FIM Sustainable Timber & Energy LP – "D" Additional Limited Partnership Shares

For professional or very experienced investors only.

This is an opportunity to invest in an established – and growing – portfolio of UK forests with some exposure to renewable energy assets. It is managed by leading sustainable real asset investment manager, FIM, now part of Gresham House. Together they manage more than £1.5 billion across five specialist alternative investment strategies.

Investors could benefit from attractive and largely tax-free long-term income with a substantial degree of inflation protection and the added benefit of IHT relief.

Highlights

  • Diversified forestry portfolio, one of the UK's largest, with some exposure to solar parks and wind farms
  • Largely freehold and asset backed
  • Largely tax-free index-linked income and tax-free capital growth
  • Free of IHT if held for at least two years and on death
  • Target annual post-tax IRR of 7% (not guaranteed)
  • Initial cash yield of circa 2.1% (adjusted annually by CPI + 1%) – first distribution planned in May 2021
  • Roughly 80% allocated to forestry and 20% to renewable energy assets
  • Minimum investment – £92,625
  • Closing date – 21 Dec 2018

Register your interest and make a no-obligation reservation

The offer

FIM is the UK’s largest and longest-established forestry manager. It has been operating for nearly 40 years.

The current share issue, FIM Sustainable Timber & Energy LP "D" Additional Limited Partnership Shares, aims to raise £50 million. It’s an established fund, having been operating since 2010, and one of the UK’s largest with NAV of £159.4 million (31 May 2018). 

It targets a long-term IRR of 7% with low volatility and index-linked annual distributions (CPI + 1%), thereby providing an inflation hedge. Investors in this offer should receive their first distribution in May 2021. Please note neither returns nor distributions are guaranteed. 

Forestry is a long-term and illiquid investment. The fund has set termination dates (the first on 31 May 2028). However, this doesn’t mean you won’t be able to exit before then. A secondary share sale procedure exists which matches willing vendors and purchasers at mutually agreed prices. Whilst there are no guarantees, between May 2016 and August 2018, transactions of secondary shares in the LP totalled £4.2 million. To date, all shares marketed have been sold at an average weighted premium to NAV of 16%, with an average completion time of 31 days.

Historic and target returns

The fund targets an IRR of 7% post tax and net of all fees. This is in line with historic data published by the IPD Index. 

Performance from inception (2010) to 31 May 2018 has significantly exceeded the target. The blended IRR to all Limited Partners is 12%. The LP has to date paid all annual distributions as planned, with an average annual yield of circa 2.5% of capital value. The balance of the return has arisen through capital growth in the value of the underlying assets. 

Please remember, past performance is not a guide to the future. 

Annual performance total return – to 31 December of each year

2017 2016 2015 2014 2013
UK forestry 13.9% 10.7% 10.8% 18.4% 15.8%
Equities 11.8% 19.2% -2.2% 0.5% 18.5%
Bonds / Gilts 1.8% 7.9% 1% 11.8% -5.2%
Property 9.6% 3.9% 13.1% 17.8% 10.7%

Source: FIM, to 31 December 2017. Please remember, returns are not guaranteed and past performance is not a guide to the future.

Tax benefits 

Investment in UK commercial forestry can have significant tax benefits. 

  • Inheritance tax: 100% IHT relief after two years due to Business Property Relief (“BPR”), provided you still hold the investment on death. 
  • Capital gains tax: no CGT on gain in value of timber. The underlying land is subject to CGT although most of the gain would be in the value of the timber.
  • Income tax: no income tax on timber revenue. The portion of the income generated from renewable energy assets (estimated to be around 20% of income distributions) will, however, be subject to income tax after the first few years. FIM will provide each investor with a taxable income statement each May.

Please remember tax benefits depend on circumstances and tax rules can change.

Current portfolio and business plan

Forestry represents 80.1% (£127.6 million) of the current portfolio, whilst renewable energy assets (solar parks and wind farms) represent 18.4% (£29.4 million). The rest is working capital and cash. There shouldn’t be any material changes to the portfolio split after the funds raised under the current offer are deployed. 

The forestry portfolio currently comprises 61 forests covering 15,691 hectares (38,757 acres) across the UK, but mostly in Scotland, which offers ideal growing conditions for Sitka spruce, the predominant species. 

It is a mature portfolio: more than half is over 30 years old, so could be harvested to generate tax-free revenue. Any felled areas are replanted with improved stock.

If the current fundraise is successful, the manager expects to use £37.6 million to acquire additional forests. Indeed, it has already acquired two forests after 31 May 2018. These acquisitions were financed through a £12 million short-term loan (£11.2 million drawn down to date).

The renewable energy assets portfolio currently has interests in four wind farms through two limited partnerships. The fund’s solar interests are held via FIM Solar Distribution LLP which owns and operates six large-scale ground-mounted solar parks. Circa 50% of revenue from these assets is index-linked to RPI, providing a high degree of protection from inflation. 

If the current fundraise is successful, the manager expects to use £12.4 million to invest in two additional wind farms (the purchase of which is already being negotiated) and FIM Solar Distribution LLP.

Structure of the investment

This is a Scottish limited partnership. Investors will be allotted "D" Additional Limited Partnership Shares. The first distribution is planned for May 2021. 

This investment is available to Wealth Club clients who have successfully completed an Elective Professional Client Application.

Risks

This is a long-term and illiquid investment, only available to investors classified as Elective Professional Clients. Capital is at risk. Returns are not guaranteed.

Many factors could affect the performance of the fund. Please read carefully section seven of the information memorandum for more details on the risks. 

Fees

FIM charges an initial fee of 2%, discounted for investments of over £1 million. Of this, Wealth Club will be paid initial commission of 1.75% (so FIM retains 0.25%). FIM also charges a 2% transaction fee to the fund every time it makes an acquisition or sale of timber or renewable energy assets. FIM will charge an annual management fee of 0.5% pegged to an external valuation of the NAV of the fund. The manager is entitled to a performance profit share of 15% of any return over a hurdle rate equivalent to 7% IRR. The total Ongoing Charge Figure (which includes the annual management fee) for the Fund once all capital is fully deployed is estimated to be 0.66%. There are additional fees and expenses, please see the Information Memorandum for full details.

Our view

There are many appealing features to UK forestry including a track record of steady, tax-free income and capital gains as well as environmental benefits. While there is clearly a high degree of reliance on the price of timber to drive returns, there are relatively few risks associated with the biological growth and harvesting of the forests which underpin value.

The flexibility available with the timing of harvesting timber is a great safety mechanism not afforded to many other sectors of crop growing which allows the manager more control. The exposure to renewable energy assets, which benefit from index-linked government subsidies provides further reassurance, although there are no guarantees. 

FIM is a long-established well proven fund manager and investing with them in a large forestry fund mitigates some of the operational and market risks.

This is a long-term investment with no annual income for over two years. If that doesn’t put you off, we believe the other features are attractive, as are the considerable tax benefits. 

If you are interested, please complete the above form to make a no-obligation reservation or download and complete the application form.

The details

Type
Forestry and renewable energy fund
Target raise
£50 million
Minimum investment
£92,625
Target IRR
7%
Closing date
21 December 2018