Institutional investor New Forests has increased its forestry holdings stake in Western Australia and nationally by buying a 21,000 hectare estate.
Institutional investor New Forests has increased its forestry holdings stake in Western Australia and nationally by buying a 21,000-hectare estate.
The estate comprises 68 properties across Australia, including seven in WA's South West, and brings New Forests’ WA portfolio to 62,450ha of managed plantations.
New Forests manages more than $1.5 billion in forestry plantations and related assets across Australia.
The 21,000ha, made up primarily of blue gums, is the first purchase by New Forests through its recently raised $707 million fund for investing in Australian and New Zealand plantations.
Chief executive David Brand said the Australian forestry sector was picking up following a period of greater international competition and a slowdown in demand for building products nationally.
He said record demand from China was now driving the forestry industry, along with a moderate Australian dollar and an increase in new home constructions.
“We believe that hardwood woodchip demand in Asia will increase by 20-25 per cent in the next two years,” Mr Brand said.
“It seems like all of a sudden we’ve gone from a series of negative factors to most of those turning positive.
“Everything’s looking fairly bright at the moment.”
Mr Brand said New Forests was focused on getting higher returns for its investments through managing or overseeing much of the value chain.
“We focus on trying to systematically increase productivity so adding value through better insect and disease control, better genetics, adding fertiliser and nutrition ... and I think we can add some 1.5 per cent per annum in terms of productivity enhancement and that’s what we have to do,’’ he said.
“We are keen to supply market demand, and if that’s in traditional markets of timber and wood chips we’ll do that. But if new markets emerge or we can attract new investors with processing we’re happy to do that as well because at the end of the day more diverse markets means less risk.”
Mr Brand said forestry contractors were also likely to see a pick-up in activity.
“There should be growth in demand for harvesting and forestry management,” he said.
Mr Brand said institutional investors were becoming the major owners of forestry in Australia, with many buying land and plantations previously owned by failed managed investment schemes such as Great Southern and Timbercorp.
“There’s continuing interest for investor opportunities in the forestry sector of Australia,” he said.
“Five years ago, 10 per cent of the timber plantations in Australia were owned by institutional investors. Today that’s probably 60 per cent and in five years it might be 90 per cent. These are the logical holders of these types of long-term stable assets.”
However, Mr Brand said more Asian trade buyers may also be interested in entering the market.
Currently in WA, major Japanese entities including Marubeni, Mitsui and a joint venture of Oji Holdings, Senshukai and NYK Lines have investments in hardwood plantations, which supply their pulp and paper mills.
“We’ve also heard that there may be some (new) trade buyers like Asian companies interested to secure some of their supply,” Mr Brand said.
New Forests bought the 21,000ha after it was put on the market by the Australian Sustainable Forestry Investors Fund, which was managed by real estate group Mirvac.
Other Australian plantations on the market include those held by Gunns (100,630ha), Forestry Enterprises Australia (43,200ha) and the Australian Forestry Plantations Trust, all of which are under administration.
Mr Brand said after investing $500 million in mostly Australian assets through its first fund aimed at Australian and New Zealand Assets, New Forests would now explore more New Zealand opportunities.
“Our first fund was almost entirely invested in Australia so with our second fund we’ll certainly put an emphasis on New Zealand, but (we’re) also looking for new investment opportunities in Australia.”
