TREE OWNERS NEWS

Summer 2007

Thank You!

    Sherry and I would like to begin this newsletter by warmly thanking every one of you for your wonderful enthusiasm and support.  Your wonderful faith and support make all that we do and write about possible.  Thank you!

    We apologize for the very long time since our last Tree Owners News.  Back when we began our very first newsletter, now nearly 15 years ago, we wrote that we would write additional newsletters “as events warrant and time permits”. 

    Well, many events since our last newsletter have warranted writing about, but as you will see from the wonderful news below, we have been fully dedicated to growing both Tropical American Tree Farms and Raleo and have not had the time for many months to sit down and write a new newsletter.

    So here is our long delayed update on all that we are doing on the farms, in the office, and at Raleo.  Our goal from now on is to write more frequent, brief updates. 

Overview

• We have now planted more than 2 million tropical hardwood trees of 51 different beautiful species

• The trees we have planted to date will produce an estimated 150 to 200 million board feet of tropical hardwood lumber over the next 25 years – all tropical hardwoods that will not have been taken from the natural rainforest

• Our plantations now consist of 15 farms and nearly 14,000 acres

• We are growing beautiful tropical hardwood trees for more than 3,000 companies, trusts, individuals and foundations

• Our thinning harvests to date have produced nearly 4 million board feet of young tropical hardwoods

• We have greatly increased and improved our professional management teams for TATF and Raleo

• Together with our foresters we have developed a new Supra Mixture of our five fastest growing species of tropical hardwoods

• Our professional forestry engineers have made it possible to now also offer Cuban Mahogany trees, one of the most expensive woods in the world

• Our farms management team have begun the process of streamlining and mechanizing our lumber extraction and processing from our thinnings

• We have expanded Raleo from its former 10,000 square foot location into a 40,000 square foot production facility where we have also been able to increase management efficiency by moving both our Tropical American Tree Farms and Raleo offices into the same facility

• We have established a core team, headed up by my younger son Jake, dedicated exclusively to developing high volume applications and markets for the young lumber from our early thinnings

• Raleo’s exquisite furnishings and architectural details crafted from the beautiful young hardwoods from our Tropical American Tree Farms plantations are now represented in Raleo’s own design showroom in DCOTA, the largest design center in the world, and in independent design showrooms and by professional representatives in New York, Toronto, Chicago, Moscow, San Francisco, Los Angeles, San Diego and Las Vegas.  Other showrooms and representation in additional major design markets will soon follow 

• Among more than 1,000 international design and product exhibitors at the 2005 annual Hospitality Design show in Las Vegas, Raleo’s architectural details won the Best of Competition design award - the best of the best

Raleo's HD Best of Competition

• From Raleo’s utilization of the young hardwoods from the first thinnings, we have now distributed more than $750,000 to tree owners for the lumber from their first thinnings – an amount which will increase rapidly as we continue to develop our marketing and utilization of the young lumber and products from the early thinnings, and even more so as our trees approach the age at which the thinned lumber can go directly into the international market.  Some of our tree owners have already received more in distributions than they paid for their trees, and as with all of our thinnings, their best trees are still in the field continuing to grow

• Our tree prices will go up July 20th.  Out of courtesy to you, our tree owners, we have been delaying the increase until first completing and sending this newsletter 

Cuban Mahogany

    One of the finest and most expensive woods in the world is Cuban Mahogany, often referred to as the “wood of kings”.  For centuries Cuban Mahogany was the premier cabinet wood in the world, sought after by the royalty of Europe and favored by world renowned furniture makers of the day such as Chippendale, Hepplewhite and Duncan Phyfe.

    Because of its great beauty and wonderful working properties, Cuban Mahogany was harvested nearly out of existence by the beginning of the 20th century and to commercial extinction by the 1940’s.

    Much more beautiful and 50% more dense than the common Honduran Mahogany, Cuban Mahogany wood today can be found only in limited quantities and is by far one of the most expensive of the tropical hardwoods, selling at retail for prices ranging from $20 to $75 per board foot, and sometimes even sold by the pound. Teak by comparison, also a precious wood, retails for $12 to $20 per board foot.

    Over our many years of attending and participating in woodworking shows, Sherry and I have been asked many, many times if there is any way we can find a source and plant Cuban Mahogany, both for the great potential profit and to help preserve the species from complete extinction.

    When Hans hired Pablo Chacon (more below), a professional forestry engineer whose area of specialization is in establishing tree nurseries and tree genetics, one of our first requests to Hans and Pablo was to please do all possible to find a quality source of the extremely scarce and very valuable Cuban Mahogany.

    After a diligent search, Pablo was successful in locating some high quality Cuban Mahogany seeds and we are very proud to announce that we now have a limited quantity of Cuban Mahogany seedlings in our Tropical American Tree Farms nurseries, ready to field plant as soon as this year's planting season begins in the next few weeks.

    Cuban Mahogany, Swietenia mahagoni, also known as West Indies Mahogany and Antilles Mahogany, grows very well, with a growth rate much greater than Purpleheart and Cocobolo for example, but not quite as fast as Teak and the fast-growing species in our Supra Mixture. 

    We plan to follow a 25 year rotation and to allow the Cuban Mahogany to grow a bit longer between thinnings than Teak because Cuban Mahogany is more shade-tolerant than Teak, shade tolerance being one of the major reasons that thinnings are necessary. 

    We have not developed any projections for Cuban Mahogany but one reason we are so excited about it is even if it were to grow at only half the volume rate of Teak, because Cuban Mahogany is so much more valuable than Teak, the return is likely to be very attractive.

Cuban Mahogany

    Cuban Mahogany trees are very hardy.  All mahoganies (actually all members of the Meliaceae family) are often visited by a little shoot-tip borer moth that sometimes lays its eggs on the growing tips.  When the eggs hatch, the little larvae bore into the growing tip and the tree then throws out new shoots.  We have learned from our many years of experience of growing Mahogany to simply prune off any affected tips.  Once the trees pass about 18 months of age, the moths seem to no longer be attracted to the trees. 

    An alternative that we are too conservative to pursue would be to not prune off the affected tips and allow the trees to grow with many branchings or bifurcations because the varied grain patterns of the crotch wood at the points of bifurcation is even more valuable.

    Cuban Mahogany is a tight grained wood with a rich, reddish to yellow brown color that darkens with exposure. It has beautiful, highly figured crotch grain and quartersawn and rift cut planks reveal an incredible figured ribbon stripe design.  Its luster is high, silky, and golden.

    In addition to its incredible beauty, Cuban Mahogany is renowned for its durability when exposed to the elements. It is comparable in strength to red oak, carves beautifully, and machines extremely well.  It has a high natural luster and is easy to finish. The wood dries without warping and checking and can be worked easily with both hand and power tools.  It also makes excellent veneer, glues and bends well, and is a superior wood for turnery.

    Cuban Mahogany is also one of the most dimensionally stable woods in the world and has a bending strength comparable to Teak.  Almost every desirable quality for a cabinet wood is applicable to Cuban Mahogany.  No other wood in the world combines all these features.

    Because of Cuban Mahogany's great scarcity, in addition to the trees that we will be field-planting for later harvest, we will also plant several thousand Cuban Mahogany trees in the protection areas throughout our farms, trees that will never be harvested.

    To continue with our tradition of having always offered a discount to celebrate making a new species available, from now until August 15, you are welcome to deduct a 15% discount from our pre-planting tree prices.

    We are very proud to offer to grow Cuban Mahogany for discerning tree owners.  If you would like us to grow Cuban Mahogany for you, it would be good to order your trees as soon as you read this because their quantity is quite limited. 

Luis Ricardo and Raleo craftsmen
going over design details

New Management Team

    Building a perpetuating management team for both Tropical American Tree Farms and Raleo has been our concerted focus over the last two years.

    Sherry and I had long planned to expand and improve our organization and our management teams, both in the office and on the farms, to allow Tropical American Tree Farms and Raleo to continue to prosper and grow without being dependent upon us.  Our plans were to focus on that objective in 2008 and 2009, after Raleo was firmly up and really running.

    Unfortunately two years ago we had the sad experience of learning that a manager had been being less than honest.  We would have discovered his activity in our annual certified audits, but honest employees came forward and reported his actions much earlier. 

    Those of you who have been with us a while know that our abiding philosophy is that every inconvenience brings with it the seed of an equal or greater blessing. 

    After learning of our manager’s perfidy and ending his employment two years ago, Sherry and I immediately accelerated our management-building schedule by several years and began a thorough, top to bottom review of every aspect of the company.  For the last two years we have focused intently on strengthening our internal checks and balances and recruiting wonderful new management professionals for both San José and the farms. 

    The blessing is that we now have in place a wonderful, professional team that will allow our company and all of our work to carry strongly forward indefinitely.

    In San José, we have the blessing of working with Luis Ricardo Rodriguez, our dynamic and professional general manager of both the Tropical American Tree Farms business and Raleo.  Luis Ricardo joined us in January of 2006 to head up marketing, but the value of his prior professional experience in strategic planning became quickly evident, and in January of this year we promoted Luis Ricardo to General Manager with responsibility and authority over all of Raleo’s activities and Tropical American Tree Farms business. 

    We promoted Eduardo Moreira, who had been the head of our accounting department for five years, to controller to oversee and protect all of the activities and assets of both companies, and especially all of your trees and lumber.

    Marjorie Perez, who before joining us was the head of the finance department for a large transportation company here in Costa Rica, has joined us as our finance and administrative manager for TATF/Raleo. 

    Luis Ricardo, Eduardo and Marjorie are now our administrative/executive committee and manage all day to day operations in San José.   

    Also new members of our administrative team are Harold Pacheco, our head of purchasing, Luis Diego Cabrera, head of logistics, Anna Maria Jara, our human resources manager, and Josephine Clausen TATF’s coordinator who manages all of our Tree Owner documentation. 

    Professionally managed plantation operations require substantial specialized knowledge as well as excellent managerial experience and organizational skills.  Our review on the farms confirmed what we had been seeing.  Beto, our then farms manager, had been falling further behind in his reporting data to the office and he was not comfortable delegating.  By mutual agreement Beto retired early last year and Sherry and I set out to recruit the very best plantation management team possible.   

Hans, Steve and Josué

    We have been very blessed that Hans Tanner joined us in March of last year and now manages all of our farms and plantation operations.  Hans is an excellent forestry engineer and a very experienced plantation manager, trained in top Swiss forestry schools, with eight years of forestry experience in Europe followed by 17 years experience in managing tropical forestry and plantation operations in Latin America. 

    A precious area of Hans’ expertise is in lumber extraction and in the directional felling of the trees, which is critically important in plantations.  Hans has published several articles on both forestry investing and on directional felling techniques.

    Hans has built his core farms management team to include excellent Costa Rican forestry engineers, Josué Brenes, whose specialty is plantation management, maintenance and tree care, and Pablo Chacon, whose expertise is in nursery development, plantation establishment, and tree genetics.  Pablo too has published articles on tree genetics and cloning.

    Together this wonderful trio of forestry professionals is now managing the farms and our existing plantings, conducting the thinnings and the extraction of the hardwoods from the thinnings, and establishing additional nurseries and new plantings.

    Another special project they have undertaken is developing GIS mapping of all of the farms and plantation areas and reviewing all 2 million trees that we have planted, both so they have accurate management data on a field by field basis and to make sure that all are receiving the best of care.

    Hans, Josué and Pablo are supported by our San Isidro office team, lead by Andréa Picado.

Luis Bonilla and a Raleo craftsman

    At Raleo, we are blessed to now be working with Luis Bonilla, formerly the production manager at Masonite’s San José door manufacturing facility where he oversaw 200 employees.  As Raleo’s production manager, Luis has brought in Luis Chaves, production foreman, Luis Alvarado, finishing manager, and Maria Aleth Piedra Madrigal, manager of Raleo’s production design department.  

Our San Jose Raleo team

    Our Raleo showroom at DCOTA is led by Mary Rosati our showroom manager, Leticia Dominguez our showroom administrative manager, and Mario Moreno, in charge of outside marketing.  All three are very experienced in managing, administering and marketing design showrooms and beautiful products.  We are very fortunate to be working with them.

    Jake Brunner, my younger son who designed most of Raleo’s beautiful and award winning furnishings and architectural details, is now in charge of developing the markets and uses for all of the young hardwoods coming from the thinnings.  After being our lead designer for four years, Jake has now expanded his portfolio to include higher volume, value-added uses and markets for the young hardwoods coming from the farms.

Steve, Hans and Rafa

    We are also blessed to have an exclusive consulting arrangement with José Rafael Serrano whose expertise is in maximizing the yield of the lumber harvested and in the conversion of lumber to finished products.  Rafa received his PHD in Purdue’s forestry school, one of the finest in the U.S., and has published more than two dozen articles on forestry investment, lumber production and processing from plantations, and wood products production.  Rafa’s focus is in refining our lumber processing to further increase our efficiency and developing the high volume processes for our new value-added lumber products.  Jake, Rafa, Luis Bonilla and Luis Ricardo are working as a team on expanding our lumber marketing and utilization.

    The wonderful people I have described above, together with their respective teams comprise a bright and energetic, forward-thinking administrative-management-leadership team of 35 dedicated TATF and Raleo management professionals who oversee Tropical American Tree Farms’ team of nearly 200 farm managers and plantation employees on the farms and Raleo’s production team of 70 furniture makers, operators and technicians. 

    Tropical American Tree Farms and Raleo together are now nearly 300 strong and growing.

Happy Tropical American Tree Farms workers

    Sherry and I couldn’t be more proud to present these wonderful, dedicated and delightful people to you.   

Young Tropical Hardwoods

    We are occasionally asked, “Why Raleo?”  “Why not just plant hardwood trees and sell the lumber.”  If only growing tropical hardwoods were that simple.

    All during the 1980’s, before starting Tropical American Tree Farms, initially only to grow tropical hardwoods for our own account, we did a great deal of research on tropical tree farming, both in Costa Rica and internationally. 

    From what we learned from our research it appeared that our focus would be principally on high-value species selection, quality planting requirements, the best silvicultural techniques, and marketing the resulting lumber.

    All of the planted trees must be thinned out periodically as they grow, removing the smaller and least desirable trees to make room for the more desirable trees to continue to grow.

    What was missing from the information that we researched was discussion about the young tropical hardwoods from the early thinnings.

    The most significant single fact that we have learned over these last 15 years on our Tropical American Tree Farms plantations is that the young tropical hardwoods from the early thinnings are very different from adult hardwoods from more mature trees of the same species and are unknown in the international market.

    Adult tropical hardwoods from the more mature trees of later thinnings and final harvests are well known and, if they meet the norms of the market, are readily accepted into the international market without further processing or production beyond rough sawing and drying.

    Young tropical hardwoods from the early thinnings on the other hand are different in their characteristics and color from the adult hardwoods, and are obviously also much smaller in dimensions than the lumber from more mature trees.

    Although the young tropical hardwoods from the earliest thinnings are genuinely beautiful, and in some cases more beautiful than the adult woods of the same species, the young hardwoods from the earliest thinnings are essentially unknown in the international market.

    That is why the notes to projections on our website include that “. . . young tropical hardwoods are less known, or even unknown, in the world markets.”

    Young Goncalo Alves wood for example is almost completely white and very close grained, nearly like ivory – just beautiful, but unknown on the market.  Young Suradan is a dusty rose color – absolutely beautiful, but unknown on the international market.

    Young Teak exhibits more chatoyance and is more beautiful than adult Teak, but is essentially unknown on the international market. 

    The age at which the wood becomes adult varies from species to species.  Teak for example begins to exhibit adult characteristics at about 15 years of tree age.  Some of the lumber from our 13-14 year thinning of Teak may qualify to go directly into the world market – selected heartwood from the first log for example, the log closest to the stump, because the lowest log on the tree has the fewest knots. 

    After the trees reach an age that the hardwoods have the internationally recognized characteristics, the lumber can be dried and sold directly into the market without any additional processing required. 

    Prior to that age however, unless the young lumber is put to a higher value use, it can be only sold at a low price on the local market, if at all.

    The difference in market value is dramatic.  Adult Teak brings $5.01 to $10.95 per board foot on the wholesale international market (ITTO May 2007 Tropical Timber Market Report).  Young Teak, in comparison, currently sells on the local market for about $0.95 per board foot, up from $0.25 per board foot not too many years ago. 

    Those of you who have been with us for a while or who have read earlier issues of our Tree Owners News know that that lack of a market for young tropical hardwoods was why we started Raleo – to create high-value uses and markets for the young tropical hardwoods from the earliest thinnings from our farms. 

Steve measuring a veneer-quality teak
 tree being allowed to grow to the final harvest

Quick History

    A quick history: In late 1997 when we conducted some test cuttings of our earliest planted trees that were then 5 years old, we learned that the very young wood was substantially different from adult hardwoods and had essentially no market value.  We wrote about that lack of value in several earlier issues of our Tree Owners News – January 1998 - first cull thinning will not yield lumber, November 1998 - first thinning will be non-commercial, Summer 1999 - the young lumber will have little or no commercial value, and announcing that we were establishing Raleo for our tree owner’s benefit, to create high value uses for the young wood, Fall 2000 - won’t know value of the young lumber until Raleo develops uses and market.

    Our first Raleo prototypes were small items like cutting boards, turned paperweights and letter openers – beautiful, but too small to utilize much of the wood that would come from our early thinnings.  We quickly concluded that we needed to manufacture larger items like furniture to create value in the necessary volume.

    In 2001 and 2002 we intensely studied the furnishings market, pricing, and channels and personally visited most of the design centers throughout the United States.  We hired a not inexpensive market research firm out of New York to independently research the market and report their conclusions as to which market and channel to pursue, at what price points and with which designs.   We tested numerous designs and crafting techniques on prototypes of larger furnishings, all from the youngest hardwoods from our earliest thinnings. 

    By 2003 we wrote in our Tree Owners News that “We have determined our desired Raleo product mix, channels of distribution and market position, designed and refined products, concluded testing innumerable finishes, abrasives and adhesives, perfected our drying, cutting, shaping, assembly, veneering, and finishing techniques, vetted our finished designs, and finalized our first three collections of beautiful upscale Raleo accent tables, Pi, Vária and Twist . . . all created from the beautiful hardwoods from our earliest thinnings.”

    In 2003 - 2004 we began exhibiting Raleo’s furnishings in major international design shows and actually marketing Raleo products.

    We hope you will enjoy reading below how far Raleo has come in the three short years since.

Luis Bonilla, Luis Ricardo and Steve reviewing
recently milled teak from the farms

Today

    In addition to furnishings and architectural details, we are presently in the process of expanding Raleo’s scope to include higher volume value-added products, both finished for the design and construction markets, and semi-finished components for other manufacturers – still all made from the young tropical hardwoods from our earliest thinnings.  Those higher volume value added products are the exclusive focus of the group mentioned above in the overview that Jake is leading.

    By producing high value furnishings, architectural details and value-added products from the young hardwoods, Raleo can support paying $2.51 per board foot for the Teak from the first thinning, $2.05 per board foot for our other species from their first thinnings, $3.16 per board foot for Teak from the second thinnings and, because of the greater board width, efficiency and lumber quality, up to $6.40 per board foot for Teak from the third thinnings – all woods that would otherwise bring less than $1.00 per board foot on the local market.

    Over the last five years we have invested prodigious amounts of time and several million dollars in developing Raleo into a world-class company that has won top international design awards, and as you will read below, is now producing some of the very finest furnishings and architectural details for the very top specifiers and clients in various parts of the world.

    We have made that large investment of time and resources both out of our commitment to you, our tree owners, and because it just makes sense – to create high value uses for the young lumber from the early thinnings and to demonstrate to the world’s most discerning architects, designers and specifiers that tropical hardwoods from Tropical American Tree Farms are the very highest in quality and beauty available.

    In summary, young hardwoods from the early thinnings are at present essentially not accepted on the international market.  They are genuinely beautiful, but that beauty is not yet reflected in the market.  As a result of our extensive investment of time and capital in developing Raleo, its products and its market, Raleo can support paying the prices per board foot mentioned above, which are several times greater than the low prices that the market presently offers. 

Perfect Fit

    Tropical American Tree Farms and Raleo fit together perfectly, and yet the relationship is completely voluntary.  As we wrote in our last Tree Owners News, no tree owner is obligated to sell their wood to Raleo, nor to wait for Raleo to utilize your wood.  The lumber from your trees is yours alone and we will do with it exactly as you direct.

    For those of you who wish us to sell your wood, we commit to you always that any lumber from any thinning or harvest that can bring more on either the local or international market than the price that Raleo can support paying, your wood will go directly into that market and not to Raleo.

Raleo teak Ribbon columns in
Boca Raton Magazine feature article

    We know of no other tropical forestry operation in the world that is completely vertically integrated, all the way from producing seedlings in our own nurseries, planting the trees and raising the tropical hardwoods, felling, milling, processing and drying the hardwoods, manufacturing high-end consumer and contract furnishings and architectural details from the young hardwoods from the earliest thinnings, participating in international design shows and winning prestigious design awards, having our Raleo design showroom in a prime international design center and Raleo’s products represented by independent design showrooms and representatives internationally, and on certain orders even performing the product installations on the jobsite with our own Raleo installation crew from Costa Rica – while at the same time demonstrating to top architects and designers around the world the great beauty and high value of our Tropical American Tree Farms tropical hardwoods. 

    We want every tree owner to be very proud to be part of this world class endeavor.

Raleo Update

    As an indication of just how far Raleo has progressed in the last three years, Raleo’s exquisite furnishings and architectural details, crafted from the beautiful young Tropical American Tree Farms hardwoods, are now represented in Raleo’s own design showroom in DCOTA and in independent showrooms and representatives in New York, Toronto, Chicago, Moscow, San Francisco, Los Angeles, San Diego and Las Vegas.  Others in Atlanta, Dallas and additional major markets will soon follow. 

Raleo DCOTA showroom

    Raleo's beautiful products are now in luxury homes, condominiums, yachts, and commercial and hospitality installations throughout the world, ranging from a luxury hotel in Miami, a Trump facility in Atlantic City, two 160+ foot $25 million luxury yachts, one just completed in the U.S. and now on its way to the Mediterranean and the other about to be launched in Italy, an elegant home in Turkey, an upscale hotel in Washington D.C., Saks in Beverly Hills, MTV offices, a luxury hotel in Aruba, a major publisher's headquarters in New York City, a wonderful home in Antigua, luxury condominiums in Boca Raton, an exquisite home in London, and soon as focal décor in the lobbies of the Hard Rock Hotel in Tampa, the Disney Contemporary Hotel at Disney World in Orlando, the La Concha Hotel in Puerto Rico, the MGM Grand in Detroit, an upstate New York casino, and an exquisite Teak wine cellar in a 20,000 square foot home in California, and other upscale properties and projects around the world. 

Raleo teak Wave credenza

    To give you an idea of the extent to which designers and architects and their clients are willing to go to include Raleo’s beautiful products in their design, on several of our recent orders, they have shipped major structural components from jobsites as far away as Italy and England to our Raleo facilities in Costa Rica for us to craft and integrate our Raleo products and then ship the completed item back to the distant jobsite.

    Our most recent Raleo news just came in from Raleo’s Los Angeles showroom that Dr. Phil and his wife Robin’s personal designer just bought one of Raleo's architectural features, crafted from young Tropical American Tree Farms hardwoods, to be displayed in Dr. Phil and Robin’s dining room in their new 14,000 square foot home in Beverly Hills.

    The demand for Raleo’s exquisite furnishings and architectural features crafted from our young Tropical American Tree Farms hardwoods from the earliest thinnings has continued to grow rapidly.  To increase Raleo’s production capacity, we have moved Raleo from its former 10,000 square foot facility into a 40,000 square foot production facility and are continuing to add personnel and equipment. 

    And as I mentioned above, we will soon begin production of much higher volume value added products, again all crafted from the young tropical hardwoods from our tree farms.

    Because we began producing and marketing Raleo’s beautiful products twelve years after we started our tree farms, for our early tree owners who have opted to wait for Raleo to utilize their young wood to enjoy the much higher value that Raleo can support paying (nearly everyone), there has been a significant time lag between the thinning of your trees and Raleo’s utilization of your wood and your resulting higher distribution.  We very much appreciate your patience! 

Distributions

    We are pleased that Raleo’s utilization and the resulting distributions from that utilization have now reached more than $750,000 and that some of your distributions from your first thinnings are more than the original price of your trees.  Still, we are dedicated to continue Raleo’s rapid growth to the point where Raleo is utilizing the young wood as quickly as it comes from the farms and the delay after future thinnings and processing is essentially down to zero.

    For new and prospective tree owners, our notes to projections on our website say with respect to distributions that “An additional year or more may be required for the earliest thinnings” because young tropical hardwoods are unknown in the world markets.

    For our most recent plantings our assessment is that that note won’t be necessary because Raleo will likely reach the point where it is utilizing the young lumber as fast as or faster than it comes from the farm well before the trees now being planted reach the age of their first thinning. 

    Eliminating that year in our projection notes can’t yet be a firm promise, but taking into account the commitments that we have made in time and capital, the dedication and professionalism of the men and women at Raleo, and the fact that Raleo has grown from zero to world-class in a very short time, I believe it is easily apparent why we make that prediction.

    We will continue to keep you updated on Raleo’s wonderful growth.

On the Farms

    Hans and his teams are hard at work on this year’s thinnings, performing the thinnings for which we have sent the pre-thinning reports and assembling the pre-thinning data for the thinnings we have not yet reported.  Those pre-thinning reports will be going out shortly.

    They are working on the 1992, 1993, 1994, 1995, 1996 and 1999 Teak right now – original plantings totaling 370,000 trees.  For each thinning they review all of the trees and mark every single tree to be thinned.  It is an amazingly time-consuming process as they go through every field and evaluate all of the trees to determine their degree of competition, as well as which trees are likely to later produce the greatest quantity of high-quality lumber, and which trees should be eliminated to allow the superior trees to continue their growth.

    They determine the desired remaining percentage using a number of evaluations, including the rate of growth, the crown closure, and the basal area per hectare.  In each thin they mark the smallest and least desirable trees to be removed and leave the largest and best to remain for later harvest. 

Thinning and milling in progress

    Once they complete the above process, Hans will review every tree to confirm their evaluations.  And then our field team counts every tree marked to be thinned and every tree remaining, for every individual tree owner and group of trees.  Our office then prepares the pre-thinning reports and sends them out to each individual owner.

    Once thinned, our field teams measure the quantity of wood from each group of trees and from that, our office prepares and sends your post thinning report.

    Their field work this year is being a little hampered by early rains, but they will persist. 

    Hans has also updated our thinning methods and has bought two skidders and three logging winches to move our logs more efficiently, milling in cant in the field and then later into lumber at fixed milling stations.

    To increase our throughput, he will also soon be buying a larger stationary bandmill to supplement the 11 portable bandmills we already have.

    The GIS, or geographic information system, mapping that Hans and his team are undertaking is also a very large endeavor.  When completed, they will have mapped every field that we have planted, or will be planting, and all related geographic features such as streams, natural forest and other protection areas, and access roads, all mapped with GPS coordinates.  Each of our forestry engineers works in the field with laptops, so all fields, sizes, roads, streams and protection areas and related data are always available both in the field and in the office.  All can then correctly be managed and protected by any member of the farms management team or any new manager that he or we may hire, and not be dependent upon any one engineer’s or farm manager’s memory, personal knowledge or paper notes.

    It is all part of our larger objective of having both companies professionally managed and completely capable of moving forward without depending upon any one person. 

    Hans and his team also have a large planting agenda for this year which includes planting more than 200,000 trees.  Our plantings this year will be focusing primarily on Cuban Mahogany, Teak, our Supra Mixture, Cocobolo, and our Premium Mixture.

    We are very thankful to have our farms in the hands of Hans and his very capable team.

Secondary Tree Market

    Back when we started growing trees by contract for tree owners in addition to the trees we grow for our own account, because in anyone’s life circumstances change, we anticipated that a secondary market for older trees would likely eventually develop.  We are now growing trees for more than 3,000 companies, trusts and individuals and in the last 15 years some tree owner’s circumstances have indeed changed but in nearly every one of the circumstances, the decision has been to not part with the trees, undoubtedly partially because of the trees’ large anticipated future value.

    Still, from time to time we are contacted by a tree owner who is interested in selling his or her trees and we therefore want to communicate to all of you that if you would like to have the opportunity to buy a prior owner’s trees, please either send us a letter or e-mail us with your interest in terms of the species, age and price range you would consider paying and when we know of trees being available, we will attempt to make a match.

    If we do make a match, to preserve everyone’s privacy and also to make it clear that we, and not the selling tree owner, have the responsibility to continue to maintain the trees, we would manage the paperwork so that the selling tree owner transfers the trees back to us and we in turn to the new owner.

    As a tree owner, you are also always welcome at any time to sell or convey your trees to anyone you choose, whether to an individual within or outside of your family, or to any entity such as a university or church, or to a trust or other entity for your financial planning.  We will be happy to assist in preparing the assignment paperwork to properly transfer title to the new owner. 

E-mail Address and Mailing Address

    For all tree owners, please always make sure that our office has your current e-mail address and mailing address, and please update us of any change.  We like to communicate by e-mail whenever possible but will still need your mailing address to mail distributions. 

    If you are not a tree owner but would like to be kept abreast of developments on the farms, please be sure that we have your latest e-mail address. 

Excerpts on Investing in Trees

    We thought you might enjoy the following excerpts from articles in MoneyWeek and The Economist published since our last newsletter.

    The Economist, in an article published February 5, 2007 titled “Timber as a growing asset class” said:

• "Average annual returns on timber . . . have outstripped those from leading global stock indices, property, oil and gold for the past decade."

• ". . . modern investors are putting money into trees to reap benefits in the nearer term."

• "A growing number of individuals, endowments and pension funds are including timber as a 'hard asset' in their portfolios."

• "As 'green' awareness rises around the world, timber looks more attractive than ever."

    MoneyWeek, in a July 7, 2006 article titled “Timber investors are barking up the right tree” said:

• “The UN Food and Agriculture Organisation predicts world consumption of industrial wood will rise 60% over the next 25 years"

• "trees have never heard of the Nasdaq bubble… and they don’t know what a War on Terror is"

• ". . . over the past century the price of wood has averaged an annual increase of 6%"

• “. . . the forestry sector is winning fresh converts among investors.” 

Prices Going Up!

    We have held our tree prices steady since March of last year.  Because of increased costs we had intended to raise our prices several months ago but out of courtesy to all of you who already own trees we have continued to hold the prices until completing this newsletter.  Our new tree prices for all of our species will go into effect on July 20. 

Thank You Again!

    Sherry and I would like to once again thank every one of you very much for your continued enthusiasm, trust and support and for making all of this possible!