2013 US Timberland Ownership: Descriptive Statistics

21 03 2013

According to Forisk tracking of timberland ownership in the United States, 117 firms currently own or manage in excess of 100,000 acres of timberland. These firms feature the following descriptive statistics:

  • As a group, they own/manage 86.2 million acres of timberland.
  • On average, they own/manage 736,589 acres of timberland.
  • The median ownership is 312,000 acres.

Assuming an average per acre value of $1,500, each firm owns or manages on average $1.1 billion in timberland assets.

Analysis of private timberland in the U.S. affirms the concentrated nature of large ownerships.  While U.S. Forest Service research by Brett Butler concludes that 10 million family forest owners account for 264 million acres (35%) of U.S. forestland, Forisk research indicates that the 286 largest owners alone account for 92.1 million acres.  Each of the top ten own or manage in excess of 2 million acres.

The top 10 timberland owners as of January 2013 include:

20130321 Timberland ownership

For detailed data on US timberland ownership and more information on Forisk’s 2013 US Timberland Owner List, click here.


Forisk’s Equity Research and Timber REITs in the Spotlight

5 04 2012

As of March 30th, publicly-traded timberland-owning REITs, as measured by the Forisk Timber REIT (FTR) Index, returned 11.45% year-to-date.  This culminated a month of coverage and articles that highlighted both Forisk’s equity research of timber REITs and the performance and characteristics of timber REIT investments generally.  Key takeaways included:

  • Individual timber REIT performance varies.  Clay Risher, in his REIT Magazine article “Planting the Seeds for Timber REIT Growth” (March 14, 2012), focused on this theme from our research.  While Rayonier (RYN) lapped the field in 2011 thanks to its specialty fibers business, other firms, such as Weyerhaeuser (WY) have led in 2012.  In addition, he summarizes Steve Chercover’s thesis that timber REIT conversions have run their course for now….
  • Investing in timber REITs differs from investing in timberland.  Ellie Winninghoff, in her Financial Advisor Magazine article “Balance Sheets that Always Keep Growing” (March 28, 2012), summarizes our emphasis on the local and regional nature of timber REITs and timberland investment performance.  Geography matters for both publicly-traded and private-placement investment vehicles.  In the article, Winningham also captures Clark Binkley’s assessment of the realizable versus theoretic portfolio diversification benefits from timberland investments.
  • Timber REITs “were strong performers” this quarter, according to the Wall Street Journal, in the A.D. Pruitt article “Small REITs Put UP a Big First Quarter” (April 4, 2012).  While correctly recognizing recent timber REIT strength, this article was more notable for getting its facts and insights wrong on the sector.  For example, there are four (4) timber REITs (PCH, PCL, RYN and WY), not three (3) as reported (it’s unclear who got left out by A.D.).   And multiple factors outside of housing have driven recent timber REIT peformance….[A.D. – As Alvin the Chipmunk says, next time, “call me.” 🙂 ]

Over 200 Firms and Investors Own 25,000+ Acres Each of US Timberlands

5 02 2012

One reality of market and investment research is that if a data set “should” exist, it doesn’t.  And if it does exist, it’s probably out of date (especially in forestry).  Therefore, my team views the systematic aggregation, tracking and analysis of facts related to wood demand, wood bioenergy and timberland markets  as fundamental to conducting meaningful forestry investment research.

Part of Forisk’s research has focused on timberland investment vehicles and how private timberland ownership has changed over time.  On February 29, 2012, we will publish for the first time from our database a detailed listing of the primary owners of private timberland in the United States.  Estimates of the “investable universe” of timberland in the US range from 60 to 100 million acres; we count approximately 210 owners that each own and manage 25,000 acres or more for a total of ~82 million acres.  Of these acres, 20% are owned by the four public timber REITs (Plum Creek, Potlatch, Rayonier and Weyerhaeuser) and 37% are managed by 27 US-based TIMOs (see figure). The 43% of acres associated with “other private” owners include forest industry firms, private individual and families, conservation groups and other non-forest industry firms and institutions.

For detailed data on US timberland ownership and more information on Forisk’s 2012 US Timberland Owner List, click here.

The Tax Man and Timber REITs

20 01 2012

Nobel Prize-winning physicist Albert Einstein once said, “the hardest thing in the world to understand is the income tax.”  On the other hand, actor Wesley Snipes reportedly said, “taxes are only complicated if you pay them.”  (Actually, that might have been Wesley’s cellmate while they served time for tax evasion.)  Lucky for investors in timberland-owning REITs, the Tax Man’s bite hurts less than for other REITs and dividend-paying stocks that are subject to ordinary income tax rates.

Most timber REIT distributions (related to income from the sale of timber) are treated as long-term capital gains and taxed at relatively lower 15% tax rates compared with ordinary dividends.  Recently, all four public timber REITs announced the tax treatment of dividends paid in 2011:

For Plum Creek (PCL), Rayonier (RYN) and Weyerhaeuser (WY), 100% of the dividends paid in 2011 will be treated as capital gains. For Potlatch (PCH) investors, $1.01188 per share (54.955878% of the total distribution) will be treated as return of capital, while the balance will be treated as capital gains.

Click here to learn more and register for “Applied Forest Finance” on February 9th in Atlanta, Georgia.

Timber REITs, Timberland and the Transfer of Wealth

11 01 2012

People who cite a rising stock market as evidence of economic health (1) make me nervous and (2) remind me what Timber REIT said to Timberland as they walked out of the gym:  “You’re such a hard asset.”

Roiled and riled markets – and a recent phone call asking about the difference between timber REIT and timberland investments – provide an opportunity to revisit the differences between financial assets and real (hard) assets.  While real assets include consumable goods and productive factories and firms, financial assets – such as bonds or shares of publicly-traded firms – consist of claims on real assets.  Financial assets allow investors to save, diversify risk, borrow and, ultimately invest so that more real assets can be produced and consumed in the future.

“Aren’t shares in timber REITs similar to owning timberlands?”  Sorry, no.  Thanks for playing.  When you own shares in a timber REIT, you don’t own timberland.  You own a piece of a business, over which you have no control unless you are a major shareholder, that happens to generate revenue from selling trees and related activities.    In theory, shares of timber REITs rise over time because they account for the trees and other products being produced and sold.  As the economy improves, so do revenues and,  assuming stable margins, profits to shareholders.  In practice, the super liquidity of timber REIT equities also diminishes their diversification potential; timber REITs basically correlate to the S&P 500 over time.

Timberlands, on the other hand, are real assets.  The challenge of the asset class over the past five years reflects a run-up in prices that outpaced housing markets and GDP growth.  While interest in timberland assets remains extremely strong, we continue to reach for firm ground following a decade-long transfer of wealth from first-time buyers to early entrants exiting the timberland market.

Click here to learn more and register for “Applied Forest Finance” on February 9th in Atlanta, Georgia.

Timber REITs: PCH Dividend and Harvest Reductions Demonstrate Prudent Asset Management

7 12 2011

Years ago, I held shares in Crown Pacific Partners, a timberland-owning firm headquartered in Portland, Oregon.  During market declines in the late 1990s, the firm subsidized its shareholder distributions through borrowing and cash generated from non-organic business activities.  In other words, the firm ate its seed corn.  Crown Pacific filed for bankruptcy in 2003.

My shareholding experience with Crown Pacific influences my research to this day; it provided valuable lessons on the available (and unavailable) levers for cash generation and risk mitigation with timberland investment vehicles.  From this point of view, Potlatch’s (PCH) recent announcement to reduce dividends and harvest levels reflect sound, investment-strengthening decisions to protect long-term shareholder interests.  Decisions by the PCH Board and senior management (1) place long-term asset values and maximization over short-term yields and (2) embrace the realities of  knowable, quantifiable impacts on wood markets relative to speculative forecasts of key demand drivers.

PCH actions reinforced key messages we shared with clients in 2011 based on our equity research:

Equity markets appear to have embraced the PCH 39% reduction in its yield.  While share volume spiked on the day of the announcement, PCH’s share price declined 2.2% after two days of “post announcement” trading.  This left its dividend yield at 4.1%, in line with the other public timberland-owning REITs (see table).  According to the FTR Index, the timber REIT sector now has a 4.0% dividend yield.

Do Timber REITs Lead or Ride the Coattails of Investor Interest in Real Estate Markets?

21 11 2011

Last week, the Wall Street Journal reported on the rush of investors buying into publicly-traded real estate investment trusts (“Real-estate investors target neighborhood that is looking up,” Wall Street Journal, 11/15/11).  According to Citigroup Global Markets, investors, year-to-date, invested 18% more capital into publicly-traded REITs than in all of 2010, and 400% more than in 2009.  Holy groupthink, Batman!

This stampeding herd of buyers returning to public real estate markets reminds me of the African proverb “you can’t run and scratch your foot at the same time.”  As a reluctant runner, I welcome an excuse to pause and scratch a puzzling itch or three.  First, why the interest in REITs generally?  Second, how does this look within the context of the overall market?  Third, how do timberland-owning REITs score during this investment cycle?

REIT investments satisfy the hunt for yields.  With capital looking for “relative” safety and valuing a return to fundamentals, public REITs attract investors eyeballing the steady cash flows and requirement to distribute earnings quarterly.  Within the REIT sector, certain sub-sectors have outperformed the broader REIT market.  According to NAREIT, total 2011 returns on apartment buildings and self-storage properties averaged ~10% and ~22%, respectively, through the first week of November.  Nice.

However, a closer look at the numbers indicates the article made a mountain out of a molehill.  Overall, REITs appear to be tracking the market.  REITs YTD through November 18th returned -2.25% versus -3.34% for the S&P 500 versus….-2.69% for public timber REITs according to the Forisk Timber REIT (FTR) Index.  While real estate often satisfies objectives to diversify portfolios, this has proven more difficult in the context of a European debt crisis, failing efforts to balance U.S. budgets, and lagging demand for homes and construction.

What about timberland investments?  Year-to-day through Q3, according to NCREIF, equity investments in timberlands returned 1.06% and -0.35% in the third quarter.  For reference, with dividends included, public timber REITs as measured by the FTR Total Returns Index generated 0.63%.

The FTR Index includes Plum Creek (PCL), Rayonier (RYN), Potlatch (PCH) and Weyerhaeuser (WY). As of 11/18/11, publicly-traded timber REITs comprise 4.99% of total public REIT capitalization.