Seeing the Wood from the Trees!
Following our investment in forestry in June 2013 through the Irish Forestry Unit Trust (IForUT), we recently made site visits to meet some of the professionals who carry out the day to day tending of our forestry properties.
By way of reminder, forestry is often categorised by product and location. From a product perspective, there are hardwoods and softwoods. Hardwoods are deciduous trees, that lose their leaves during the Autumn season. Their wood is used in flooring and furniture. Softwoods are evergreens and they are used for structural timber. Recently in Ireland and the UK, hardwoods have been affected by disease. IForUT have less than 2% of its total forestry in hardwoods and values them as zero. Most forestry returns are made at maturity, although some income arises from the thinnings on an annual basis. The mix of ages in the portfolio means that every year some of the forests are maturing providing an income distribution to investors.
Our trip started at Coan West, Co Kilkenny to review a forest that has been affected by windblow in 2013. IForUT are insured for such an incident and will salvage most of the capital from timber sales of the fallen, mostly Sitka Spruce. Sitka Spruce is the predominant species in Irish forestry. It is easily established and reasonably tolerant to most conditions. However, peat or unstable sites make it prone to windblow.
From there it was onto Ballintemple Forestry Nursery in Co Carlow, where we learnt about seedlings of most species including the Sitka Spruce and bare root transplants. We then went to see one of our larger forests in Ballynultagh, Co Wickow and we were impressed with its scale and a quick stop to Laragh in Co Wicklow to witness forest harvesting before visiting the Woodfab saw mill in Aughrim, also in Co Wicklow. This is where much of our felled timber is processed. What impressed us was the total efficiency of the saw mill. Nothing is wasted:
- saw dust is used in the manufacture of wood pellets
- woodchip is used in the manufacture of MDF
- bark is used for garden mulch
- wood shavings are used for animal bedding
Also on view there, were some of the more glamorous finished goods including garden furniture, garden sheds, jungle gyms and play houses. On our way home, we reflected on the returns of 3% for half of 2013, 8.3% in 2014 and what looks like to be another 8% in 2015. Forestry has produced returns uncorrelated with other assets, a competitive real return but with low risk. “It really does pay to see the wood from the trees”!