Timberland Values Increase 9.69% In 2013

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Includes: ACAZF, CTT, CUT, PCH, PCL, POPE, RYN, WOOD, WY
by: Tom Kametz

Summary

The 2013 NCREIF index for timberland showed a 9.69% increase over 2012.

The index is also broken down by region.

The index can also be applied to timber REIT land holdings.

I wrote a similar article to this last year titled Timberland Values Increase 7.76% in 2012. Again, the data come from a quarterly newsletter from Brookfield Timberlands Management LP, a wholly owned subsidiary of Brookfield Asset Management Inc. (NYSE:BAM). In it, the company discussed the NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index results for 2013. NCREIF is an appraisal-based index. It included both third-party independent appraisals as well as internal appraisals of timberlands purchased for investments. Its members are generally the TIMO (Timberland Investment Management Organizations) community. TIMOs manage privately owned timberland investments. As far as I know, none of the timber REITs are members of NCREIF. Pope Resources (NASDAQ:POPE), however, is.

In any case, the results would also reflect on the value of the timberlands owned by the publicly traded timber REITs and companies - Weyerhaeuser (NYSE:WY), Plum Creek (NYSE:PCL), Rayonier (NYSE:RYN), Potlatch (NASDAQ:PCH), CatchMark (NYSE:CTT) and Acadian (OTC:ACAZF). Timberland properties are routinely bought and sold by the TIMOs and timber REITs to and from each other.

For 2013, the total return from timberland investments in the NCREIF index was 9.69%, up from 7.76% in 2012. This is broken down between EBITDDA returns and appreciation returns. Total EBITDDA returns were 2.80% for 2013 versus 2.68% in 2012. Appreciation returns for 2013 were 6.75% compared to 4.97% in 2012. The NCREIF Timberland Index in 2013 was made up of 457 properties totaling 13.6 million acres with a total market value of $23.1 billion.

The Index is further broken down by region.

2013 NCREIF results

South

Pacific Northwest

Northeast

Lake States

Total

EBITDDA

2.15%

4.54%

1.76%

1.16%

2.80%

Appreciation

5.48%

12.46%

-2.64%

11.34%

6.75%

TOTAL

7.72%

17.44%

-0.92%

12.61%

9.69%

Click to enlarge

The South continues to suffer from low pine sawtimber prices due to the slow recovery in housing. Housing starts for 2013 were 923,400. Expectations for the year were for slightly over one million. Because of this, harvest levels in the South are still below their 10-year average. Pine sawtimber prices increased 8% in 2013 but are still 19% below the 10-year average. Pine sawtimber prices, as well as low harvest levels, directly contribute to the EBITDDA returns. Appreciation returns are affected by prices as well, but also reflects growth.

The Pacific Northwest (PNW) outshines all other regions in both EBITDDA and appreciation returns. The PNW is strongly affected by the export log market, particularly to China. Exports to China were up 43% in 2013. Export volume accounts for 25% of the PNW sawlog harvest and China accounts for 60% of this. Another factor affecting PNW returns is the reduced lumber supply from British Columbia due the pine beetle infestation. The BC beetle kill has been talked about for years but the effects of it are just now beginning to be felt. The effect is to increase demand for logs in the US, but particularly in the PNW.

The Northeast and the Lake States are very small with few properties compared to the South and the Pacific Northwest. I believe the results in these two regions are more due to new properties entering the index and old ones leaving.

Let's look at how these appreciation returns can be applied to the publicly traded timber REITs and companies. The table below shows percentage of acres owned by each REIT by region.

PCL

RYN

PCH

WY

POPE

ACAZF

CTT

NCREIF

Pacific Northwest

19%

17%

56%

40%

100%

17.44%

South

53%

83%

28%

60%

100%

7.72%

Northeast

18%

100%

-0.92%

Lake States

10%

16%

12.61%

100%

100%

100%

100%

100%

100%

100%

Click to enlarge

The next table applies a weighted average of the NCREIF 2013 returns by region to each company. As you can see, you can assume about an 8.5% appreciation to Plum Creek's land holding in 2013. In like manner, Rayonier's land appreciated 9.4%, Potlatch's 13.9%, Weyerhaeuser's 11.6%, Pope's 17.4%, Acadian's -0.9%, and CatchMark's 7.7%. Of course, these are all approximations.

PCL

RYN

PCH

WY

POPE

ACAZF

CTT

PNW

3.3%

3.0%

9.8%

7.0%

17.4%

0.0%

0.0%

SO

4.1%

6.4%

2.2%

4.6%

0.0%

0.0%

7.7%

NE

-0.2%

0.0%

0.0%

0.0%

0.0%

-0.9%

0.0%

LS

1.3%

0.0%

2.0%

0.0%

0.0%

0.0%

0.0%

8.5%

9.4%

13.9%

11.6%

17.4%

-0.9%

7.7%

Click to enlarge

Commercial timberland is a very liquid asset. TIMOs have billions of dollars invested and are always in acquisition mode. Most of the REITs and other timber companies are also always in the market. For these reasons, I believe that the NCREIF index is very pertinent and investors in timber stocks should be aware of this.

Disclosure: I am long WY, PCL, PCH, RYN, POPE, ACAZF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.