Stafford sheds Phaunos fund’s dead weight, boosting profits

Phaunos Timber Fund, the listed closed-ended timber vehicle managed by Stafford Capital Partners, saw a near $30 million year-on-year climb in profits in 2016, thanks in large part to an aggressive cost-cutting campaign.

The fund reported net profits of $18.3 million in 2016 compared with a net loss of $10.5 million in 2015. Total net asset value now stands at $301.3 million and NAV per share increased 12 percent to $0.55, while timber and investment operating expenses decreased 13 percent to $7.3 million.

When Stafford began managing the fund in June 2014, it set out with the mission to dispose of non-yielding, higher-risk assets. At the time, these assets made up 36 percent of the fund’s NAV, but that is currently down to 13 percent and well on its way to dipping below the 10 percent target once pending divestments are finalized, Stephen Addicott, partner with Stafford Timberland, told Agri Investor. 

“Those assets were performing poorly and their sell-off has been a major success factor,” Addicott said.

The high-risk assets were predominantly greenfield investments that were not yet yielding, or consisted of less mainstream timber species, which Addicott said many buyers will likely convert to more traditional agricultural planting uses.

Asset sales in 2016, totaling $27.6 million – compared with just $9.3 million in 2015 – consisted of the $16.8 million from the partial sale of the Boardman Tree Farm, the $8.5 million sale of shares in Green Resources, and the $2.3 million sale of the standing timber at the Brazilian teak estate Alto Jauru.

Keeping with Stafford’s broader strategy, the manager wished to retain yielding, lower-risk properties akin to Matariki, New Zealand’s third largest forestry estate, valued at $130.7 million, of which PTF owns 35 percent. The property has a balanced age class across its 169,000 hectares, with forests growing on 26-30 year rotations, Addicott noted.  

“All the wood harvested today was planted 25 to 30 years ago,” he said. “But there was a lack of new planting 20 years ago and we’re now seeing supply start to taper off. At the same time we are seeing that good quality assets are being very tightly held, so owning an asset like this is a good value for the fund.”

Revenue from timber operations and investment income decreased 42 percent from $16.3 million in 2015 to $9.5 million for 2016, a result of one-off sale of standing timber from the Brazilian asset of Mata Mineira during the former year. “This was partially offset by increased dividends from Matariki,” according to the 2016 results report.

In addition to an interim dividend of 0.3 cents per share paid in December 2016, the first dividend payment since 2012, the board is proposing a final dividend of 1.6 cents per share, for a 1.9 cent total.

Fundraising on PTF began in 2007 and concluded in 2008, and the fund was fully invested by 2010. However, with these latest sales, cash reserves jumped from $4 million at the time Stafford began managing the fund to $45 million. Addicott said Stafford plans to reserve $15 million of that as a buffer for future management costs, leaving $30 million for share buybacks, support for future dividends and, potentially, new acquisitions.

When the fund’s board holds its continuation hearing in June, Addicott said Stafford believes it will be able to solidify a five-year extension of the fund from shareholders, as opposed to a liquidation.

“We’re confident that will get through,” he said. “Once granted that will give us a chance to identify some new opportunities down the track.”