Thursday, March 28, 2024

NZ Rural Land diversifies into forestry

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Closes $63m deal for North Island forests.
Forest owners are losing faith in the ETS as an investment tool for earning additional forestry income, and are stepping away from investments given the uncertainty around ETS reviews, Grant Dodson says.
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New Zealand Rural Land Company (NZL) is moving into forestry land ownership at a cost of $63 million for five properties in the Manawatū/Whanganui region.

The listed landlord has entered an agreement with private company NZ Forest Leasing to acquire the forest estate of approximately 2400ha and lease it all back to NZFL for a period of 20 years.

The settlement date for the acquisition is April 15, 2023 and the first year’s lease payment will be $4.98m.

Thereafter annual lease payments are subject to CPI-linked adjustments.

NZL and NZFL have not yet disclosed where the forests are, although NZL chief executive Chris Swasbrook said they were all planted out between 1994 and 1996.

Therefore, they are close to logging and the tenant is responsible for all harvesting, replanting and forest maintenance.

The tenant also benefits from the carbon credits, not NZ Rural Land Company.

NZFL is owned by Matthew Walsh and Bruce Miller, who have been in the business since 2010 and who have other forests not subject to this sale and leaseback agreement.

The purchase will be funded with debt and equity and NZL may fund with reallocation of capital within the group and borrowing capacity.

The listed company owns 11,710ha in 11 dairy farms in Canterbury, Otago and Southland with asset values of $289m at last balance date, June 30. It also had net debt of $100m at that date.

All farms are leased to dairy farmers and sharemilkers liable for CPI-linked lease payments.

NZL chair Rob Campbell said the forestry investment was to broaden its high-quality rural land assets and tenants.

“On completion of the acquisition, NZL will have further diversified its tenant base, entered the North Island and a new rural asset class in forestry land.

“NZL’s assets, including this acquisition, are all underpinned by triple net leases with CPI-linked rental adjustments, ensuring the company remains well positioned in an inflationary environment.”

NZL directors want to change the company’s balance date to December 31 and therefore it will report on a six-month financial period in February next year.

This fits better with the May/June season when pastoral farms traditionally trade ownership.

Swasbrook said there will be an annual meeting in December and more details on the forestry assets will be provided nearer the acquisition date.

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