4] leaving the value of a share somewhere between €1684 and €2457. I think this can be easily dismissed in term of the unit cost of land being substantially higher now than it was 20 years ago. Also (and this is something my father, a big advocate of the fund pointed out) that climate change has probably meant the trees have grown somewhat faster, and that perhaps maturation is closer than the full 30 years.

The only published report I noted involving the Irish Forestry Fund was a ten year fund which the Irish Independent reported as resulting in an annual yield of 6.2% - I think this was in 2011[5] - my brain is broke with the figures above but I will come back and add the Indo link in when I find it later on. But 6.2% return over 20 years would represent just under half of the actual value of the land itself if the figures above can be in any way believed.

Sources:
I'm not allowed post links because I'm a n00b. Will make them available if anyone wants them!