February 4, 2021

By Lynda Kiernan, Global AgInvesting Media

New Zealand-based farm and forestry manager Craigmore Sustainables (Craigmore) has launched the Totara Forestry Partnership, a new investment vehicle dedicated to opportunities in New Zealand forest land. 

The partnership is targeting funding between NZ$200 million and NZ$300 million (US$143 million and US$215 million) to acquire a mix of established mid-aged forests and tier 3 grazing land within New Zealand on which to plant Pinus radiata, a softwood used in construction. The fund is also planning on planting 30 meter-wide riparian strips of native trees beside waterways to maintain water quality and to enhance the biodiversity in forests.

Nick Tapp, head of investor relations with Craigmore, noted that 2021 is the perfect time for the firm to add the Totara Forestry Partnership to its existing Kauri Forestry Partnership and its three New Zealand farmland partnerships that include its NZ$176 million Craigmore Farming Partnership, its NZ$84 million Craigmore Dairy II Partnership, and its million Craigmore Permanent Crop Partnership, which currently stands at NZ$170 million.

Much like Craigmore’s initial Forestry Partnership, which is posting a 10-year average of 6.18 percent net IRR, expectations are that the Totara Forestry Partnership will generate returns in excess of 6 percent.

“Real assets have shown their resilience and lower correlation to traditional equity markets during a highly volatile 2020, and the importance of capital markets in supporting sustainable and climate smart investing is increasingly being recognized,” said Tapp. 

While it’s true that New Zealand has a relatively short rotation period for forests of 27 years, under the country’s Emission Trading Scheme, there is an opportunity to realize income earlier (between years three – 17) through the allocation of carbon credits (NZUs – which have increased in value from NZ$25 in March 2020 to NZ$38 in early 2021) to newly planted forests for each metric ton of carbon sequestered by the growing trees.

With the ability to generate early cash from these credits, the Partnership is expecting average annual distributions to investors of between 2 percent – 2.5 percent, or one-third of total expected returns.

“Where cash flows from new forests were previously only received at harvest at around the 27-year mark, the sale of carbon credits allows the Partnership to make modest distributions to our investors at a much earlier stage,” noted Che Charteris, CEO, Craigmore. “The recognition of the importance of forestry as part of addressing climate change has changed the economics of the sector.”

Managing broad portfolios of AUM valued at $700 million as of January of this year, and deep experience across permanent crop horticulture, dairy, and forestry, Craigmore is dedicated to ensuring that all land under its stewardship is allocated to its highest use. As such, it will continue its practice of subdividing land that is more suitable for grazing, or horticulture away from the forest properties.

This ESG focus was explained by Charteris, who said, “Totara will build on Craigmore’s sustainability credentials, while the new forests will sequester carbon in their timber. The Partnership will also take a careful focus on land use by ensuring that the right tree is planted in the right place.”

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.