Key Post Investment in Irish Forestry Funds

extopia

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I notice also from looking at the published accounts for the 9th and 10th Forestry Growth Plans that they too have acquired some of the assets of the Second Forestry Investment Plan. Digging around in the accounts for the other plans, it's obvious from the "Related Party Transactions" section of the accounts notes that most if not all of the Second Forestry Investment Plan assets ended up in other IFS managed funds. I am not sure whether to be concerned about this or not - after all IFS have become a major forest manager/purchaser and there's no reason why their funds should not be customers of each other, provided disposals are being carried out at reasonable market rates, thus protecting investors at both ends of the transaction (i.e. in the disposing and the purchasing funds). However IFS does not seem to have publicised the way the second Forestry Investment Plan was distributed (or the returns achieved), at least in terms of press releases listed on its own website. I wonder if they think investors would be concerned about this?
 

contact23

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I have been contacting them regarding payout and while they answer queries they do so in the vaguest way possible , blaming the downturn , blah blah...so I wonder if there are investors on this site that have recieved any payouts recently, my plan is the fourth so , anyone?
 

extopia

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Won't be due for a "payout" here until sixth investment plan. Yes, they are blaming the downturn for the lack of interest in buying the assets as the plans are liquidated, despite what they consider to be an underlying sound market for timber (but not semi-mature forestry, which is a long way from being felled). Thus the company is trying to purchase these liquidating plans with their new investment plans - i.e. roll them over.
 

extopia

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If you read the thread, you will see that that indeed is one of the concerns mentioned.
 

treacle

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Please excuse my long post but I feel that it is worth noting my concern from the start [and this come with some degree of education in forestry] is that trees do not reach a marketable age for quite a while in a mild climate such as Ireland and the value of forestry is only realized at harvest when they reach a marketable age.
From what I re-call when I initially looked at this is that the funds aim from the start was to purchase [limited] native forestry in Ireland but more importantly plant new trees on barren land and sell “semi-mature” forestry after an initial 10 year period or so in order for the fund to obtain its returns.
In my view there is a major problem with this and that is that the majority of planted non-native trees ie Sitka spruce that they have been established by the fund will not have a true market value for a number of years after the 10 year investment period due to the types of species that have been planted within the mild climate of Ireland and it would be expected that for example Sitka would be harvested no earlier than around 20 years and would hold a low market value at this time.
The big sell of the fund when it started was that it promoted itself as a forestry investment with a shorter investment period to investors than most professionals in the industry would view as reasonable so for instance pine / spruce may take 30 years in the Irish climate to reach a truly marketable age.
In one of the earlier funds offering documents [I believe it was either the 1st, 2nd or 3rd fund] the fund showed a graph showing a trees value gaining annually as a straight line unfortunately a trees value will remain low until it starts to become marketable and then it will gain rapidly in value until harvest which is generally determined as the point that will create the biggest gain when the tree growth starts to slow down and the timber is at a size that is marketable.
So where does this leave us in my opinion based on reading the early offering documents is that the slowest growing native forestry land the fund purchased with trees that in some cases may take up to 50 years to reach a marketable value after re-planting [dependent of species] will have the valuable timber removed before this land is then sold on to the next buyer [whoever they are].
The “barren land” that they purchased they plant with say Sitka spruce that will be marketable in 20+ years and they see a return on the sale of the semi-mature crop that in essence has no real value at present in the market.
The focus then has to be on who will be willing to buy these types of properties in order to generate the returns for the fund on the disposal of the land assets?
There are two other concerns for me and that is the funds have been set up by accountants and not by individuals with experience in forestry and who know how to harvest timber crops and approach managed forestry projects. My other prime concern is why were the funds not regulated as I believe the fund’s shares were sold outside of financial regulation legally by the company directors themselves selling the shares?
I know that Brendan Burgess himself has promoted this investment in the past and he has stated that he met the directors previously on the motley fool forum maybe Brendan can offer his view on this fund.
 

extopia

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Update:my maturing forestry fund appears to be having difficulty liquidating, based on correspondence from the promoters.
 

Gordiecruyff

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This is just my take on why they might have, and will continue to have difficulty liquidating positions...Please correct me if i'm wrong.
While the life cycle of each fund varies between 10-30 years, the natural cycle of a forest is 30 years.
So consider the land and potential to use it as an investment option over 40 years
Year 1-10 (Fund 1): Government grant subsidises forest creation. Guarenteed premium payable annually. Sell partially mature forest to Fund 2, take teh money and run
Year 10-20(fund 2): Guarenteed premium payable for 5 years, possibility of thinning revenue, sells partially mature forest to fund 3
Year 20-30(fund 3): No premium but revenue from clear fell. so entirely dependent on timber prices. attempt to sell the land on?
Year 30-40(fund 4): and now the reason this structure is not sustainable. if you're in fund 4 you've bought land, which you are legally obliged to use for commercial forestry. Yet the primary reason commercial forestry was initially attractive (plantation grants and premiums) is now not applicable.

so the attractiveness of the investment declines from fund 1 to fund 4, yet new investors are necessary at each stage to let old investors out.

The phrase Ponzi is overused these days .....but...
 

turnball

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Its enough to ask yourself IF this is true how could this model be sustained in the future, maybe the only way it could be sustained would be to go a little more "International" with the purchase of this "Irish forestry"....ahem.
 

extopia

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Just received the latest update about Sixth Forestry Investment Plan, which was supposed to liquidate this year and return money to its investors. The company has been unable to sell off the assets at "fair market value", and obviously this time has not been able to roll the assets over into new plans, as it has done in the past. They are not committing themselves to any liquidation date now, and are telling investors they will get six-monthly updates. They are also pointing out that the assets continue to increase in value.
 

Jim2007

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Just received the latest update about Sixth Forestry Investment Plan, which was supposed to liquidate this year and return money to its investors. The company has been unable to sell off the assets at "fair market value", and obviously this time has not been able to roll the assets over into new plans, as it has done in the past. They are not committing themselves to any liquidation date now, and are telling investors they will get six-monthly updates. They are also pointing out that the assets continue to increase in value.
So they failed to sell off the assets at what they consider fair market value and yet they are saying that the assets are continuing to increase in value... How exactly does that work???
 
M

mercman

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Well if it's any use to anybody the market for felled timber continues to grow from strength to strength. How can the Management of these funds profess such stupidity. There are a number of specialist firms in the market, which would be able to give an honest appraisal of the timber market in Ireland together with prices for the product and in comparison with past years.
 

extopia

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So they failed to sell off the assets at what they consider fair market value and yet they are saying that the assets are continuing to increase in value... How exactly does that work???
Yes, the irony of that statement struck me too. But I am merely paraphrasing the language in the letter sent out to investors.
 

extopia

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Well if it's any use to anybody the market for felled timber continues to grow from strength to strength. How can the Management of these funds profess such stupidity. There are a number of specialist firms in the market, which would be able to give an honest appraisal of the timber market in Ireland together with prices for the product and in comparison with past years.
The fund I am referring to is invested in semi-mature forestry, which is not yet ready for felling, so the company would probably say the state of the market for felled timber is not totally relevant.
 

MrEarl

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Just received the latest update about Sixth Forestry Investment Plan, which was supposed to liquidate this year and return money to its investors. The company has been unable to sell off the assets at "fair market value", and obviously this time has not been able to roll the assets over into new plans, as it has done in the past. They are not committing themselves to any liquidation date now, and are telling investors they will get six-monthly updates. They are also pointing out that the assets continue to increase in value.

What is the definition of "fair market value" and who decides on it's definition ?

I strongly believe that all investments funds (be they invested in shares, property, forestry etc) should be pressed to answer publically to their investors once the originally intended maturity date has come and gone. Perahps the majority of investors would have a view on what they consider to be "fair market value" and believe the assets should be sold at a lower price than the managers etc.
 

extopia

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Here's the full text of the Chairman's recent letter addressing the situation, FYI.

___________________________



19th November 2013​
Chairman's Letter and Update on the Sale of the Company's Forests​

Dear [Shareholder]

I have much pleasure in presenting the financial statement of The Sixth Forestry Investment Plan Plc for the year ended 31st May 2013 which relate to the company's performance, including the carefully constructed high-quality forestry portfolio comprising freehold forest properties located throughout the country. In order to keep the company's costs to a minimum I am incorporating this six-monthly progress update along with the audited financial statements.

Over the past two years we have met with a number of interested parties on the forestry sites and have travelled on a number of occasions to continue negotiations both here and abroad. To date we have rebuffed three bids as unacceptably low as they have not reflected fair market value. Our stance in this regard has been backed up by both the independent forestry consultants and the company's corporate investors.

We will not agree the sale of your forestry assets at a price which is not reflective of fair value as our preference shareholders are solely entitled to benefit from the growth of their forests since inception. Our message to potential purchasers is simple - the portfolio is for sale for fair value.

It is important to stress that throughout the economic crisis, Ireland's forestry sector has performed well. It has become export oriented and log prices have remained robust and the sector is well positioned to thrive as the economy recovers.

We fully appreciate the impact that this continuing delay is having on many of our shareholders and also acknowledge the many statements of support we receive from shareholders in regard to the stance we are taking. We want to assure you that we seem to progress the sale of the portfolio in an expedient manner and we remain confident that the company's forest assets can and will yield positive returns for our shareholders.

In the meantime the forests continue to grow and add value. The independently assessed forest growth figure has increased by €308,893 during the year and stands at €2,936,656 as at 31st May 2013 which demonstrates the continued growth and performance of the portfolio.

We will continue to keep you updated on a six-monthly basis as we progress and pursue a successful outcome to the negotiations. Thank you for your continued patience.

Yours sincerely,

Paul Brosnan
Chairman​
 
M

mercman

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For the large investors in these funds, do they not think it prudent to obtain a second opinion. There are many companies in the market that could offer an impartial view on the forestry and the market as it is. The single positive thing is that the assets can be inspected and the market is the market regardless of what excuses are being offered.
 

crudee

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I remember looking at this sometime ago and had serious reservations regarding the way the fund “projected” future values. Having some experience in forestry I have to say that tree value does not increase in value year on year its not the way it works!
The value of timber does however rise dramatically when the tree's reach a size that can be sold to specific markets because this supply's the market the raw goods for a variety of different products. Timber grown over say 10 years is only ever going to be of value to those looking for low grade wood to purchase.
In the fund prospectus however I remember that it was projected that the rates were based on a straight line annual increase with the funds typically lasting 10 years which I thought was fishy at the time. Think about it if you’re selling timber “semi-mature” who the hell is going to buy it and for what reason other than to wait for it to become mature timber!
Of course if you could find another buyer willing to wait say another 10 years you might be able to sell semi-mature forestry, but who would want to wait apart from another Investor!
If this is the case then there is one other problem with the straight-line projected return and that is why would another investor want to purchase forestry with little value at say ½ the value that it will be in another 10 years in order to provide the fund with the returns as projected…not very likely if you ask me as an investment.
I know that Brendan recommended this fund for some time but I have a feeling that this may well have some issues with the way the returns have been projected in order to try to make forestry investment in Ireland a shorter term option for retail investors. I would of course like to be proven wrong on this but we will just have to see.
 

deiseboy

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I have been contacting them regarding payout and while they answer queries they do so in the vaguest way possible , blaming the downturn , blah blah...so I wonder if there are investors on this site that have recieved any payouts recently, my plan is the fourth so , anyone?
I had one share in the 3rd FIP bought for £IR500 (€625) in Dec 2001 and due to mature in Dec 2011.

It actually paid out in 2 stages - a dividend of €295.99 on 22 Aug 2012, followed by a final sum of €634.87 on 28 Sept 2012, making a total of €930.86

As far as I know this is the last FIP to pay out and the "entire forest portfolio" was bought by a single Austrian investor. The 4th was due in June 2012, 5th in Nov 2012 and 6th in May 2013.
 

extopia

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Interesting figures, deiseboy, thanks. That works out as an annual return of something like 3.8%. A bit better than inflation (annual CPI inflation averaged about 2.1% over the same period according to http://www.inflation.eu). The return is certainly a lot lower than the 9.6% predicted by the company for the Third Forestry Investment Plan in their press ads prior to launch.
 
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