Exclusive: SLM closes debut deal from Irish timber fund and secures five more

The manager, which hit a first close on the €50m vehicle in March, will have deployed 10% of capital gathered once the transactions complete.

SLM Partners has acquired a 33-hectare timberland property in Ireland, marking the first deal from its debut Irish forestry fund.

The vehicle has also agreed deals for a further five properties. Once these complete, it will have deployed €2.1 million, or 10 percent of the capital raised so far, according to the firm.

The Silva Fund reached a first close in March 2018 on an undisclosed sum, thanks to backing from the European Investment Bank – its cornerstone investor, through the Natural Capital Financing Facility – as well as two European insurers, one Irish endowment and one Irish family office, investment director Darius Sarshar told Agri Investor in June.

Further capital has been secured since, the firm said, “with additional investors currently undergoing the subscription process.” The Silva Fund has a €50 million target, which it hopes to reach by end 2019 – though Sarshar hinted this summer a final close could happen sooner.

SLM said the fund team has already originated 172 forest properties, covering a combined gross area of 6,613 hectares, “from a range of sources, some advertized and others off-market.” The 10-year vehicle has made offers on a further 16 properties, with a combined value of €3.2 million.

The fund’s strategy largely relies on buying small properties planted in the past three decades from private owners. These often sought to benefit from incentives provided by the EU – in the form of grants and “premium,” recurrent payments – to improve Ireland’s low forest cover. These payments, meant to compensate the farmers for the lack of revenue on the forests during the first 15 to 20 years, have now expired, inducing some to envisage a sale.

“More privately owned forests in Ireland are coming on the market, and we will be able to achieve economies of scale by aggregating sites into a larger portfolio,” said Paul McMahon, managing partner at SLM.

This low-risk portfolio, the firm believes, will become an attractive potential acquisition for institutional investors once an exit is due. The firm does not disclose return targets but told Agri Investor in June that these would stand on par with peers in Australia and New Zealand, where total returns typically stand at 8 or 9 percent real before fund costs and fees.

One “differentiating factor” for the fund, according to the firm, is that it seeks to swap mainstream “clear-fell” strategies – where forests are cleared in one go – with a strategy dubbed “continuous cover,” under which forests are thinned according to regular cycles. This maintains permanent forest cover while allowing for recurrent yield rather than a big lump of cash every few decades, SLM says.

Almost all the properties SLM stands to acquire will require thinning in the first one or two years of new ownership, the firm said, so as to improve stand while generating an early cash yield for the fund.