Discount rates used for forest valuation - results of 2017 survey

Abstract

A total of 23 forest valuers responded to the survey and provided information on 19 New Zealand and eight Australian transactions in 2016 and 2017. The average reported implied discount rate (IDR) for New Zealand transactions is 7.0% (range 4.0% to 9.2%) for current rotation post-tax cashflows and 7.6% (range 4.0% to 10.7%) for pre-tax cashflows, compared to 6.9% and 8.6% in the 2015 survey. IDRs for the four transactions of medium or large forests are, on average, lower than for the 15 small forests; 5.8% versus 7.2% for post-tax cashflows and 5.9% versus 8.4% for pre-tax cashflows. The eight reported Australian transactions are all medium or large forests. For current rotation pre-tax cashflows the range of IDRs is 7.7 to 10.8% with an average of 8.5%. Forest valuers 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 7.1%) to post-tax cashflows or a discount rate also in the range 6% to 10% (average 7.6%) to pre-tax cashflows. Fourteen of the 23 valuers included in the 2017 survey also participated in the 2015 survey. They are using discount rates for forest valuation that are, on average, 0.6% lower than in 2015. Although eight of these valuers are using a lower discount rate, the other six use the same, or higher, average discount rates in 2017 as they did in 2015.