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Bettina von-hagen- efm introduction 05 16 13

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TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing. …

TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.

TBLI CONFERENCE USA New York 2013
Monday and Tuesday, June 17-18, 2013

Speakers:
Paul Rose
Vice President of the Royal Geographical Society
Richard L. Kauffman
Chairman for Energy Policy and Finance for the State of New York - Governor of New York's Office and Cabinet - United States of America
Martin Rapaport is chairman of the Rapaport Group and founder of the Rapaport Diamond Report

Published in Economy & Finance , Business
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  • 1. 1
  • 2. 2 DISCLAIMER This presentation does not constitute an offer to sell, nor a solicitation of an offer to purchase, any securities of the Company or any of its subsidiaries, and does not constitute any form of commitment or recommendation on the part of the Company or any of its subsidiaries. This presentation does not and will not form the basis of any agreement. Any offering with respect to any securities of the Company or any of its subsidiaries will only be made in connection with a confidential private placement memorandum, which should be reviewed carefully by each prospective investor. No representation or warranty is given as to the achievability, reasonableness or accuracy of any information contained herein, including any financial projections or assumptions. This presentation includes information that Ecotrust Forest Management (the "Company") wishes to remain confidential. You agree that the information contained herein is, and shall remain, the sole property of the Company and you further agree that the information contained in this presentation will not be duplicated, used, or disclosed, in whole or in part, for any purpose other than the evaluation of this presentation. You agree to maintain strict confidentiality concerning the information provided to you by the Company including, but not limited to, all business planning, financial information, trade secret or other proprietary information.
  • 3. 3 CONTENTS I. ECOTRUST FOREST MANAGEMENT – OVERVIEW – TEAM & EXPERIENCE – GEOGRAPHIC FOCUS – INTEGRATED FOREST MANAGEMENT APPROACH – FORESTLAND: SOURCES OF VALUE II. ECOTRUST FORESTS, LLC – HIGHLIGHTS – PERFORMANCE III. ECOTRUST FORESTS II, LLC – INVESTMENT OPPORTUNITY – FUND II INVESTMENT STRATEGY – TARGET PORTFOLIO MIX – FINANCIAL SUMMARY – SUMMARY TERMS AND STRUCTURE
  • 4. 4 OVERVIEW • EFM is a forestland investment manager. We offer investors the opportunity to own ecologically significant and commercially valuable forestland in the Pacific Northwest. • Founded in 2004 with an 8 year track-record, 13,000 acres under management and significant experience in land valuation, timberland management, conservation finance and FSC certified forestry. • Our investment strategy reduces reliance on traditional timber markets and creates additional value by monetizing over-looked sources of income from conservation easements, grants, tax credits and environmental markets. • Unique capacity in combining private investor capital with low-cost concessionary debt and new market tax credits to generate superior returns. • Ecotrust Forests I, LLC has $30 million under management, and has out-performed the NCREIF Timberland Index on a 3 and 5 year basis, while generating 9.5% IRR* since inception. • Currently Launching Ecotrust Forests II: Raising $50-75 million in equity via 10 year term fund structure. $20M in equity commitments, and $10M in PRI debt secured. * Unrealized, Gross returns before Fund level expenses & fees. Exit price based on 2012 externally appraised valuation.
  • 5. 5 INTRODUCTION: ECOTRUST FOREST MANAGEMENT • Timberland investing in in the Pacific Northwest has matured since the 1980s – we believe that new innovative models for forest management are required for value creation. • Formed in 2004 by Ecotrust, EFM employs a differentiated approach to forestland investing that creates public value while generating returns for investors. • EFM is pioneering a smarter, more sustainable style of forestry for the Pacific Northwest region. 2. FOREST MANAGEMENT FSC certified, ecosystem based forestry that supports stronger capital appreciation 1. INTEGRATED APPROACH Captures value from both domestic and export markets as well as timber and non-timber resources 3. UNIQUE FOCUS Focus on younger, ‘messy’ properties with unique conservation value, and strategic interest
  • 6. 6 MANAGEMENT TEAM MANAGEMENT TEAM Bettina von Hagen, CEO Tim Herms, Controller Sam Baron, CFO Amrita Vijay Kumar, Director Will Hart, Forester Carla Hudson, Office Manager  Co-founders have 20+ years of experience, investing together since 1991 via the Natural Capital Fund and Ecotrust Forests LLC  Deep knowledge of environmental markets, relationships with conservation funders & track record of accessing competitive New Market Tax Credits  Customized forest resource analytical tools and technical management capacity enabling stand level optimization that can quantify management trade-offs  Access to relationships and proprietary data, spatial analysis and GIS capacity via parent entity, Ecotrust (non-profit) PARTNERS Pacific Forest Management, Trout Mountain Forestry, Pacific Rim Associates, Integrated Resource Management, Turner Logging, Nick’s Timber Services, McKenzie River Associates EFM’s management team and external partners have significant experience in forest management, operations, environmental markets and forestland investing
  • 7. 7 INVESTMENT COMMITTEE SPENCER BEEBE (Chair of Board) • Founder: Ecotrust, Ecotrust Canada, Conservation International, Co- founder EFM • Masters, Yale School of Forestry • Forestland Investor BETTINA VON HAGEN (CEO) • Co-Founder, Ecotrust Forest Management • VP, First Interstate Bank of Oregon • Board Member, VCS , The Climate Trust & Forest Trends Dr. JOHN GORDON • Dean & Pinchot Professor of Forestry, Yale School of Forestry • Partner, Candlewood Timber Group • Advisor, National Academy of Sciences JOHN J EARHART • Chairman & Founding Partner, Global Environment Fund (GEF) • Masters, Yale School of Forestry • Senior Fellow, WWF & The Conservation Foundation DAVID POLLOCK • Founder, Stormwater Management • Senior Advisor, Ashoka • Board Member, Oregon Business Association • Forestland Investor EFM’s Board of Directors comprise the Investment Committee for the Fund and approve all investment decisions.
  • 8. 8 Why Timber? Tax efficient: Depletion and 10-31 Exchanges offer timberland owners tax advantages Timber is a portfolio diversifier, given its low correlation with most other asset classes Timber acts as an inflation hedge, and tends to be correlated with the CPI Timber harvests can be timed to coincide with favorable market conditions. Timber stores value on the stump unlike farming / ranching. Timber valuations are driven by biological growth (4-6%), which is uncorrelated with economic conditions. WHY INVEST IN TIMBERLAND? SOURCE: Fund Evaluation Group and Citibank Research Timber has out-performed other asset classes – including Core real estate, Distressed Bonds, the S&P and Inflation… …at lower levels of volatility and risk
  • 9. 9 WHY INVEST IN WESTERN FORESTS? • The Fund’s focus region in the PNW comprises 35% of the world’s temperate rainforests • Native species are commercially valuable – higher value end markets and lower input costs required • World class processing & transportation infrastructure • Proximity to both domestic and growing export markets (China, Japan, Korea) provide diversification in end-markets • Majority of investments are in coastal temperate region that have a lower incidence of fire and disease than most other forest types • Unique ecological significance and potential for carbon storage positions forests to take advantage of emerging ecosystem service markets Timberland has fundamentally strong investment attributes and PNW forests have unique characteristics that add value to any timberland portfolio Risk of disease (Red – High White - Low Risk of fire (Red - High Blue – Low)
  • 10. 10 INTEGRATED APPROACH INCREASES OPTIONALITY FOR ILLUSTRATIVE PURPOSES ONLY CAPITAL APPRECIATION EFM’s integrated approach can augment a traditional timber only strategy, with sales of conservation easements, tax credits and environmental offsets that can diversify revenues and unlock additional value for Investors. Traditional timber only managers, can generate returns either via timber income, HBU sales or capital appreciation on exit. At the right strike price, EFM uses conservation easements or carbon offsets as tools to monetize non-timber value to compensate investors for foregone timber/ or capital appreciation EFM can access concessionary sources of financing to benefit investors
  • 11. 11 FORESTLAND: SOURCES OF VALUE CAPITAL APPRECIATION The main sources of value generated via forestland investments and captured via the EFM strategy are as follows: Environmental Markets Sales of environmental credits and offsets via carbon contracts or mitigation credits to regulated entities that need to meet environmental regulations Conservation Easements Sale of ‘property rights’ to land trusts or government agencies that compensate investors for foregone timber income or development rights Capital Appreciation Driven by underlying appreciation of bare land value or biological tree growth and increase in stocks of merchantable timber Timber Income from sale of logs or lumber to end markets (typically mills or export docks) for construction applications New Market Tax Credits New Market Tax Credits are offered by the federal government to businesses that invest in economically depressed areas, to incentivize investments in these regions Program Related Investments Program Related Investments are used by Foundations (instead of grants) to incentivize growth of mission aligned organizations, usually via low-cost loans
  • 12. 12 ECOTRUST FORESTS I – HIGHLIGHTS ECOTRUST FORESTS LLC I: • First Close: 2004 • AUM: $30M (equity only) • Fee: 1.4% • Structure: Perpetual with redemption opportunities beginning in 2014 • Investors: 40 current investors, mostly HNW, Families and Foundations • Harvested ~7 MMBF on properties, using silvicultural treatments like variable retention harvesting, patch cuts and pre-commercial thinning • Attracted ~$300,000 in conservation funding that enabled us to execute log placements, pre- commercial thinning and habitat creation • Entered into carbon transactions valued at $500,000 • Ecotrust Forests, LLC is an open ended, perpetual duration investment fund managed by EFM • Acquired 4 properties in Oregon and Washington between 2005 and 2012* totaling ~13,000 acres • Secured New Market Tax Credit transactions that provided below-market financing for all of our property acquisitions, leveraging investor capital by $7 million without dilution. •3 properties purchased between 2005-06. •Garibaldi: Bought in phases between 2006-2010 • 1 follow-on investment in 2012 (Dickey-Gap)
  • 13. 13 ECOTRUST FORESTS I – HARVESTING APPROACH SIXES GARIBALDIGaribaldi 2011-12 Variable Retention Harvest
  • 14. 14 Bottom Left: Growth of committed capital, NAV and Book Value over time since inception, as of 2012 Top Left: EFLLC and NCREIF annualized returns over 5 years before fees, as of Dec 2012. EF LLC returns based on third party appraised value, before fees. Top Right: Compound Annual Growth Rate of Fund Investments since inception, weighted by each investment, as of Dec 2012 (Fund I is open and perpetual) ECOTRUST FORESTS I, LLC PERFORMANCE Fund I has out-performed its benchmark, the NCREIF Index for the last 5 years during a difficult economic period (2008-12) $40.064M $30.435M $23.697M $5 $15 $25 $35 $45 2005 2006 2007 2008 2009 2010 2011 2012 Millions Fund Values NAV Committed Capital Book Value
  • 15. 15 ECOTRUST FORESTS II : THE OPPORTUNITY Opportunity for differentiated sourcing strategy and for strategic exits to conservation buyers at the end of the fund term Applies learning from Ecotrust Forests I Fund increases effectiveness of conservation groups and tribes by helping bridge timing gap between purchase and availability of easement/public funding Solves a market need Increased market demand for conventionally structured fund vehicle, with defined liquidity period (10 years) Transition from evergreen fund to term structure Fund II will acquire industrially managed forests that are ecologically important and culturally significant and transition them towards more sustainable long term ownership and FSC certified management
  • 16. 16 ECOTRUST FORESTS II – INVESTMENT STRATEGY Acquire properties that have strong timberland fundamentals and undervalued conservation features • Access proprietary deal flow via strategic relationships with conservation partners, tribes and public agencies • Identify strategic buyers; enter into option agreements as appropriate • Differentiated valuation and due diligence capacity that can evaluate both timber and non- timber value at the outset Develop and implement property-level management strategy to generate mix of timber and non-timber income • Integrated management strategy generates unique non-timber monetization opportunities • Relationships and technical capacity to integrate conservation strategy with timber production model • Ability to execute carbon contracts and conservation easements Realize returns via sales to strategic buyers that have long- term land ownership objectives • Sale to pre-identified strategic buyers or broader market • Use of option agreements and staged dispositions to mitigate exit risk 1. Acquisition 2. Management 3. Disposition
  • 17. SUMMARY TERMS AND CAPITAL STRUCTURE 17 FUND STRUCTURE • Target size: $50-75M • Fund Term: 10 year fund with two, two year extensions • Target: Exceed NCREIF Timberland Index • Management Fee: 1.5%, • Carry: 20% of distributions above 6% hurdle rate of return • Concessionary Debt: Tranche of low-interest debt, total debt limited to 40% of Loan to Value at portfolio level • First close: May 16 2013 • Final close: Q4 2014 EQUITY CONCESSIONARY DEBT NEW MARKET TAX CREDITS AMOUNT: $75M TERM: 10 -14 years FEE: 1.5% CARRY: 20% beyond 6% SECURED: $20M AMOUNT: Up to $30M TERM: 7.5 – 10 Years INTEREST RATE: 0-4% SECURITY: Full recourse SECURED: $10M AT 1% ALLOCATION: $25 - $75M CASH GENERATED: $6 – $18M SECURED: $25M 17
  • 18. 18 FINANCIAL OBJECTIVES Note: Cash flows above based on sample portfolio of 5 properties for a $65M Fund. Base Case Assumptions assume 50% of properties financed with NMTC  We are currently projecting between 7- 9% net nominal returns based on a model portfolio of investments, 23% leverage from PRI Debt and 50% NTMC allocation  We have received commitments of $25M in New Market Tax Credit allocation to the Fund, which will generate ~$6M in up-front capital without any investor dilution.  The Packard Foundation has committed $10M in PRI Debt to the Fund, adding 33% leverage to the First Close, at below-market rates (1%, 7.5 yrs)  The tax-advantaged capital and concessionary debt leverage has the potential to increase returns to equity investors by ~2.5% EFM’s objective is to generate competitive financial returns that exceed its benchmark – the NCREIF Timberland Index
  • 19. 19 TARGET FUND PORTFOLIO MIX TARGET PORTFOLIO CHARACTERISTICS • No. of Properties: 4-6 • Target size: 2,000-10,000 acres • Regional Diversity: Properties spread across states with different regulatory regimes & timber markets • Income Diversity: Optionality between timber and non-timber revenues • Desired Property Characteristics: • High Conservation Priority • Mix of age structures and species • Located near high-growth housing markets & near export centers • In rural economically distressed communities Public Land Ownership Analysis
  • 20. 20 CURRENT PROPERTY PIPELINE Currently EFM is tracking approximately 180,000 acres in its property pipeline for near-term acquisitions Total acres 182,124 # of properties 20 Average size parcel 9,106 20 properties in pipeline • 12 in exploratory stage, 7 in stage 1 diligence, 2 in stage 2 diligence • Preliminary appraisal, including review of inventory and discounted cash flow analysis • Conservations with sellers and potential funding sources and partners in progress • Preferential access to Co-Investment opportunities for Major Investors
  • 21. 21 SKOKOMISH, OLYMPIC PENINSULA, WA (EXCLUSIVE 6 MONTH OPTION) • 13,000 acre property on east side of Olympic Peninsula, Washington State • Property Characteristics: Largest private holding in ecologically significant N. Skokomish watershed. Investment grade Douglas fir forest with good access to mills and Highway 101. Adjacent to Forest Service & Skokomish Reservation & proximate to Olympic National Park creating potential for landscape-scale strategies. • Conservation/social features: Critical bird and fish habitat. Primary source of freshwater into contaminated Hood Canal, resulting in significant water quality enhancement opportunities. Important viewshed for Lake Cushman. • EFM Strategy: Improve forest health, conservation easements, carbon, water quality credits, collaboration with Skokomish Tribe.
  • 22. 22 GALBRAITH MOUNTAIN, BELLINGHAM, WA • 3,000 acre property near Bellingham, WA • Property Characteristics: The property has multi-faceted land-use options with long term development value, recreational leases and commercial timberland value. Primarily Douglas fir, close to end markets of Seattle/Bellingham and port facilities. • Conservation/Social Features: Close to city limits. Drains into Lake Whatcom; source of drinking water for county; Significant recreational resource for mountain biking, horse back riding and hiking. • EFM Strategy: Timber harvesting, recreational leases, conservation easements, carbon sequestration, water quality protection.
  • 23. 23 SUMMARY • Investment in valuable timberland with unrealized conservation and social values • Privileged access to proprietary deal flow via strategic conservation and tribal partners • Diversification of income streams reduces reliance on timber markets and increases optionality for investors • Unique access to low-cost debt financing ($10M secured at 1%) • Proven ability to secure competitive New Market Tax Credit allocations ($25M in allocation secured) • Sale to motivated strategic buyers EFM’s strategy results in the following sources of competitive advantage relative to other pure timberland managers
  • 24. 24 Tangible. Stable. Secure. Intergenerational. For further information: Amrita Vijay Kumar, amrita@ecotrustforests.com; (503) 467-0801 Bettina von Hagen, bettina@ecotrustforests.com; (503) 467-0756