Projections

The following projections will help illustrate the likely harvest schedule and yields from growing 100 teak trees on our tree farms. The price projections are based on historical data and the growth projections are based on planting teak on average sites. Of the many species of tropical hardwoods that we are growing on our tree farms, teak is the only species for which sufficient historical data exists to allow us to make reasonably detailed projections of potential harvests and yields. In practice, our teak is planted on first class sites and, as a result, our teak growth is very much ahead of these projections.

If, after you look over these projections, you have any questions about having us grow trees for you, please feel free to contact us

Teak Projections for 100 Trees

This table shows the projected growth, harvests and yields from planting 100 teak trees in our plantations. These projections are based upon a beginning price of $3.50 per board foot for teak. According to the International Tropical Timber Organization (ITTO) June 2003 Market Review publication, Forest Products Prices, the actual mediam export/import prices of teak averaged $4.50 per board foot ranging from $3.54 to $5.43, depending upon dimension and quality. Prices for teak for the earliest thinnings may be less so we chose $3.50 per board foot for our projections.

The projections in Table 1 are also based upon the price of teak increasing at 6% per year and the harvest and processing costs increasing at the same rate. According to the FAO Forest Products Prices, the median export/import prices of teak actually rose at an average rate of 9.7% from 1970 to 1988, the last day of that report. More recently, teak prices have been rising at a rate greater than the 6% used in these projections.

Both the timing and number of trees harvested are based upon the latest silvicultural practices derived from years of experience in teak plantations. The actual harvests of your trees will be determined by our professional staff, who monitor the growth profiles of your trees in the plantations. Please also note that if you elect to have us sell your hardwoods for you, several additional months after any thinnings or harvest will be required to mill, dry, and grade your lumber and prepare it for the international market.

These projections include a mortality and cull loss of 15%. The most likely period of mortality or cull loss is during the first years after field planting. Our foresters will examine your trees frequently during this period and, during the first year, we will promptly replace, at no charge to you, any tree that is not healthy or in any way not growing properly.

Refer to Table 3 for details on the estimate obtained for Tree Value at each harvest used in this table. Also see Table 4 for details on on estimates for Net Profit per Harvest.

Cumulative net proceeds is a running total of your estimated cash flow from the harvests of your trees.

Yields Based on Annual Price Increases

This table is based upon the projected yields shown in the previous table and illustrates the effect of different annual percentage increases in teak prices, ranging from 0% (no increase) to 10% per year, on the profits and internal rate of return, IRR. These projections also assume that harvest and processing costs will increase at the same rate as the increase in the price of teak.

The internal rate of return, or IRR, is the calculation of the annual compound yield of the projected cash flow.

Tree Value Estimate

The value of each tree is a function of the marketable wood which is determined by the size of the tree. The following table provides an estimate of tree value for each harvest period. This information is used in Table 1, "Projected Yield of 100 Teak Trees".

The height and diameter growth estimates are based upon growth rates obtained in plantations in the Caribbean and Central America. To date, our actual teak growth rates significantly exceed these projections.

For teak, our estimated volume per tree is arrived at by multiplying the basal area of the tree (Pi x (1/2 diameter)²) times the usable height of the tree, and then reducing the result by 35%, since a tree trunk is not a true cylinder.

The estimated amount of marketable wood per tree is stated in board feet, a standard measure of wood used in the U.S. One board foot of wood is one foot square by one inch thick (1' x 1' x 1"). There are 12 board feet in a cubic foot of lumber and 424 board feet in a cubic meter of lumber. The estimate of marketable wood is based upon the estimated volume per tree in cubic feet, multiplied times 12 to obtain the number of board feet, and then reduced by the estimated amount of processing waste, which is sawing losses and damage to the logs while being harvested, transported and processed. The inefficiency of smaller diameter logs results in greater sawing loss on younger, smaller trees. Accordingly, we have subtracted a processing waste of 60% for the 8 year old trees harvested, 45% for the 12 year old trees, and 30% for those 16 years old and older.

The value per tree is the estimated value of the lumber from each tree. This is arrived at by multiplying the estimated number of marketable board feet per tree, times the projected price per board foot at the time of harvest, using a beginning price of $3.50 per board foot and annual increases of 6%. The projected values per tree are based only upon the value of lumber the tree may produce and do not include any estimate of the premium value which veneer logs may bring.

Harvest, Processing, and Management Cost Estimation

Gross harvest proceeds, the estimated gross proceeds from the sale of the lumber from each harvest, is arrived at by multiplying the estimated value per tree times the number of trees harvested in that thinning or harvest.

Harvest and processing costs are the direct costs of harvesting your trees, transporting your logs to the sawmill and having them sawn into marketable lumber. For these projections we have assumed that the harvest and processing costs will be 15% of gross harvest proceeds and will increase at the same rate as the increases in the price of teak.

Net harvest proceeds are arrived at by subtracting the estimated harvest and processing costs from your gross harvest proceeds.

The care and management fee is our charge for managing the care and maintenance of your trees and the harvest, processing and sale of your hardwoods. Our care and management fee is 11% of the net harvest proceeds.

Net profit per harvest is your estimated net cash flow from each harvest, arrived at by subtracting our care and management fee from the net harvest proceeds.

Especially for the earliest thinnings, it would be good to anticipate as much as a year or more delay from the time of the thinning harvest until your lumber is milled, dried, and marketed, if that is your wish. This anticipated delay is incorporated into the calculations of the IRR for the first and second thinnings.