Those who have read my previous articles know that my articles are not about advice on individual stocks or investments. My articles have been more informational about the Timber Industry and in particularly Timber REITs. While waiting for the 2012 year-end results in January, I thought an informational article on timberland might be in order, something light for the Holidays.
There seems to be a lot of interest in the four Timber REITs, Weyerhaeuser Co. (WY), Plum Creek Timber Co. (PCL), Potlatch Corp. (PCH), and Rayonier (RYN), and one MLP, Pope Resources (POPE). These stocks are the only way individual investors can invest in timberlands without going out and buying their own timberland acreage. These stocks also stand to see marked improvements in income and cash flow going forward as housing rebounds.
The four Timber REITs own about 17 million acres of land in the U.S. These acres are at the core of the Timber REIT business. This sounds like a pretty big number. I thought it might be interesting to look at all of the timberlands in the U.S., see who owns them, and see where they are located. The data for this article comes from the U.S. Forest Service publication, "Forest Resources of the United States, 2002", which was the most current information I could find. Things have changes since 2002 but in the big picture and for the number I was using, not dramatically. In addition, I used information from the Timber REIT websites and publications.
To begin, the total land area in the U.S. is about 2,200 million acres. Chart 1 shows the breakdown between forested and non-forested land. Only 34% of the total acres in the U.S. are forested. Non-forest land includes agricultural land, urban areas, deserts, etc.
Not all forest land can be commercially managed. Of the 34% forest land in the U.S. only 23% is classified as timberlands. Timberlands are forested acres capable of commercial forest operations. These are the acres that supply raw materials to wood using industries that produce lumber, plywood, OSB, pulp and paper, and other products.
Of the 23% timberland acres 12% are in public ownership as can be seen in chart 3. Since the 1990s very little timber harvesting has occurred on public lands due to environmental activism. I'm not saying that no timber is harvested from public lands, but except for a few places, it is not very relevant. For all practical purposes they are non-commercial. This leaves 11% in private ownership used to supply logs to timber using industries.
Just for the fun of it, I did a quick little calculation on the value of some of these public timberlands that are technically suitable for commercial timberland operations. If we just look at the timberland acres owned by the U.S. Forest Service and the BLM in Washington, Oregon, and Idaho, we get 42.6 million acres. This is just 22% of all forest service and BLM acres. These are the publicly owned acres that I thought would be most desirable to private investors and timber REITs. Other suitable acres do exist particularly in the South. My conservative market value for these lands would be from about $115 to $140 billion. (Just a little fun fact)
Now, of the 11% of U.S. timberland acres in private hands, 8% is owned by small private landowners, 2% by institutions and industry, and only 1% by Timber REITs. Some of these numbers may have changed some but I believe the big picture still holds.
If we look only at private timberland acres in chart 5, timber REITs own 5%, TIMOs (Timberland Investment Management Organizations) about 7%, industry 16%, and other private 72%. The overwhelming majority of private timberland acres in the U.S. are in the hands of small private landowners, particularly in the South.
Now let's look at where these acres are located. Chart 6 shows the breakdown for total timberland acres. The South has the largest percentage at 40%. The Pacific Northwest, the other major timberland area only contains 8% of the total timberland acres. Other regions contain fewer acres of investment grade timberlands and are less productive than either the South or the Pacific Northwest.
Again, if we only look at privately owned acres, 50% are located in the eleven southern states. This is why the timber REIT acres are so heavily weighted to the South. The Pacific Northwest only accounts for 5% of the private timberland ownership.
Now let's only look at the Timber REIT ownership in chart 8. When we look at timber REIT ownership we see the heaviest concentrations in the South and Pacific Northwest, 58% and 19% respectively. These are the two most productive regions so it makes sense for the Timber REITs to concentrate their ownership there.
Now let's look at harvest volume rather than acres in chart 9. Even though they account for 57% of the acres, when it comes to timber harvest volume, the South and the Pacific Northwest account for about 75% of all timber harvested in the U.S. This goes back to their higher productivity. The Timber REIT share of this harvest is probably close to their percentage of acres owned in each region although it could vary.
So, to summarize:
- 23% of the total acres in the U.S. are commercial timberland.
- Between 1% and 2% are owned by timber REITs or other publicly traded companies.
- The vast majority of private timberlands are owned by small landowners.
- The South and the Pacific Northwest account for about 57% of private timberland acres and 75% of harvest volume.
- Public ownership accounts for about 12% of timberland acres
- Public timberlands are, for all practical purposes, manages as parks rather than for timber production.
I hope this little exercise proved informative, if not educational, for all you Timber REIT investors.