George Nichols

Potlach Spinoff: Curb Your Enthusiasm

Aalan, as I noted, the revenue is primarily from manufacturing. In the space of my article, I didn't overwhelm readers with the full quantitative details, but here's the non-timberland revenue breakdown for you:

Pulp & Paperboard (35.3%), Wood Products (24.4%), Consumer Products (23.4%)

While of course timberland revenue % varies from year to year, the swings aren't dramatic. PCH's timberland-related revenue made up 17% of sales in the poor housing market of 2007, but a near-identical 18% in the strong housing market of 2005. Hence, at various stages of the economic cycle, PCH has primarily been a manufacturer rather than a timberlands manager.

In your response to my previous article, you said you're interested in (or even own) PCH as a timber play. My goal isn't to criticize PCH or encourage shareholders to sell the stock; rather, to give shareholders a better understanding of exactly what they own.

How 'Timber-Like' Are Timber REITs?

Thanks for your feedback on my article! I agree that there is no single metric that definitively quantifies the "purity" of a timber REIT. Investors should consider many data points (income, revenue, etc) over various time periods (latest quarter, year, and several years). In the space of my article, I just focused on a couple of metrics I considered most relevant.

Naturally, annual revenue % data varies from year to year, but the swings generally aren't dramatic. As someone noted, 2007 was marked by a poor housing market; but as I note below, sales % didn't vary dramatically during the strong housing market of 2005:

'% timberland-related revenue, 2007 -> 2005 : PCH = 17% -> 18%; RYN = 28% -> 25%; PCL = 71% -> 68%.

Adding Wood to Your Portolio: A Worthwhile Investment

Professor Enke, thanks again for your writeup on my timber article! I'm glad it was worthwhile reading. :)

Thanks, Rudi. What were the start/finish dates for your correlation period? Regarding your question, historical lumber prices are available, but my correlations were based on the NCREIF Timberland Index. It reports returns of selected TIMOs (timber investment management organizations) on a quarterly basis.

Xmplary, interesting point. There are certainly environmental and aesthetic ramifications to consider. Just from a carbon standpoint, I'm told harvested trees may release *some* carbon back into the atmosphere (versus all of it from naturally decaying deadwood). And, as the other poster noted, areas harvested by timber managers are almost always replanted, which creates future carbon sinks.

On a related note, carbon credits are starting to make up a small, but significant, portion of investment returns for a few timber managers.

- George