FOREST MANAGEMENT AND MARKETING IN

A GLOBAL INVESTMENT ENVIRONMENT

Southeastern Regional Forest Landowner Conference

Valdosta, GA

Marc Walley

October 28, 2014

1CONFIDENTIAL |

OUTLINE

Timberland investments “101”

Global markets and management implications

What matters most and what matters less?

2

FOREST INVESTMENT ASSOCIATES (FIA)

Registered investment adviser founded in 1986

HQ and main office in Atlanta

Field offices across U.S. and in South America

2.4 million acres in 21 states and Brazil

54 employees – 25 are foresters

Employee-owned, entrepreneurial firm

Recognized for high standards and strong

culture

Company logo – The Broad Arrow

3

FIA OPERATIONAL FOOTPRINT

The areas highlighted represent counties / countries in which FIA’s existing clients own timberland.

As of June 30, 2014

Location Acres

AL 123,765

AR 118,537

CA 43,725

FL 209,383

GA 322,440

LA 7,155

ME 61,898

MO 2,691

MS 202,764

NC 224,916

NH 750

NY 4,205

OR 68,618

PA 81,550

SC 276,811

TN 100

TX 199,601

VA 162,059

WA 31,244

WI 63,350

WV 21,670

Brazil 144,595

Grand Total 2,371,826

2,371,826 Acres Under Management

4

WHY TIMBER? Benefits of a timberland investment

Asset Diversification

Don’t put all your eggs in one basket

Risk Reduction

Minimize volatility of portfolio returns

“Real” Rate of Return

Inflation hedge

Biological Growth

Trees don’t read the Wall Street Journal

5

MANAGEMENT OBJECTIVE AND STRATEGIES

Maximize long-term total return

Manage for optimal biological growth

Utilize intensive forestry with proven economics

Maximize cash flow from effective marketing and timing of timber

sales

Maximize cash flow through secondary sources of income besides

timber sales

Capitalize on alternative use options and land sales when such

opportunities yield greater returns than traditional timberland

management

6|

Understanding global wood sources and species is key to understanding markets

GLOBAL WOOD SUPPLY – SOURCE AND SPECIES

U.S. PNW: Douglas

fir, Hemlock

U.S. South:

Loblolly pine

U.S. Northeast:

Black cherry,

Maple, Red oak

Brazil & Uruguay:

Loblolly pine,

EucalyptusAustralia:

Radiata pine,

Eucalyptus

New

Zealand:

Radiata pine

SE Asia: Acacia,

various tropical

Canada: Douglas

fir, Hemlock

Canada: Spruce

fir

Chile: Radiata

pine, Eucalyptus

7|

Understanding global wood flow is key to understanding markets

China continues to be a leading

importer of logs and finished products,

but Japan, Korea, and India are viable

markets

The United States is an important

exporter to both Asian markets (from

Pacific Northwest) and Europe (from

the U.S. South)

Brazil, New Zealand and Chile may

continue to grow market share at the

expense of countries such as Russia,

Canada, and parts of Africa

GLOBAL WOOD FLOW TRENDS

8

MANAGEMENT AND MARKETS IN THE SOUTH

Diverse markets for both large and small timber

Mostly domestic demand and local processing

Limited but growing export demand

Given the long-term nature of forest investments our management regimes will

not change significantly, however …

Generally rotations are shorter

Thinning is customary

Pellet demand has positively impacted Atlantic seaboard markets

Market uncertainty in the future means we need to maximize our options

Decisions to sell sawlogs to a domestic producer or exporter or to sell pulpwood

for pulp production or pellets depends more on the buyers in the

marketplace at the time of harvest than our management regime

Certification can be an important factor for procurement organizations

9

MANAGEMENT AND MARKETS IN THE PACIFIC NORTHWEST (PNW)

Market is driven almost exclusively by sawlog demand

Domestic markets are very good – bigger sawmills than in the South

Export log markets are well-established and important

Management regimes have changed

Shorter rotations – 40 years today vs “old growth” mentality of past

Development of small-log sawmills

Commercial thinning is still not customary

Generally less intensive management than in the South

Understanding the cyclical nature of PNW export markets is important

Selling timber below 2,500 feet elevation west of I-5 in 4th and 1st quarter

can yield significant premiums

Certification is less a factor in the PNW

10|

SIZE OF U.S. MARKET DOMINATES FOREST PRODUCTS DEMAND

11|

Market Value by Geography ($MM)

Other

US Lake States

Canada

US Appalachia

US Northeast

South & Central America

Australia & New Zealand

US Northwest

US South

0 5,000 10,000 15,000 20,000 25,000

Source: Timberlink

WHERE ARE THE WORLD’S TIMBERLAND INVESTMENTS?

12

Where have we been?

Housing starts plumetted …

Source: U.S. Department of Commerce

0

500

1,000

1,500

2,000

2,500

Housin

g S

tart

s,

‘000

Average Total Starts (SAAR)

13

Resulting in collapse of forest products consumption …

Source: Forest Economic Advisers (FEA)

Residential down 78%

14

And timber prices followed lumber production … down!

$20

$25

$30

$35

$40

$45

$50

10

11

12

13

14

15

16

17

18

19

20

PS

T S

tum

pa

ge

Pri

ces

$/T

on

So

uth

ern

Lu

mb

er

Pro

du

cti

on

BB

F

Lumber Production Southern Stumpage

Source: FEA, TimberMart South

15

0

150

300

450

600

750

900

1050

1200

1350

1999

2004

2009

2014

2019

Mil

lio

ns

of

Sq

ua

re M

eter

sThe Canadian pine beetle epidemic will constrain supply

• An unprecedented pine beetle epidemic in Canada has wiped out millions of acres of forest

• 55% of the standing lodge pole pine timber in western Canada as of 2000 is now dead

• 30%+ of U.S. lumber demand is met from Canadian supply, the single largest non-U.S. source

• Additional Canadian supply constraints due to reduction of allowable annual cut in eastern provinces

Volume of Live Canadian Lodgepole Pine Affected Area

|

Liv

e T

ree

s in

20

00

To

da

y

Source: Biodivcanada.ca

16

Southern lumber production to exceed previous peak

CONFIDENTIAL |

Source: FEA

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bill

ion

Bo

ard

Fee

t (B

BF)

US South LumberProductionUS South Peak LumberProduction

~19 BBF

17|

US West Coast Log DemandThe West Coast Log Demand Will Be Increasingly Driven by Domestic Demand

Source: FEA

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

30%

0

1

2

3

4

5

6

7

8

9

10

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Bil

lio

n B

oard

Feet

(BB

F)

Other

Pulp

Log Exports

Plywood

Lumber

Exports Share of Harvests

18CONFIDENTIAL |

SUMMARY

There are multiple benefits to timberland investments,

the primary one being diversification

Global market dynamics have not dramatically

changed forest management and marketing strategies

International markets are more important in the PNW

than in the South

The most important market for U.S. timberland owners

is the U.S. market