In the northwest, the devastation from the mountain pine
beetle in Canada will help keep
inventory at a manageable level
in 2010, according to Brooks
Mendell, president of Forisk
Consulting, a forest industry
resource company based in Athens, Ga. He expects the damage
to constrain supply from British
Columbia by 10 to 15 percent,
which would be a positive for
U.S. timber companies.
If that happens, the effects on
timber prices won’t be felt for several months out, cautions Plum
Creek CFO Dave Lambert. “If
we see an increase in end-user
demand as residential construction recovers, we will start to see
the impact” of constrained supply
from Canada, he explains. Meanwhile, Plum Creek is anticipating a small increase in saw log
prices in the northwest, as well
as a slight decline in local market
pulpwood prices.
Publicly Traded Timber REITs
Dividend
Yield (%)
Market
Cap ($M)
Total Returns (%)
1-yr 3-yr 5-yr
4.64 5,888.7 23.84 0.89 4.77
6.64 1,220.1 31.72 - 2. 22 7.59
4.77 3,332.7 50.93 4. 14 12. 56
Company Ticker Price ($)
Plum Creek Timber
Company Inc. PCL 36. 17
Potlatch Corp. PCH 30.70
Rayonier Inc. R YN 41.94
Source: NAREIT. Data as of Jan. 31, 2010.
Beyond Boards
Net asset value for timberland
is either a function of growing, cutting and selling trees,
or it is based on other values
inherent in the land. To sustain
them through this challenging
period, the timber REITs have
turned to those “other values” as
a source of revenue, particularly
selling real estate.
In 2009, 35 percent of Plum
Creek’s revenue was from tim-
berland sales, and the company
continues to look for buyers in
2010. “We are concentrating
on capturing attractive prices
for our lower-value property
and reserving our most valuable
land for the future,” Lambert
says. Continuing the trend from
2009, he expects buyers this year
will be individual investors who
are “looking for deals.”
Historically, REITs have had
to buy land at relatively high
prices, which meant lower re-
turns per acre. Now, after more
than a decade of continual price
inflation, that era may be com-
ing to an end, some analysts say.
The result could be a re-setting
of timberland prices.
The Changing Landscape
In their quest for earnings, timber REITs have leased land for
hunting, cell phone towers and
recreation. Now, they are venturing into unexplored territory as
they seek new uses for their trees.
Bioenergy is at the top of the
list of new, potential alternative
revenue streams. Essentially, this
means developing wood pellets
or other cellulose-based products
that can be burned for energy.
Zaret and Mendell both expect
the bioenergy market to expand
rapidly in the next decade and
potentially boost returns for
timber REITs. “The value of the
harvest will be less than for saw
lumber,” Mendell says, “but the
whole alternative energy issue has
big potential for timber owners.”
Wood products giant Weyer-
haeuser already has an active in-
terest in biofuels and is exploring
how trees can be used to gener-
ate renewable energy. Through
Catchlight Energy LLC, a joint
venture with Chevron, Weyer-
haeuser is developing technol-
ogy for converting cellulose-
based biomass into economical,
low-carbon biofuels.
Biofuel interests aside, Weyerhaeuser’s impact on the timber
business may soon be felt in a
major way if the company converts its timberland holdings to
REIT status as planned.
“Tax laws made it clear by
2003-04 that it made no sense to
be a paper company that owned
its own trees, because it would be
