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NV 684 Forest Finance, Fall 2022

You are an entry level analyst for a large TIMO. Your company has just purchased the
Lonesome Pines Property for $14 million for their fund portfolio. Lonesome Pines is the only
Virginia property in the fund. The portfolio has six other forestland property assets with the
following characteristics:

● Two in the Pacific Northwest
● Three in the US South
● One in Michigan’s Upper Peninsula
● Roughly equal split in aggregate between hardwoods and softwoods across the other six
● No other property has produced carbon credits
● Approximately 25% of the Michigan property is under a working forest conservation
● Approximately 20% of the acreage in the Pacific Northwest is under conservation
● Approximately 25% of the total acreage in the US South is under a softwood timber
supply agreement for bioenergy plants in the region

The property was purchased from another TIMO which needed to sell due to investor pressure
unrelated to the specific property. While your company was able to purchase the property for
$14 million, it was appraised at $16.8 million. The previous owners provided a data room during
the negotiation process. Although your TIMO did not have complete information about the
property, it did confirm that all encumbrances were disclosed. Your firm felt that the discount it
paid to appraisal value was worth the risk.

The senior management team wants you to conduct a financial analysis on the property and
make a recommendation for its management and ultimately its sale within the term of the fund
(10-12 years). They want a preliminary report and a final recommendation.

1. November 30rd Preliminary Report (33%)

Investment team memo on initial findings that highlights:
a. Major themes, risks, opportunities identified in the project based on current data
b. Information gaps
c. Initial thoughts on management options

This should be no longer than two single spaced pages
Lonesome Pines Final Project Instructions:
Yale School of the Environment
ENV 684 Forest Finance, Fall 2022

2. December 21th Final Assessment (67%)

Final management recommendation for the property. This should be delivered as an
excel proforma and accompanying write up detailing your assumptions, information used
to support those stances, and final recommendation.
a. Management strategy showing associated costs and revenues
b. Net Present Value (NPV) of your recommended strategy
c. Justification for why you chose your management strategy
d. Sensitivity analysis
e. Exit strategy and type of potential buyer

There is no length for the final recommendation. Keep in mind, however, that your
bosses want you to be succinct and clear and provided supporting financial analysis that
is easy to understand and to the point. A successful recommendation drawson solid
financial analysis and data as well as insightful qualitative interpretation of the project.

Some potential questions/ways to approach to get you started:

Initial Memo:

● What are the potential opportunities for generating investment return on the property?
● What are potential management strategies you might pursue?
● What are some potential risks to achieving your goals?
● What data gaps do you hope to fill in your follow up meeting with the prior owner?

Final Recommendation:

● What drove your final recommendation?
● What are the assumptions behind your model proforma? These assumptions could
include the assumptions in your model as well as your assumptions about the overall
market/regulatory/etc. environment
● What discount rate(s) are you using?
● How might your strategy be influenced by the other holdings in the portfolio?
● What could go wrong?
● How does your strategy impact potential sellers?
● What is your holding period?

To the extent the seller is willing, we will provide follow up information. The analysis of a
forestland property will always require you to make decisions under uncertainty and with
incomplete information. How you navigate these challenges will help your firm gain confidence
in the likely success of your recommendation.