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.

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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market and investment research is that if a data set “should” exist, it doesn’t.  And if it does exist, it’s probably out of date (especially in forestry).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.





Timber REITs Outperform S&P, Private Timberlands and Other REITs for 1Q, 2Q 2011: Why?

4 08 2011

It’s December 31, 2010 and you’re sitting on a pile of cash.  Do you invest in the S&P 500, an all-REIT index, private timberlands or publicly-traded timber REITs?  Based on the performance of key indices, putting your chips in with public timber REITs for the first half of 2011 would have financed your NFL season tickets and three bottles of Pappy Van Winkle (see table).  What explains the outperformance?  Is this a short-term, steroid-induced, Lenny Dykstra surge, or longer-term, touchdown-accumulating Dan Marino consistency?

As with all things timber, investment models, benchmarks and timeframes matter.  In practice, timberland investments require high initial investments and longer placement periods, while public timber REITs provide easily-traded alternatives.  It’s the difference between investing in a high maintenance, portfolio-stabilizing hard asset and a liquid, dividend-yielding, more volatile equity. Over the first quarters of 2011, US timberlands (as measured by the NCREIF Timber Index) and timber REITs (as measured by the Forisk Timber REIT (FTR) Index) returned 1.4% and 15.9%.  Over the past ten years, US timberlands and timber REITs returned, on average, 6.8% and 6.7% per year.

Why the recent timber REIT pop? Factors driving strong recent performance are primarily firm-specific. The FTR Index includes four publicly-traded timber REITs, Plum Creek (PCL), Rayonier (RYN), Potlatch (PCH) and Weyerhaeuser (WY).  Key events driving equity returns in 2011 include (1) Weyerhaeuser’s REIT conversion from a C-corporation and (2) Rayonier’s strong results from its performance fibers business.  At the sector level, timber REITs benefitted from their different use of and exposure to debt markets relative to the other REIT sectors, which employ, in cases, more leverage and access the stomach-churning CMBS markets.

To learn more about timber REIT assets, strategies and valuations, participate in the “Investing in Timber REITs” workshop on August 23rd in Atlanta.





How Do Timberland Investment Managers (TIMOs) Make Money?

20 06 2011

“How do timberland investment managers make money?”  The question itself, asked by an analyst working for an institutional investor, was straightforward enough.  However, it was the third time in the past week our team had received a call with such a question.  Since “reading tea leaves” in our research business often involves better understanding the questions and concerns on the minds of those in the marketplace, I’m taking this as an opportunity to review the general business model of timberland investment management organizations (TIMOs).

TIMOs are asset managers.  They generate income through transaction fees, management fees (which grow with their assets under management) and performance fees.   That said, fees and fee structures vary widely across TIMOs.  In part, variance in investment strategies and fee structures help match the investment objectives and risk tolerances of different investors with appropriate timberland investment managers. 

Specific fees earned by TIMOs may include:

  • Placement fees based on the purchase price of the timberland investment properties: 
  • Management fees as a percentage of asset value (after purchases and dispositions); 
  • Management fees as a percentage of appraised market values of the timberland assets over time; and 
  • Performance fees (overage) that provide profit-sharing above a pre-specified hurdle rate.  Hurdle rates may be stated in real (without inflation) or nominal (with inflation) terms.  

An example of an overage arrangement would be where the TIMO receives a carried interest in the fund if returns exceed a stated hurdle rate.  For example, with a hurdle rate of 6%, the fund might receive 20-25% of the returns above this hurdle, called the overage.  This overage would remain in the fund and grow with the investment, giving the fund managers an “interest” in the fund that can compound over time.

Total annual fees paid to TIMOs are expected to approach, but not exceed, one percent of the assets under management in the timberland portfolio.  In the past, some TIMOs reported publicly their estimated fees.  For example, for the fiscal year ending 2002, The Campbell Group indicated average management fees at the property level of 96 basis points (0.96%). Hancock Timber Resource Group used 95 basis points (0.95%) to approximate management fees in publicly available timberland investment analyses.  Over time, annual fees have consistently ranged between 85 basis points (0.85%) and 100 basis points (1.00%), with other structures based on services provided or weighting more or less to performance.

TIMOs can generate the bulk of their income at liquidation, upon the sale of the timberlands, so the appraised values/appreciation estimates carry great importance to all stakeholders.  As such, the appraisal process and asset valuations remain ongoing concerns with timberland investors because of the potential for conflicts of interest.  Fee structures that pay-off towards the end of the investment period moderate these concerns as TIMO managers collect performance fees following the actual liquidation of the fund.  At that point, the market dictates the total returns associated with the properties.

A useful exercise in our equity research has been comparing the relative per-acre administrative loads of TIMOs and publicly-traded timberland-owning REITs.  At the end of the day, the earnings potential of timberland assets varies more by location than by ownership structure, assuming structures of comparable tax efficiency.