Discount rates used for forest valuation - results of 2019 survey

Authors: Bruce Manley
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2020, Issue N.Z.J.For. 65(3) 2020, pp 15-24, Nov 2020
Publisher: New Zealand Institute of Forestry

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Abstract: A total of 22 forest valuers responded to the survey and provided information on 33 New Zealand and two Australian transactions in 2018 and 2019. The average reported implied discount rate (IDR) for the New Zealand transactions is in the range 3.2% to 8.5% for current rotation post-tax cashflows and 4.1% to 11.5% for pre-tax cashflows. Overall, averages are 6.1% (posttax cashflows) and 7.3% (pre-tax cashflows), compared to 7.0% and 7.6% in the 2017 survey. IDRs for the transactions of medium or large forests are, on average, lower than for small (<1,000 ha) forests; 6.0% vs 7.8% for current rotation pre-tax cashflows. Forest valuers also provided the discount rate they use to estimate the market value of a forest. Valuers apply an average discount rate to current rotation pre-tax cashflows of 7.3% for medium/large forests and 7.9% for small forests. Some 20 of the 22 valuers included in the 2019 survey also participated in the 2017 survey. There has been an average reduction of 0.4 percentage points in discount rate for 19 valuers of New Zealand forests and 0.3 percentage points for six valuers of Australian forests. However, on average, valuers are using higher discount rates to value medium/large forests than is evident from the IDRs of transactions.

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