Victor Haley & Greg Tolbert2008 Forest Landowners Association
Current Issues In Timberlands Acquisitions
& Dispositions
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Victor P. HaleyPartner and Member of Timber and Forest Products Group,Sutherland Asbill & Brennan LLP
Education J.D., University of Virginia School of Law, 1984 Notes Editor, Virginia Law Review B.A., with honors, Harvard College, 1980 Victor has extensive experience in the full range of timberland transactions, including representation of buyers and sellers, timberland financings, joint ventures and timber supply agreements. He recently represented a consortium of buyers in the acquisition of approximately five million acres of timberland from International Paper, which was the largest private land transaction ever. Victor also regularly represents buyers and sellers of timberlands outside of the United States, most recently in Brazil, Belize and Costa Rica. Victor was named a Best Lawyer in 2006 and 2007 and an Atlanta Magazine Georgia Super Lawyer in 2006 in Real Estate Law. Victor speaks frequently at legal education forums on such topics as timberland acquisitions and joint ventures and title issues unique to timberlands.
Bio at www.sablaw.com
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Greg TolbertSenior Legal Counsel, Weyerhaeuser CompanyChief Solutions Officer, Sirius Business, LLC
Since 1994, Greg has provided legal support for Weyerhaeuser Company's Timberlands Business and is the youngest Weyerhaeuser employee ever to be awarded the company's President's Award for extraordinary contribution, twice.Greg grew up in rural Montana with a keen understanding of natural resources and natural resource-based communities and, today, is a leading authority regarding timber and timberlands, mineral resources, and natural resources law issues. Greg is an honors graduate of Lewis & Clark College (B.S., Business 1986), the College of William & Mary (J.D., Order of the Coif, 1989), and Northwestern School of Law of Lewis & Clark College (LL.M. Environmental & Natural Resources Law, magna cum laude, 1994). Greg has extensive timberlands experience pertaining to all aspects of the business and supports Weyerhaeuser Company business leaders in managing a substantial timberlands portfolio.Bio at www.avvo.com/attorneys/98063-wa-gregory-tolbert- 19754.html.
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Agenda
1. Industry Transformation
2. What Forest Landowners Need to Know in Today’s Changed Marketplace
3. Timberland Purchase & Sale Agreements
A. Context
B. Common Issues
C. Practical Solutions & Tips
4. Emerging Issues
Industry Transformation
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Timberlands Ownership
200
293
50
16
0
50
100
150
200
250
300
USFS Private Industry Investor
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Private Sector Timberlands Ownership
T-REITs
MLPs PrivateEquity
TIMOs
C-Corp
Ownership
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Simple ViewTimberlandsOwnership
Traditional Financial
NIPF
Publicly Traded
Private
TIMOs
Timberland REITs
MLPs
Private Equity
Conservation NGOs
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
TIMOs
Timber Investment Management OrganizationsExamples –
The Campbell Group (1981)Forest Capitol Partners, LLCForest Investment Associates (1986)GMOGlobal Forest PartnersHancock Timber Resource Group (1985)Lyme Timber CompanyMolpus Woodlands Group, LLC (1996)RMK Timberland Group (1981)Resource Management Service, LLC (RMS)The Forestland GroupTimberStarTimbervest, LLC (1995)Wagner Forest Management
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
T-REITs
Timberland Real Estate Investment TrustsExamples –
Plum Creek Timber Company (1999)Rayonier Inc. (2004)Potlatch Corporation (2006)Longview Fibre Company* (2006)
*Acquired by Brookfield Asset Management (2007)
Wells Timberland REIT, Inc. (2007)
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
MLPs
Master Limited PartnershipsExamples –
Pope ResourcesPlum Creek*(before it converted to a REIT in 1999)
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Private Equity
Private EquityExamples –
Ted TurnerRed Emerson - Sierra Pacific IndustriesJD IrvingSingleton FamilyKing Ranch HeirsPingree HeirsReed Family - Green Diamond Resource CompanyFord FamilyHuber FamilyTim BlixsethCassidy HeirsEddy Family – Port Blakely Tree FarmsRoseburg Forest ProductsRosboroHampton AffiliatesSDS Lumber CompanyStimson Lumber CompanyMerrill & Ring
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
C-Corps
C-corporationsExamples –
Weyerhaeuser Company
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Arbitrage
InvestorsExamples –
Madison DearbornBrookfield Asset ManagementCarl IcahnFranklin Mutual
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Options to Unlock Timberlands Value
ChangeOwnershipStructure
ChangeOwnershipStructure
HostileTakeover
HostileTakeover
CorporateMetamorphosis
CorporateMetamorphosis
TrackingStock
TrackingStock
ChangeUS Tax Code
ChangeUS Tax Code
DoNothing
DoNothing
Sell Timberlandsto
Highest Bidder
Sell Timberlandsto
Highest Bidder
TimberlandsTimberlands
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Rapid Transformation
197640 C-Corps60 million acres
20066 C-corps11 million acres4 REITS13 million acres18 TIMOs18 million acres
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
What Drove the Transformation?
BusinessInvestment moneyTax efficiency
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Tax Efficiency
2006 Plum Creek WY
Structure T-REIT C-Corp
Revenue (millions) 1,627 21,896
Income before Taxes 328 826
Corporate Income Tax 13 471
Net Income (with Adjustments)
317 453
Effective Tax Rate 4% 57%
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
A Brief History
1970sCongress enacts ERISACAA & CWA increase US industry costs & decrease competitiveness
1980sInstitutional investors begin to invest in alternative asset classesFirst investment in timberlands (1984)TIMOs emergeSir James Goldsmith buys Crown Zellerbach (1985)Tax code change (1986)CalPers makes initial allocation to timberlands (1986)
1990s – EarlyPacific NW - NSO listed (1990)Pacific NW mills are closingCompanies are continuing to re-position to southeastern US & off-shoreLog prices downWall of wood – south, west, & off shore
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Brief History, cont.
1990s - LaterIndustry consolidationMore investors are buying US timberlandLarge scale conservation easements (TIMOs)Wall street chatter to ‘unlock the value’US paper production peaks & starts shrinking (1999)
21st CenturyTech bubble inflates & popsStock market returns tank but funds need a place to place moneyWall street – ‘unlock the value’Corp scandals/Sox/balance sheetsHBU buyersArbs move inSoftwood Lumber Agreement (2006)US housing market collapseFirst U.S.-listed Global Timber ETF (2007)
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
What Happened?
Ownership changeIn the past 10 years, the forest industry sold over 31 million acres of timberlands80% of the property went to financial investors
Pushed up timberland valuesSupply/demandDisadvantaged non-tax efficient purchasersCreated pressure to ‘unlock the value’
Industry restructured
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Industry RestructuringT-REIT conversions
1999: Plum Creek 2004: Rayonier2006: Potlatch & Longview Fibre
Consolidation1999: IP acquires Union Camp1999: Rayonier acquires Smurfit’s timberlands2000: IP acquires Champion International2000: Plum Creek acquires Georgia Pacific’s timberlands 2002: WY acquires MacMillan Bloedel & Willamette Industries
Exit timberlands ownership1999: Kimberly Clark Corporation1999: Smurfit Stone Container2000: Georgia Pacific2002: Louisiana Pacific Corporation2002: Boise Cascade2006: International Paper2007: MeadWestvaco2007: Temple-Inland2007: Menasha Forest Products Company
BankruptciesCrown Pacific Partners LPPacific Lumber Company (Palco)Pope & Talbot
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Timberlands Timberlands Now Owned By
Company Owned REIT TIMO Other
Boise Cascade
Bowater
Champion
Crown Zellerbach
Diamond International
Georgia Pacific
International Paper
Longview Fibre
Louisiana Pacific
Mead Westvaco
Menasha Forest Products
Plum Creek Timber Company 1999
Potlatch Corporation 2006
Rayonier Corporation 2004
Temple-Inland
Union Camp
Weyerhaeuser Company Yes
Willamette Industries
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Top 20 Timberlands Owners1 Plum Creek Timber Company REIT 8,200,000
2 Weyerhaeuser Company C-Corp 6,400,000
3 Resource Management Service TIMO 2,600,000
4 Hancock Timber Resource Group TIMO 2,400,000
5 The Campbell Group TIMO 2,358,000
6 Rayonier, Inc. REIT 2,200,000
7 The Forestland Group TIMO 2,104,765
8 Forest Capital Partners, LLC TIMO 2,100,000
9 Grantham, Mayo, Van Otterloo Private 2,100,000
10 Wagner Forest management Ltd. TIMO 2,000,000
11 Forest Investment Associates TIMO 1,900,000
12 Sierra Pacific Industries Private 1,721,771
13 Potlatch Corp. REIT 1,700,000
14 Global Forest Partners TIMO 1,400,000
15 Regions Morgan Keegan Timberland Group TIMO 1,400,000
16 TimberStar Commercial 1,245,000
17 J.D. Irving Private 1,218,000
18 Green Diamond Resource Company Private 900,015
19 Timbervest LLC TIMO 850,000
20 Seven Islands Management TIMO 845,000
What Forest Landowners Need to Know In Today’s Changed Marketplace
Changed marketplaceOutlook for Timberlands
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Impact on Forest Landowners
Timberlands Business is still a great businessParticipants have changed
TIMOsREITsHBU investorsGovernment & NGOs
Marketplace valuesOther than commercial forestland
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Outlook for Timberlands
Declining returnsMarketplace has digested a lot of transactionsDemand for forest products has been flat since 1982Some financial investors are exitingTIMO cash flows can be unstableTIMO funds are approaching maturityEnough buyers?Off Shore
Timberland Purchase & Sale Agreements
ContextGoals
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Context
Own orOperate
Closing
Post-Closing
Decisionto Sell
DueDiligence
Purchase& Sale
Agreement
DueDiligence
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Goals
SellersBest priceLow hassleManageable riskDeal certainty
BuyersBest priceLow hassleManageable riskDeal certainty
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Purchase & Sale Agreements
This is no place to try to ‘save some trees’Purchase & Sale Agreements may be long
Depends on -Deal complexityUnusual factual situationsTime until closing
In addition -Specialized provisionsStatutory provisionsExhibits
Timberland Purchase & Sale Agreements
Common Issues
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Purchase Price
Earnest money depositsSoft-firm-hardFree option
Purchase price adjustmentsTitle defectsAcreage; SurveyHarvest reconciliationTimber cruise; AppraisalEnvironmentalCasualty loss
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Title
TitleDeed formEncumbrances
Title InsurancePolicyEndorsements
AccessPublic roadEasements
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Property Condition
TimberRecent/current harvestOutstanding timber rights
Infrastructure/ImprovementsRoadsWater crossings
OtherT&E species; Critical habitatLandslides; unstable slopesDump sites; Historic landfillsAdverse possession
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Seller Reservations
Mineral reservationsEasementsHigh value footprintsResearch test areasPolitical/environmental
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Closing Costs & ProrationsTraditional Closing Costs
Escrow feesRecording costsTransfer taxes
Traditional ProrationsReal property taxesLand related agreements (hunting leases)Security deposits
Change in Tax ClassificationTitle Insurance
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Contingencies
Buyer due diligenceBuyer financingAssignment & assumption of key land-related agreementsGovernmental agreementsHBU zoning
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Common Issues, cont.
Representations & warrantiesScope & exceptionsCorporate reps & warranties
IndemnitySurvivalProcessBasketsCaps
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Risk of LossScopeObligation to closePrice adjustment mechanism
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Tools of the Trade
MapsMaps, photos, etc.SurveysRoad plansGIS and similar unique data
Forestry DataInventorySilvicultural treatmentsWildlife surveys
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Tools of the Trade, cont.
Seeds & seedlingsSite specific
Third party claimsPrescriptive easementsBoundary disputesPotential adverse possessionWater systemsCemeteriesCultural or historic properties
Timberland Purchase & Sale Agreements
Practical Solutions & Tips for Buyers & Sellers
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Plan Ahead
Engage competent advisors & counsel
TitleAttorneys
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Title
Title conditionRecognize that title companies can add valueObtain & review title reportsScrub unnecessary/expired encumbrances
Title InsuranceAllow sufficient timeSpecify policy type; endorsementsConsider seller’s policies
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Due Diligence
EnvironmentalConsider whether property will cause reasonable buyers to engage in lengthy review
Consider using virtual data rooms
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Advance Planning To Enhance Value
TitleRemove unnecessary encumbrances
Old mortgages, liens, etc,
Improve title – e.g., partial ownership
PropertyAcquire severed mineral rightsNegotiate surface use issues with third parties
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Advance Planning To Enhance Value, cont.
AccessObtain necessary, supplemental, or value-added access
OtherResolve boundary disputes before marketingUnderstand buyer point of view regarding environmental review
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Closing
As soon as practicalEscrow closingsRepresentatives on siteDraft & review closing statements in advance of closingAvoid Friday or end of quarter closingsMake sure the court house will be open
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Partial Sale Tips
Reciprocal easementsAccessTail holds
Road use agreementsGood neighbor clauses
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
H-S-R Transactions
Don’t close prior to premerger notificationEvaluate exemptionsSplit HSR filing feeCollaborate in FTC/DOJ filing
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Use Exhibits
Deed formAgreed encumbrancesEasement formFIRPTA certificateStructured transaction forms
Emerging Issues
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Post-Industry Transformation
Fiber Supply AgreementsMany forest products manufacturers no longer own timberlandHedge against spot market & global resource wars
Seedling sales (purchase rights)
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Development Rights
Transferable Development RightsConservation EasementsWater Utilities – Watershed Agreements
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Political/Environmental
Timberland Conservation
Land use restrictionsNIMBY crowdWetlands mitigation banks
Climate ChangeCarbon credits & sequestrationCarbon storage
EnvironmentalT&E speciesGreen building requirements
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Green EnergyWind farmsGeothermalCellulosic ethanol
Major betDerived from non-foodstock sources
Switch grassHybrid poplarsForest thinnings
Energy Independence & Security Act of 2007
Renewable fuels standardFederal lands prohibitionSome private lands prohibited
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
High Maintenance Neighbors
Organic FarmsHBU LandownersDrug Cartels
Victor Haley & Greg Tolbert Forest Landowners Association2008 National Conference
Other
Specialty/minor forest productsRight-of-waysRecreational Access
Thank You