Discount rates used for forest valuation - results of 2015 survey

Abstract

Sixteen forest valuers responded to the survey and provided information on 36 New Zealand transactions between mid-2013 and 2015. The average reported implied discount rate (IDR) for the New Zealand transactions was in the range 3.7% to 11% for post-tax cashflows and 4.8% to 13.6% for pre-tax cashflows. There was greater variation in IDR in this survey compared to 2013. Overall averages were 6.9% (post-tax cashflows) and 8.6% (pre-tax cashflows), compared to 7.3% and 8.9% in the 2013 survey. A feature of the 2015 survey is the lower average IDR for medium/large forests compared to small forests – 6.4% vs 7.1% for post-tax cashflows and 7.8% vs 9.1% for pre-tax cashflows. These IDRs are for current rotation cashflows. IDRs for perpetual rotations are generally lower. Forest valuers also provided the discount rate they use to estimate the market value of a forest. Valuers apply a discount rate in the range 6% to 10% (average 7%) to post-tax cashflows or a discount rate in the range 7% to 11% (average 8.3%) to pre-tax cashflows. Fourteen of the 16 valuers included in the 2015 survey also participated in the 2013 survey. They are using discount rates for forest valuation that are on average 0.2% lower than in 2013.