CURRENT OWNERSHIP

Although acquisitions by financial investors have increased by almost 25 percent in the last five years, we are still at the early stages of ownership transition. As the chart below indicates, Institutional Investors, primarily represented by Timber Investment Management Organizations (“TIMOs”) currently own five percent of the total timberland acreage in the Northwest and Southeast. Unlike the alternative equity asset classes where substantial amounts of institutional money has been flowing into an ever-maturing market, there are vast opportunities in the young and immature “institutional” timberland asset class.

Being at the forefront of the ownership transition is a distinct advantage to financial investors due to the immature and inefficient nature of this asset class.

Ownership Distribution Comparison

*Northwest includes Oregon, Washington, California, Idaho, and Montana

Domestic Timberland Ownership Traditionally, a large percentage of non-government timberlands have been owned by large, publicly traded, integrated forest products companies, or smaller family-owned forest products companies. The timber on these lands has been used in company mills to produce paper, cardboard, panels, boards, beams and structural lumber for home and building construction, as well as a host of other consumer and industrial products.

Over the last 15 years, a fundamental change has occurred in the ownership of a significant part of these commercial timberlands. Institutional investors, such as public and private pension funds, endowments, foundations and high net-worth individuals, are purchasing large tracts of timberlands from these forest products companies, and sell the logs harvested from these lands on the open market.

These institutional timberland investments have generally been made through private equity limited liability partnerships, closed-end commingled funds and separate accounts utilizing a limited liability company structure. This trend is expected to accelerate as more forest products companies sell portions of their timberland in order to focus on their core business of forest product development and production.

International Timberland Investing

The Campbell Group considers five countries (in addition to the U.S.) as having the highest potential for timberland investment: Canada, New Zealand, Australia, Chile and Brazil. A complementary strategy of pursuing offshore international timberland investments today generally means investing in fast-growing plantations of non-indigenous species. The most common species that have been planted in these countries are Monterey pine (Pinus radiata) and Southern Yellow pine (which are native to California and the Southeast U.S., respectively) and eucalyptus species (native to Australia). Timberland investment in Canada, like the Pacific Northwest, involves intensive management of indigenous species. The advantages of offshore investment include: growth rates that are faster than in temperate latitudes, competitive rates of return, access to new and emerging world markets, and increased diversification. The risks include: native claims disputes, exchange rate exposure, and native forest issues.

Another important consideration is timing. In more mature markets like North America, prime properties are much less likely to become available than in the less mature timberland markets. Within the last year, for instance, some of the best timberland in New Zealand has become available. That makes this a good time to be in this market.

The comparison of resource potential (growth rates, markets, wood quality, etc.) and investment risk leads us to believe that the best international investment potential lies in New Zealand and Canada, followed by Australia. Chile would be a close fourth followed by Brazil. Of course any particular deal might move a country to the top of the list. At the right price, timberland investments in any of these countries can offer attractive returns.

Any potential international investment, of course, would be balanced in regard to risk and return against other potential investments in the United States. The overarching criteria for any investment would hold, that it provides the best risk adjusted return for the client. The Campbell Group would provide the due diligence to be sure that the varied risks and opportunities would be considered in acquiring international properties for investment.