State Of The Timber REITs 2014

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Includes: PCH, PCL, POPE, RYN, WY
by: Tom Kametz

Summary

Timber REIT performance improved slightly.

Main factors are new acquisitions and real estate.

Still waiting for Godot.

I have not written much on the timber REITs this year, primarily because there has not been much to write about. My summation of second quarter results, the last articles I wrote, was "Not much new in Q2". Much the same could be said for Q3. Looking at Weyerhaeuser, (NYSE:WY) Plum Creek (NYSE:PCL), Potlatch (NASDAQ:PCH), and Pope Resources (NASDAQ:POPE), (Rayonier (NYSE:RYN) has not reported yet), year to date revenues were up slightly from 2% for Weyerhaeuser, 4% for Plum Creek, and 7% for Potlatch. The exception was Pope Resources with revenues up 35%. This was mainly due to new real estate sales at their Gig Harbor site.

Timber revenues were up 14% for Weyerhaeuser, 16% for Plum Creek, 3% for Potlatch, and 18% for Pope Resources. The three double-digit increases were due mainly to harvest from new acquisitions, Longview for Weyerhaeuser, Mead Westvaco for Plum Creek, and Timber Fund III for Pope Resources. Following suit, Potlatch will be closing on a new acquisition in Q4 of this year. The new lands, about 200,000 acres, are in Mississippi and Alabama and are owned by a TIMO.

Wood products were pretty much flat, -2% for Weyerhaeuser, -1% for Plum Creek, and up 3% for Potlatch, reflecting the slow anemic recovery in home construction. Similarly, Weyerhaeuser's pulp business showed increased revenues of about 2% YTD.

Real estate revenues, which are generally very lumpy in the timber business, were down 26% for Plum Creek, up 89% for Potlatch, and up 130% for Pope Resources. Since Weyerhaeuser's divestiture of its home building unit, it mixes its land sales with its timber revenues.

Cash from operations was up 20% for Weyerhaeuser, 0% for Plum Creek, 44% for Potlatch, and 113% for Pope Resources. The explanation is new harvest from Longview for Weyerhaeuser, new harvest from MeadWestvaco offset by lower real estate sales for Plum Creek, increased real estate sales for Potlatch, and increased harvest from Timber Fund III and increased real estate sales for Pope Resources.

Dividends, or distributions, paid in 2014 were up 20% for Weyerhaeuser, 1% for Plum Creek, 13% for Potlatch, and 28% for Pope Resources. Price performance for 2014 YTD is 10% for Weyerhaeuser, -11% for Plum Creek, 6% for Potlatch, and 3% for Pope Resources.

All in all, things are going well for the timber companies. It is just that they are stuck on a plateau waiting for housing to recover. All mentioned above, except Pope Resources, are sitting on large supplies of southern pine sawtimber. When housing does turn around, sawtimber prices should skyrocket. Unfortunately, the housing recovery keeps underperforming everybody's estimates. As I have said previously, as long as the present administration, or one similar to it, is in Washington, not much is going to change. The main reason, in my opinion, for the stalled housing recovery is the lack of job creation and the low workforce participation rate. Only a more business-friendly administration is Washington will solve that.

In the meantime, timber companies are raising dividends, improving operations marginally where they can, and positioning themselves for the eventual recovery by making new land acquisitions and waiting for things to change. They always do.

Disclosure: The author is long WY, PCL, PCH, RYN, POPE.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.