TimberWest Forest: Real Estate vs. Timber

With lumber selling for less in recent quarters than the cost of producing it, the few Canadian companies with a forest ownership stake have begun searching out other ways to make money in the woods.
 
For TimberWest Forest Corp. (TWTUF.PK), the answer has been clear: real estate. As it turns out, some of those woodlands make awfully nice places to live – so nice, in fact, that RBC Capital Markets analyst Paul Quinn estimates it is likely worth more than C$800-million, over C$150-million higher than previously estimated.
 
In a recent research note, in which he boosted his unit target from C$13 to C$14.50, he wrote:

TimberWest has some outstanding Vancouver Island properties. We are confident the real estate development portfolio represents over $10 per unit.

There are risks to this estimate, most notably the company’s ability to get that cash on its books in a timely manner: “timing on the resulting cash flow remains unclear,” Mr. Quinn wrote.
 
Still, it’s clear that the company is at a “cross roads in its evolution,” as it currently straddles both a lumber and a real estate business. The fact that the real estate side shows such lucrative potential – and that timberlands continue to grow in prices even as wood processing bleeds money – “raises the interesting question of the best interest of unitholders: sell the company in the near-term, or pursue the real estate development angle?” Mr. Quinn wrote.
 
His conclusion: the growing value of the company’s real estate assets “has increased” that possibility, and TimberWest is worth C$19.50 per unit. Even if a sale does not happen, however, the company's prospects look rosy, even counting in risks from high labor costs, a slowing Japanese market and the high Canadian dollar.

He wrote:

Overall, we remain very confident that the company will continue to deliver its $1.08 per unit distribution into the foreseeable future.

Comments

[OJO Zafado:]

The company's stock performance has indeed been relatively good since the last quarter reported severe cash flow challenges. The one over hanging issue with most all timber land stocks or trusts is the proliferation of the pine bark beetle. This pest is taking advantage of global warming which increases it's toleration to both higher elevations and latitudes. It is a risk to the entire forested areas of North America. With the 2008 Winter Olympic Games coming to greater Vancouver/Whistler/Bla... in 18 months after the closing ceremonies in Bejing. TWTUF may be a dark horse play on the ongoing and increasing mini-building boom in anticipation of the events.

2008 Jun 18 12:37 PM