Our Forestry Investments
Things to Check For
Our
Investment Structure | Our Investor
Protections | Who Can Invest? | Land Ownership | Payment
by Instalments - Calls | Our Secondary Market |
Things to Check For | Investment
Options
Before you invest in forestry we think there are a number of important things you need to check first so you can be sure your investment is as safe and successful as it can possibly be. Some of these are:
Location of the Forest
Not all areas of New Zealand grow Radiata pine equally well. Similarly, not all areas are as well serviced by the infrastructure necessary for the planting, tending and harvesting of trees.
Forest Enterprises’ forests are all located on the east coast of the North Island of New Zealand in the Wairarapa, Hawkes Bay and Gisborne regions. These three regions are well known as good areas for growing Radiata pine and have a well-established supporting infrastructure in place. Refer to Our Investors' Forests for further information.
Distance
from a Port
Currently around 70% of New Zealand’s forest produce is exported and this percentage is projected to grow with the increase in harvest over the next 5 years. Exporting needs access to a port and, as land transportation is costly (up to 20 cents per ton per kilometre), it is important for a forest to be located within a reasonable distance to a log export port.
Wairarapa, Hawkes Bay and Gisborne are well serviced by Ports in Wellington, Napier and Gisborne. Refer to Wairarapa Forestry, Hawkes Bay Forestry and Gisborne Forestry for further information.
Expertise
of the Manager
Although simple in concept, forestry is in fact a very specialized activity. The expertise of the Forest Manager will determine the eventual harvest return. The better and more experienced the manager the greater the likely return (profit) to investors.
Forest Enterprises has been in the forestry business since 1972 and in that time has built up a reputation second to none in terms of its experience and expertise. Refer to About Forest Enterprises for further information.
Investor
Control
A key advantage of Direct Forestry Investment compared with Indirect Forestry Investment is the ability of investors to exercise real control. To be able to exercise control depends upon investors receiving timely comprehensive and authoritative information and the ability to participate and vote on key decisions.
Forest Enterprises investments are structured so that investors retain control at all times. Refer to Our Investment Structure and Our Investor Protections for further information.
Ability
to Replace the Manager and other Professionals
The profitability of a forestry investment depends to a large extent on the expertise of the Manager and to a lesser extent on the expertise of the other support professionals (refer to Expertise of the Manager). If the Manager is not performing, the investors must have the power to replace him. Similarly, they must also have the power to replace the other support professionals.
Forest Enterprises investments are structured so that investors can replace the Manager at any time. Clause 15.1 (c) of the Deed of Participation empowers investors to remove the Manager for any reason (or no reason) by special resolution. Refer to Our Investment Structure/Legal Documentation for further information.
Limited
Liability
All investments should be structured to provide investors with the protection of limited liability. This protection is provided in a company investment, but not a partnership investment. The concept of limited liability in a forestry investment is simply the limitation of the amount an Investor may be called upon to pay to the amount they have invested to date plus any share calls made to fund the budget for the current year.
Since 1992, all Forest Enterprises’ investments have been structured using limited liability companies. Until 1992, the New Zealand legislative and taxation framework made it impractical to use limited liability companies and so our older investments use a partnership structure.
Refer to Our Investment Structure for further information.
Registered
Forestry Consultant
As there are accountants and chartered accountants, so there are forestry consultants and Registered Forestry Consultants. Only Registered Forestry Consultants are full members of the industry's professional body, the New Zealand Institute of Forestry (NZIF). Less than 100 industry participants are Registered Forestry Consultants.
Forest Enterprises has direct links with 5 Registered Forestry Consultants including Forestry Director Dave Jervis. Forest Enterprises is unique amongst forestry investment companies in having as a director a Registered Forestry Consultant. You can find out more about NZIF here, or Dave Jervis here.
Independent Overview
As the underlying growth cycle of a Radiata pine forest is 28 to 30 years (although Forestry Enterprises' secondary market allows much shorter investment periods) it is important that an independent reputable party acts as an investor watchdog from start to finish - someone to keep an eye on both the detail and also the bigger picture. This should not be an investor responsibility.
Forest Enterprises company based investments use the professional services of Trustees Executors Ltd in a number of capacities including trustee and supervisor. Refer to Our Investment Structure for further information.
Annual Financial and Forestry
Audits
A forestry investment comprises money (what you have invested) and a forest. Prudent investment policy requires that both aspects are audited annually: a financial audit to check and report that the money is being accounted for and used appropriately and a forestry audit to check and report that the forest is being managed and developed appropriately.
Forest Enterprises company based investments include annual financial and forestry audits by professionally qualified experts. Refer to Our Investor Protections for further information.
Investor Reporting
Regular clear and comprehensive reporting is a critical element of any investment. Investors need to know what is happening in their forest and how their money is being spent.
The Forest Enterprises' administration team pride themselves on the quality and timeliness of their investor reporting. Refer to Our Investment Protections for further information.
Land Ownership
Ownership and control of the land on which the forest is growing is both profitable and prudent.
All Forest Enterprises investments comprise an investment in the forest and also the land on which the forest is growing. Refer to Land Ownership for further information.
Disguised Payments to Promoter/Manager
A forestry investment promoter is entitled to be rewarded for the work and associated risk involved in releasing new investments, no different to promoters of other investment options. What they should not do is disguise these payments.
The examples below illustrate some such payments.
Example 1 - the promoter becomes an investor but does not pay his share of the associated investment costs each year, instead these are deducted from the eventual harvest proceeds 28 years later. In this example the investors carry the cost of the promoters participation through until harvest. The promoter (at no effective cost) receives a free share of the harvest proceeds.
Example 2 - the promoter becomes the landowner 100% financed by way of an interest free loan financed by the investors. In this example the investors have to finance the loan, forego interest on the loan, then at harvest pay the promoter/landowner for the use of his land. The promoter (at no effective cost) receives free land and a free share of the harvest proceeds.
Example 3 - the manager's contract with the investors is fixed for the term of the investment. In this example the investors must pay the manager fees for the life of the investment regardless whether the manager fulfils the obligations of the management contract. In this situation it is conceivable that the investors might be forced to employ another manager and pay another fee, in order to complete the work not being undertaken by the original manager.
Example 4 - the management contract provides for the manager's fees to be increased at regular intervals to reflect movements in the inflation index. This practice conflicts with modern practice to only review fees by negotiation in a contestable marketplace.
Forest Enterprises does not engage in any of the practices highlighted above. All fees and payments are at arms length, clearly disclosed and contestable. Furthermore, investors have absolute control over the manager during the investment by being able to replace Forest Enterprises at any time. Refer to Ability to Replace the Manager above and Our Investor Protections for further information.
Ability to Sell
Your Investment
As the underlying life cycle of a Radiata pine forest is 28 to 30 years, investors must be able to liquidate their investment earlier. This might be as part of a planned realisation before harvest or to meet unforeseen changes in circumstances.
Forest Enterprises operates the only true secondary market for direct forestry investments in New Zealand. Refer to Our Secondary Market for further information.
Who holds Investors' Cash
Large amounts of cash are involved in a forestry investment, in the earlier years when the forest is being established, during the pruning and thinning years and at harvest. Prudent investment policy requires that this cash be securely managed and controlled by a reputable party independent of the manager.
The investment structure of Forest Enterprises company investments provides for all cash to be paid to and held by Trustees Executors Ltd until called upon to meet authorised and budgeted expenditure or harvest dividends to investor. Refer to Our Investment Structure for further information.