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NCREIF TIMBERLAND INDEX 3Q12 RELEASED: Total return "still sluggish"

NCREIF TIMBERLAND INDEX 3Q12 RELEASED: Total return "still sluggish" | Timberland Investment | Scoop.it

An excerpt:


The National Council of Real Estate Investment Fiduciaries (NCREIF) has released third quarter 2012 results of the NCREIF Timberland Index. The 0.75% total return, while still sluggish, is a vast improvement over the past several quarters. It is the highest return since 0.75% total return in the first quarter last year. The return was split between 0.23% appreciation and 0.52% income.


Capital appreciation was positive for the second consecutive quarter. The two quarters of slight positive appreciation doesn’t offset the greater than 10% decline since the beginning of 2009, but it is a step in the right direction. The Pacific Northwest was the best performing region for the fifth consecutive quarter with a total return of 1.25%, of which 0.83% was income. It was also the best performing region on a rolling four quarter basis with an 11.76% total return. Returns in the region have been above the rest of the country four of the past six quarters. The South was the worst performing region with a total return of 0.60%. All four regions had positive appreciation for the first time since first quarter 2007.

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Timberland Investment
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Sponsored by...

Sponsored by... | Timberland Investment | Scoop.it

Prentiss & Carlisle  is one of the largest timberland asset managers in North America. P&C provides ongoing management services on approximately 1.75 million acres of timberland located in Maine, Michigan, New York, Vermont, Wisconsin, Ontario and Quebec. Nearly every acre under management is certified by the Forest Stewardship Council through either our clients or through P&C itself, which holds FSC certificates for both Forest Management and Chain-of-Custody.

 

P&C provides turnkey land management from long-range forest planning through on-ground forestry, marketing of forest products, harvesting, transportation, road construction and maintenance, stump-to-mill accounting and reporting, client cash management, administration of third-party relationships, public advocacy/representation and strategic asset planning. P&C also provides specialized consulting services in related areas of expertise:

  • Timber inventory design, execution and analysis
  • G&Y modeling and timber harvest scheduling
  • GIS mapping and data management services
  • Timberland valuations and appraisals
  • Acquisition and disposition due diligence
  • Market studies
  • Timber supply modeling

 

About this magazine

Our aim is to provide a gathering place for news and opinion about timberland investing. We cover both publicly traded issues including listed timber companies, real estate investment trusts (REIT's), and exchange traded funds (ETF's), and the more private world of institutional investing in timberland. Our focus is on: the rationale for investing in timberland; performance of publicly traded timber investments; timberland deals and transactions; timber supply, demand and prices, and; public policy issues that impact timberland investing. Not interested in all of these topics? You can easily filter the stories by using the Tags button above.

 

We encourage readers to interact with our site:

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Some useful links

 

Stock quotes, news and financial metrics

These links take you to customized Google Finance pages for timber REITS, indexes and other publicly traded companies of interest:

 

Prentiss & Carlisle newsletters

Quarterly updates on conditions in our operating regions

 

Timber Mart North 

Lake States price reporting service published by P&C

 

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OSB Prices Spike as Lumber Increases Tap the Brakes

OSB Prices Spike as Lumber Increases Tap the Brakes | Timberland Investment | Scoop.it

Budgeting direct input costs on materials and labor for 2018 could hardly be more challenging. Policy uncertainties on immigration, on trade, on taxation, on regulation make projecting expenses a fool's errand.

Not to mention how nature keeps changing plans about what's going to be built, and rebuilt, and where, all of which will have material impact on the timing and cost and direction of materials supply over the next several months at least.

***
Here's a report from National Association of Home Builders economics department analyst David Logan on key readings from the lastest Bureal of Labor Statistics Producer Price Index (PPI), focusing on two important commodities for builders, OSB and softwood lumber.

Logan zeroes in on OSB specifically because it seems to have de-coupled from a number of other materials costs, even as economy-wide producer prices inched up 0.4% in September. He writes:

"The price of OSB increased 4.4% in September and has risen 19% and 38% since September and January 2016, respectively. The surge was in contrast with moderate increases in prices paid for gypsum products (+0.3%) and ready-mix concrete (+0.2%). The price of softwood lumber fell 0.9% in September."

Producer prices as tracked by the BLS mask the experience builders and remodelers have when they're buying materials like OSB and softwood lumber. 

***

Two important factors drive the disparities between price changes builders have experienced and the PPI index changes:

  • The producer price index tracks prices paid by wholesalers, distributers, and retailers rather than what those businesses charge customers.
  • The index does not include prices paid for Canadian products as it does not include imports (just as the consumer price index does not reflect prices paid for exports).
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Keweenaw Land Association, Limited Announces Update On The Strategic Review

Keweenaw Land Association, Limited Announces Update On The Strategic Review | Timberland Investment | Scoop.it

On December 27, 2016, Keweenaw Land Association, Limited (OTCPink:KEWL) announced the formation of a Special Committee to consider strategic alternatives available to the Company, including a possible equity recapitalization or sale of the Company.  As part of the Special Committee's efforts, the Company retained Stifel, an investment banking firm, to assist in a strategic process.

 

After soliciting proposals and receiving indications of interest, the Special Committee and the Board determined that the Company should command a higher price than reflected in the indications from the parties engaged in the sale process.  Accordingly, the Company has directed Stifel to suspend the sale process.

 

Supporting this view are the results of a recently completed comprehensive timber cruise, the first in the history of the Company, which indicates substantially higher standing timber volumes than previously estimated, which should allow for significantly higher annual allowable harvest in the future.  At the present time, following the timber cruise and after taking into account recent acquisitions, the Company estimates that the standing timber volume is approximately 30% higher than reflected in the Company's most recent appraisal, which was completed in 2015 and summarized in the Company's 2015 Annual Report.  The Company will update the shareholders with additional information once such information is available.

 

In light of the foregoing, the Company has commenced implementation of additional elements of its strategic plan, including several initiatives designed to increase value.

 

Additional elements of the strategic plan include:

  • Evaluating the feasibility of converting to a Real Estate Investment Trust (REIT) for the 2018 tax year;
  • Review of the annual harvest with the intention to materially increase future annual harvests while staying within sustainability parameters; and
  • Exploration of additional initiatives to increase current cash flows, including a review of (i) the Company's cost structure, (ii) potential conservation easements, and (iii) monetization of non-core assets.

 

The Special Committee and the Board believe that the Company has an attractive asset base that should generate positive real growth and provide investors with long-term inflation protection.  The initiatives described above are intended to result in increased cash flows and better position the Company for the future.  While there are no assurances that any of the foregoing initiatives will result in a material event for the Company, the Board is optimistic that moving ahead on these items will provide the best opportunity for realizing additional value for shareholders.

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Taaleri to sell the estates of its first forest fund to AXA Investment Managers

Taaleri to sell the estates of its first forest fund to AXA Investment Managers | Timberland Investment | Scoop.it

Taaleri Private Equity Funds Ltd which is managing Taaleri Metsärahasto I Ky has signed a binding agreement with AXA Investment Managers - Real Assets, acting on behalf of its clients, to sell estates of Taaleri’s first forest fund. The final closing is expected by year end. Upon realisation of the transaction, Taaleri will record a net income of some MEUR 2.7.

 

The total area of the estates owned by the forest fund is over 14,000 hectares of which the amount of forest land is about 12,500 hectares. Taaleri established the forest fund in late 2012 and it has 140 investors.

 

”Taaleri’s first forest fund was established about five years ago to enable clients to benefit from the attractive investment opportunity that forestry presents. This has been a strongly performing portfolio, in what is one of the prime forestry regions in the Nordics,” says forestry expert Jyrki Ketola.

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INDEPENDENT COMMISSION RECOMMENDS NEW APPROACHES TO FOREST SECTOR RESEARCH IN U.S.

INDEPENDENT COMMISSION RECOMMENDS NEW APPROACHES TO FOREST SECTOR RESEARCH IN U.S. | Timberland Investment | Scoop.it

A report by the Blue Ribbon Commission on Forest and Forest Products Research and Development in the U.S. in the 21st Century (BRC), released today by the U.S. Endowment for Forestry and Communities (Endowment), calls for changes in the way forest and forest products research is addressed.
***
Among the report’s findings are that forest sector R&D in America is unfocused and underfunded. To address shortcomings the BRC recommended changes and enhancements to spur innovation including:

  • Development of a “national” R&D plan across USDA Forest Service, National Institute of Food and Agriculture, National Science Foundation, and the Department of Energy along with forest sector input that avoids wasteful duplication and sets a clear direction for the future; and,
  • Institution of a new model where federal scientists serve more as team leaders engaging private sector, university, and federal researchers to increase speed, flexibility, and delivery of needed
    solutions.
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Twin Creeks Timber Acquires 121,000 Acres of Timberland in the U.S. South and Pacific Northwest

Twin Creeks Timber Acquires 121,000 Acres of Timberland in the U.S. South and Pacific Northwest | Timberland Investment | Scoop.it

Twin Creeks Timber LLC (“Twin Creeks”), a joint venture originally formed in 2015 in part by Silver Creek Capital Management (“Silver Creek”), a $6.3 billion alternative investment manager, to enable institutions to directly invest in high quality timber assets alongside a timberland operator, today announced that it will add 121,000 acres of timberland to its portfolio. Twin Creeks will purchase 100,000 acres located in the Southern U.S. from Weyerhaeuser Company (“Weyerhaeuser”) and receive a contribution of 21,000 acres located in the Pacific Northwest from Green Diamond Resource Company (“Green Diamond”). Through the addition of these timber assets, Twin Creeks will increase its Southern portfolio to 360,000 acres and add the Pacific Northwest to its portfolio. The timberland transactions are expected to close by year end.

In conjunction with these timberland transactions, Twin Creeks also announced that it has repurchased Weyerhaeuser’s equity interest in the joint venture and will replace Weyerhaeuser as the joint venture’s timberland manager with a new manager effective January 1, 2018. Green Diamond will become a new equity partner in Twin Creeks and Green Diamond Management Company, a wholly-owned subsidiary of Green Diamond, will become manager of Twin Creeks’ timber assets portfolio. 
***
“We established Twin Creeks with the goal of taking a differentiated approach to institutional timber ownership by pairing sophisticated institutions directly with an operating partner. Green Diamond is well-recognized as a leading owner and manager in the forest products industry for over 125 years, and we are pleased to be partnering with them to build the Twin Creeks business for decades to come,” said Bob Ratliffe, President of Silver Creek and the Co-Portfolio Manager of Twin Creeks.
***
Ratliffe concluded: “We are thrilled to have this series of transactions completed as it sets Twin Creeks on a path for success and further growth with a well-aligned set of partners. We believe we have found an attractive combination and alignment with Green Diamond and a very supportive group of existing institutional partners, including a final one who has committed $250 million. We are well prepared to grow and expand our portfolio of timber assets well into the future.”

Sam Radcliffe's insight:

According to RISI, Weyerhaeuser received $2,020 per acre for its 100,000 acres. The new $250 million institutional investor is the California State Teachers Retirement System.

 

BMO's comment:  "Valuation on WY's residual 21% interest suggests an ~8% reduction in per acre value since the creation of Twin Creeks in early 2016. We think the near-term risk on southern timber values is to the downside. Trade reports also suggest increased investor differentiation between A, B, and C grade lands."

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Touching wood for timber REITs

Touching wood for timber REITs | Timberland Investment | Scoop.it

A mix of powerful factors have injected sap into REIT returns this year. Yet US interest rate rises could soon start tilting the balance toward their private peers.

 

The S&P 500 shot past the 2,500 mark for the first time in its history this month as the US Federal Reserve chief Janet Yellen hinted at a tightening of monetary policy, boosting treasury yields and US equities in the process.

***

Less noticed has been the strong performance of timber real estate investment trusts. The Forisk Timber REIT index, which tracks all publicly traded timberland-owning REITs, is up about 12 percent in 2017. That not only beats the S&P 500, it also vastly surpasses both the NAREIT All REIT index and NCREIF Timberland, which covers timber transactions in the private markets.
***
What’s driving such appetite? Start with the permanent. Timber REITs have an edge over private alternatives in that they are more liquid: their shares can be bought or sold on a daily basis, while the direct acquisition of timber holdings typically requires longer time frames, higher overheads and starting capital. They also pay no corporate tax on their earnings, with taxes being levied instead on shareholders’ dividends.
***
Listed timber companies are also being buoyed by solid demand for wood. The main driving factor is the recovering US housing sector. Home builders are reporting a spike in housing starts: these are up 4 percent overall and 8 percent for single-family starts in 2017.
***
But timber REITs have also benefitted from more specific factors. First is what they did to shore up their value: maximizing operating revenues and consolidating higher quality portfolios, which led them to divest non-core assets and bolster cash efficiency.

***

Second is a more arcane matter. In July, Vanguard, the world’s second-largest provider of exchange trade funds, asked shareholders to swap the index it uses for its $35 billion real estate ETS to a different index that includes timber REITs. Insiders reckon this is pushing hundreds of millions of fresh capital into the asset class.


Yet the outlook is more uncertain. While the economic recovery looks sturdy, other factors may prove to be one-off boosts. And timber REITs could soon be hitting a bump: markets currently put odds for a December US interest rate hike at 80 percent; timber REITs, which tend to trade on a multiple of cash yield, could be cast in a less favorable light than unlisted timber, which is typically backed by investors seeking to maximize total returns. REITs could find themselves under pressure to improve cash yields, making returns more volatile.

 

Historically, this has been the case. Only privately held timberland demonstrated positive returns each year of the period 2012-16, according to Forisk. This is in part because private valuations, done more periodically, tend to be less volatile; it is also because markets tend to discount the value of listed illiquid assets. Timberland REITs have a had a good run so far this year. Upcoming pressures, however, may prompt some assets to branch off and go private.

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Roseburg Forest Products completes acquisition of timberlands in southeastern US

Roseburg Forest Products completes acquisition of timberlands in southeastern US | Timberland Investment | Scoop.it
Roseburg Resources Co. has announced the acquisition of approximately 158,000 acres of investment-grade timberland in the southeastern United States from Forest Investment Associates (FIA), a timberland investment management organization.


The timberland is located around Roanoke Rapids, largely within the coastal region of North Carolina and southeastern Virginia, and has a strong history of professional management. The acquisition was completed Sept. 28, 2017.


“The property is an accretive addition to Roseburg’s Western-based timberland portfolio, with close proximity to broad, stable markets,” Roseburg Senior Vice President of Resources Scott Folk said. “With an attractive age class distribution and above-average site productivity, the property represents significant long-term value for the company, as Roseburg seeks to diversify and grow its timber holdings.”

Roseburg currently owns and sustainably manages over 630,000 acres of timberland in Oregon and California, largely composed of Douglas fir.


“This acquisition advances Roseburg’s planned expansion into the southeastern U.S., where steady housing starts and healthy markets create stable demand for high-quality timber,” Roseburg CEO Grady Mulbery said. “The region’s welcoming business environment and potential for growth also factored into our decision to add the property to our portfolio.”

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U.S. state pension plans returned a median annualized 5.9% over 10 years

U.S. state pension plans returned a median annualized 5.9% over 10 years | Timberland Investment | Scoop.it

U.S. state pension plans returned a median annualized 5.9% for the 10 years ended June 30, 2016, vs. 6.8% for the 10 years ended June 30, 2015, said Cliffwater's most recent annual state pension performance report.

Large endowments with assets greater than $1 billion returned an average 5.7% over the 10 years ended June 30, making it Cliffwater's first report in which endowments did not outperform state pension plans. The average return for state plans was also 5.7%.
***
The alternative investment consultant's report also looked at pension funds' asset allocations and performance by asset class.

As of June 30, 2016, the plans had an average asset allocation of 48% public equities (down two percentage points from 2015), 26% alternatives (up two percentage points), 24% fixed income (up one percentage point), and 2% cash (down one percentage point).

According to Cliffwater, most of the alternatives increase for the year was directed to private equity, private debt and opportunistic investments. Within alternatives, the average allocation as of June 30, 2016 was 36% private equity, 30% real estate, 18% hedge funds, 13% real asset and the remainder in other alternatives.

Looking at alternative performance, the median return for private equity was 9.9% for the 10 years ended June 30, and 5.8% for real estate. Individual pension funds' real estate returns varied the most of any asset class for the 10-year period, Cliffwater noted.
***
Cliffwater's report also found that more than three-quarters of the pension funds exceeded the 4.9% average​ 10-year return for a passive portfolio of 65% stock index funds and 35% bond index funds. However, in aggregate, the plans underperformed the 8% assumed rate of return for the 10-year period.

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The Financial Performance of Real Assets Impact Investments

The Financial Performance of Real Assets Impact Investments | Timberland Investment | Scoop.it

The Global Impact Investing Network and Cambridge Associates present the first comprehensive analysis of the financial performance of private real assets impact investment funds.

The report analyzes the financial performance of 55 real assets impact investing funds of vintage years 1997 – 2014, grouped into three sectors: timber, real estate, and infrastructure. The report also marks the launch of three benchmarks of impact investing funds in these sectors, which Cambridge Associates will update quarterly (more funds will likely be added to the benchmark over time).

Real assets can play several roles in institutional portfolios, providing diversification, current income, the potential for strong, long-term returns, and an inflation hedge. In addition to these benefits, real assets impact investment funds can also help achieve important impact objectives. For example, many timber-focused impact funds in this study pursue sustainable timber production or land conservation; many real estate-focused impact funds focus on green real estate and/or affordable housing, and most infrastructure-focused impact funds target renewable energy generation.

 

This report continues the GIIN’s efforts to build a robust evidence base of financial performance data in various asset classes, following a benchmark of private equity and venture capital impact investing funds launched in 2015.

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Seven Lessons From A Decade Of Impact Investing

Seven Lessons From A Decade Of Impact Investing | Timberland Investment | Scoop.it

Almost all of us have, at some point, assembled an IKEA shelf or sofa, but have you ever wondered where the company gets the wood for those things?

It’s a big question, because 30 percent of the world’s greenhouse gasses come from the way we manage our forests, farms, and fields; and IKEA has pledged that each of the 16 million metric tons of pulp and timber it uses each year will either be made of recycled material or certified as being sustainably harvested. More importantly, the company is well on its way to achieving that goal by its target date of 2020, as its entry on the Forest Trends Supply Change portal shows.

If all big companies did this, we’d be well on our way to fixing the climate mess – but they don’t, so we aren’t, raising the question: how is IKEA getting the job done?

In part by purchasing entire forests across Romania, Bulgaria, and the Baltics so it can harvest timber slowly and carefully while restoring degraded areas, respecting wildlife, and giving all of us a chance to enjoy the occasional walk in the woods.

Despite all these public benefits, the purchase isn’t part of IKEA’s well-known philanthropic efforts. Instead, it’s part of the company’s business plan: IKEA expects to make money from its forests, but it explicitly wants to “do well by doing going good,” and that makes this an “impact investment”.

Impact investments worldwide total about $115 billion, according to the Global Impact Investing Network, and about $8 of that found its way into investments designed to support forests, farms, and fields over the past ten years, according to an Ecosystem Marketplace report called “State of Private Investment in Conservation 2016”.

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Modular builder Katerra plans mass-timber plant

Modular builder Katerra plans mass-timber plant | Timberland Investment | Scoop.it
Turnkey modular construction company Katerra has announced plans to open a mass-timber production facility in Spokane Valley, WA. Construction will begin this fall and production is expected to start in early 2018. The facility will generate 150 jobs.

The 250,000-square-foot plant will produce engineered wood products including cross-laminated timber (CLT) and glulam for floor and wall panels and structural beams. The company is working with Washington State University’s Composite Materials and Engineering Center to develop and test the products.

Products from the facility will be used on Katerra projects, including the hospitality center at Kootenai Health, in Coeur D’Alene, ID, which will combine Ronald McDonald House and Walden House temporary residences.
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How a small Wisconsin town is making some hedge funds very nervous

How a small Wisconsin town is making some hedge funds very nervous | Timberland Investment | Scoop.it

After a century-old paper mill in Brokaw, Wisconsin, closed a few years ago, the town of 250 residents effectively went bankrupt.

Brokaw will soon be dissolved by its two neighboring towns. But it has found a new way to live on: through a federal bill named for it that would restrict Wall Street's activist hedge-funds, the type of investing firms that were blamed for the town's demise.

 

The Brokaw Act would require more disclosures by these hedge funds, which have been accused of promoting short-term gains over the long-term health of the companies they battle for change. Its sponsor, Sen. Tammy Baldwin (D-Wis.), plans to reintroduce the bill when the Senate is back in session after earlier attempts last year stalled.
***
While activist investors were involved with the mill's parent company, their actual culpability for what happened in Brokaw is disputed.

 

It all started in 2011, when Starboard Value, the New York hedge fund led by Jeff Smith, took a stake in shares of Wausau Paper, the Mosinee, Wisconsin-based company that owned a slew of mills, including the one in Brokaw.

***

By December of that year, Wausau's board of directors approved a plan to permanently close the Brokaw mill, eliminating 450 hourly and salaried jobs.

 

Those who defend the hedge funds say it was management at Wausau Paper, and not the investors, who were responsible for closing the mill. The same story had been happening all over during that time period as the American paper industry began facing greater competition from China and a more-environmentally-conscious consumer that was turning more frequently to computers and printing out fewer documents on paper.

 

Wausau Paper already had shut down a sulfite pulp mill in Brokaw in 2005, and two years later, closed its Groveton, New Hampshire mill, followed by the closure of one in Appleton, Wisconsin. In 2009, it closed its Livermore Falls, Maine, mill.
***
"Hedge-fund activists played essentially no role in the closure of the Brokaw mill," wrote Alon Brav of Duke University in a 2016 paper co-written with several other academics, who studied the case. "To the contrary, the paper company's incumbent management closed the mill — just the latest in a series of management's mill closures — amid an industry-wide decline that made the mill uneconomic to keep open."

 

But management believes the story of Brokaw would be much different had Starboard never taken a stake in Wausau Paper. Hank Newell was the chief executive of the paper company during much of Starboard's involvement.

 

Newell said that Wausau had a buyer lined up to acquire the Brokaw mill, but they balked after Starboard started publicly criticizing the company. A major customer as well as the company's lender also turned away amid the public battles with the hedge fund.

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ROSEBURG TO SELL ITS CALIFORNIA TIMBERLANDS TO NEW FORESTS

ROSEBURG TO SELL ITS CALIFORNIA TIMBERLANDS TO NEW FORESTS | Timberland Investment | Scoop.it
Roseburg Resources Co. today announced an agreement to sell its California timberlands to a timberland investment vehicle managed by New Forests. The transaction includes 170,000 acres in northern California, largely in Siskiyou and Shasta counties.

Roseburg’s California timberlands are investment-grade with a long history of professional management.

“The sale of our California timberlands would not be possible without the contributions of our California resource team,” said Scott Folk, Roseburg’s Senior Vice President of Resources. “Thanks to the team’s work, these lands will remain working forest timberlands under the new management of New Forests, a leading timberland investment organization focused on long-term growth.”

Founded in 2005, New Forests manages more than 2 million acres of land and forests around the world, with assets under management of more than $3 billion. Headquartered in Sydney, Australia, New Forests has offices in San Francisco, Singapore and New Zealand. The sale is expected to close in early 2018.

“The sale of this property allows Roseburg to pursue strategic growth opportunities in regions with stable markets and strong demand for timber,” Roseburg CEO Grady Mulbery said. “This transaction is part of a larger effort to expand Roseburg’s national footprint, which now includes our engineered wood plant planned for Chester, S.C., and our recent purchase of timberland in Virginia and North Carolina.”

Roseburg Forest Products will retain ownership of its veneer facility located in Weed, Calif.
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The Math of Timberland Returns and Our Unease with Rational Thought

The Math of Timberland Returns and Our Unease with Rational Thought | Timberland Investment | Scoop.it

Professor Richard Thaler won this year’s Nobel Prize for Economics, in part, for research confirming that we (humans) believe we are smarter and more rational than we actually are.
***
Reading Thaler’s research raises issues relevant to investing in timberland and forest industry stocks. We may believe we have superior insight into the value of an asset or the wisdom of a strategy, and that this belief in our own insight – as opposed to subjecting the insight to a suitable gauntlet of tests – gives license to act and a means to profit. This encourages us to overweight our assessment of values and market plays, while discounting the reality that hundreds or thousands of other (humans) are looking at the same data at the same time and coming to similar conclusions.

 

When too much capital chases too few assets, it creates its own momentum. And this momentum of the institutional conscious can lead to overvaluing assets. ***

From NCREIF data on institutional timberland investments:

  • In mid-1997, timberland values averaged $1,001 per acre, with 1-year total returns of 14.2%. About 7.1% from appreciation and 7.1% from income.
  • In mid-2007, timberland values averaged $1,500 per acre, with 1-year total returns of 11.5%. About 3.8% from appreciation and 7.7% from income.
  • As of mid-2017, timberland values average $1,823 per acre, with 1-year returns of 3.3%. About 0.7% from appreciation and 2.6% from income.


What can we expect from timberlands for future returns? Logic and data indicate that, at best, we can expect modest returns. The multiple between values and total returns moved from about 7 to 13 to over fifty. While this snapshot provides an incomplete story, it affirms that we pay significantly higher prices today for each unit of expected returns in the future.

 

If timberlands are historically expensive, it reminds us that investing relies on relative performance and differing objectives. U.S. 30-year government bonds, a “riskless” alternative, yield 2.9%. Low interest rates, in part, reflect a low demand for money and higher demand for savings and investment. Timberland, like bonds, provides a way to preserve wealth and store value. Which makes us consider risk and things to worry about.

 

For timberland, I worry less about regional or asset class-specific values and much more about individual properties and local timber markets. Timberland price-to-value metrics depend critically on the local wood basin and forest stocking level of the given property. For example, over the past four years, key changes in valuation drivers include (1) the continued accumulation of forest supplies in the South and (2) the role of technology and efficiency at wood using mills. In addition, values depend highly on the selection and application of an appropriate discount rate.

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Prentiss & Carlisle Q3 Update Published

Prentiss & Carlisle Q3 Update Published | Timberland Investment | Scoop.it

P&C's 3rd quarter newsletter contains an overview of market conditions in Maine, snippets of news from the broader industry, and an essay "Re-examining the Case for Timberland". An excerpt from the latter:

 

In summary, although a given property may present an attractive investment opportunity, we think that the general case for including timberland as a portfolio asset cannot be made as it has for the past thirty years. Maybe steady low returns are good enough – might timberland be an absolute return asset? There is also a case to be made for timberland as an impact investment. But are either of these rationales appealing to institutions who are already  underfunded with respect to long-term liabilities?


Clearly there are timberland properties that would perform well both as stand-alone investments and as portfolio enhancers. But we believe these properties should be sold on their own individual merits, not on the rationale that they are members of a desirable asset class.

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Quebec’s Solifor acquires Maine forest for $36 million

Quebec’s Solifor acquires Maine forest for $36 million | Timberland Investment | Scoop.it

To further secure the supply of quality fibre for Québec sawmills and processors, Solifor is continuing its expansion outside Quebec with the acquisition of Ste-Aurelie Timberlands, a 24,910-hectare forest property in Maine. The $36-million deal is Solifor’s second outside Quebec, bringing its out-of-province investments to $65 million.

 

Located at the border of Maine and Québec, this property, subject to forest management, is characterized by a mixed forest cover (coniferous and hardwood) and is in full development. The territory’s main customers and users are Québec companies, including Maibec and Groupe Lebel. With transportation being an important cost for Québec sawmills, this transaction will contribute to a better bottom line, according to a Solifor statement. 

 

An initiative of the Fonds de solidarité FTQ, Solifor has invested $200 million to date to acquire 153,000 hectares of forest land in Québec, in the Bas-Saint-Laurent, Lotbinière, Charlevoix, Saguenay, Portneuf, Mauricie and Abitibi regions, as well as Maine.

“Solifor is planning other acquisitions to further secure the fibre supply for Québec companies, making it a partner of choice for the Québec forestry industry,” says Raynald Arial, president, Solifor.

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New Zealand forestry a first test in nationalist party's protectionist agenda

New Zealand forestry a first test in nationalist party's protectionist agenda | Timberland Investment | Scoop.it
Some New Zealand forest owners are suspending replanting of trees and re-thinking investments as the country’s third-largest export earner finds itself in the sights of maverick politician Winston Peters’ protectionist agenda.

The election king-maker last week said he would prioritise a restructure of the forest industry in closely-watched coalition talks with major parties after last month’s inconclusive election result.

The plan includes a possible quota system which would force growers to favour local mills over a higher-paying export market. Exports of forest products totalled around NZ$4.75 billion (£2.5 billion) in 2015, with China the top destination.

That has put the Pacific nation’s lucrative forestry sector at the heart of concerns that New Zealand First in power will spell greater government intervention in New Zealand’s small, outward facing economy.

“Every time the government has done something like that we get what you call a hole in the supply of timber and we’re going into a hole now, an undersupply,” said Joe Carr, the owner of a privately-held logging business managing 500 hectares of forest in the far north of the country.

Carr is holding off replanting 60 hectares of his land due to the possible restrictions and said on average growers were paid a third less to sell logs locally than to export them. He said his son was re-thinking whether his family should stick to forestry after 44 years in the business.
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US timberland transactions poised to double over five years

US timberland transactions poised to double over five years | Timberland Investment | Scoop.it

Investors frustrated by the dearth of primary timberland transactions in the US will soon have reasons to cheer, according to specialist manager New Forests.

 

In its biennial update on the forestry market, the Australia-based firm observes that assets acquired “in the heyday” of 2003-2008 are now starting to be sold back into the secondary market. Rising interest rates may also put pressure to improve cash yields, creating volatility for returns and prompting investors to delist assets. Taken together, these trends will help bring annual timberland transaction turnover in the US from about $1 billion over the past seven or eight years – net of big consolidation deals – to $2 billion over the next half-decade, New Forests said.

 

Not every investor, however, will be inclined to part ways with assets held in the vehicles they back. “It is likely that most funds will sell down their holdings, but there may be some instances where a follow-on vehicle will be used to roll over the assets,” David Brand, chief executive of New Forests, told Agri Investor. “We understand there are some LPs looking to hold on to underlying assets – particularly for large, quality assets – even amidst fund exits.”

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Business Owners Choose Impact Investments Over Charity

Business Owners Choose Impact Investments Over Charity | Timberland Investment | Scoop.it

Business owners are more apt to make impact investments instead of donating to charities to help solve social ills, according to a new finding.

 

The 2017 U.S. Trust Insights on Wealth and Worth survey, in which more than 800 high-net-worth individuals shared their thoughts on investing, the workplace, family relationships, philanthropy and more, shows that business owners are more likely to invest in organizations that make a positive impact versus non-business owners, who are more likely to turn to charity for social effect.

 

“Business owners are less likely to make financial charitable contributions compared to non-business owners, but are actively engaged in supporting nonprofit organizations and causes through their work, investments and service,” the report says. “By far, business owners see the private sector, and businesses in particular, as most effective at creating economic opportunity and, in turn, a higher standard of living for more Americans.”

 

Women and millennials are leading the investment charge to impact imvesting, but interest in impact investing by men has doubled in the past two years, the survey finds.

 

Some other notable takeaways from the U.S. Trust survey:

• 45 percent of high-net-worth investors own or are interested in impact investments.

• More than half (55 percent) of those who own impact investments say they invest based on impact simply because it’s the right thing to do as a responsible citizen and investors.

• Four in 10 investors agree that companies that have a positive impact also have better financial performance.

• One in three agrees that companies that do well as good corporate citizens are less susceptible to headline risks. 

• Eight in 10 high-net-worth investors overall agree that all public companies have an impact on society or the environment.

• Two-thirds of baby boomers and three-fourths of mature investors don’t consider investing as a way to express their social, political or environmental values.

• The number of high-net-worth investors who have reviewed their investment portfolio for the environmental, social or governance impact of companies they invest in has increased to 34 percent, up from 23 percent in 2015.

• The biggest barrier to impact investing adoption continues to be the belief that doing well (investment performance) and doing good (philanthropy) are separate goals (49 percent), a sentiment felt most strongly among older high-net-worth investors.

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Foreign investment crucial for forestry industry

Foreign investment crucial for forestry industry | Timberland Investment | Scoop.it
New Zealand First leader Winston Peters said the future of forestry and timber supplies for local mills is one of his party's priorities as it heads into coalition talks.

He wanted the next government to protect wood supply to domestic mills by creating a Forest Service, and had previously stuck-up for Northland wood processors who said they were being squeezed out of the market by foreign forest owners and buyers.

Commercial forestry is a much bigger industry than most people think, with $25 billion to $30bn invested in plantations, the association's president Peter Clark said.

"It is widely acknowledged in Treasury, MFAT, and trade advisors, that we need foreign direct investment. Forests are pretty benign and logical place to have that investment."

Forestry has not been viewed as an attractive investment here compared to farming intensification.

More government interest is needed in the industry, as well as new plantings, he said.

"There's been a market failure. We've had 20 years of virtually no new planting and this is the main problem. We have heard a lot from Winston's electorate in Northland about wood supply into sawmills and that is absolutely correct and the major cause of it is no new planting. So, there is a gap."
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UMaine gets $455K for 'mass timber' commercialization center

UMaine gets $455K for 'mass timber' commercialization center | Timberland Investment | Scoop.it
The University of Maine System has landed a $454,532 federal grant to create a center to accelerate the use of Maine-sourced timber and engineered wood composites in place of steel and concrete for larger construction projects.

In a joint statement announcing the grant from the U.S. Economic Development Administration, U.S. Sens. Susan Collins, R-Maine, and Angus King, I-Maine, said the funding would be used to create the Maine Mass Timber Commercialization Center as a resource for forest industry partners, trade organizations, construction firms, architects and other key stakeholders to revitalize and diversify Maine's forest-based economy.

Its chief focus would be to advance new forest products technologies and bring innovative mass timber manufacturing to Maine.
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The timber industry illustrates exactly what’s wrong with international trade restrictions

The timber industry illustrates exactly what’s wrong with international trade restrictions | Timberland Investment | Scoop.it

In the August 4 issue of the Wall Street Journal, the CEO of a US lumber company claimed that “our trade laws exist to protect American businesses and jobs from unfair foreign trade practices, allowing our industries to grow and prosper.” His concern for American businesses and workers is commendable, but trade laws restricting our ability to do business with foreigners — even foreigners whose governments subsidize exporters — cause some industries to “grow and prosper” by causing other industries to shrink and struggle.

 

Let’s think about international trade restrictions on the timber industry for a minute.

Tariffs, quotas, and other restrictions on international trade make timber more expensive. With higher prices, timber companies can hire more people. It would be easy to look at the expanding timber industry and draw the conclusion that protection allows American firms to “grow and prosper.”

That conclusion would be wrong. Just because a policy makes some American industries “grow and prosper” doesn’t mean the policy makes all American industries “grow and prosper.” In the case of restrictions on the timber trade, the higher costs and higher employment in the timber industry mean that money and labor aren’t going into other American industries. Specifically, higher timber prices mean higher costs for timber-using industries like construction, paper, and furniture. Higher costs mean lower output in these industries, which means they either don’t grow as rapidly as they otherwise would have or they contract outright.

Trade restrictions have several important effects.

First, they take money out of the pockets of consumers, who have to pay higher prices for timber and timber-using goods.

 

Second, they draw resources into timber production. This sounds good until we realize that these resources could be used more advantageously elsewhere. Instead, they are being wasted producing timber that would have been cheaper had American companies been able to buy it at the world price without government interference.

 

Third, there is less economic activity overall. At the world price, people would have bought more timber. When intervention raises prices, people buy less timber.

There is a final cost associated with tariffs and other protections on international trade. Legislators have to be persuaded to vote for particular pieces of legislation, and persuasion isn’t free. Firms and trade associations dedicated exclusively to influencing the course of legislation have lobbying outfits in Washington, DC, and other seats of government. These groups produce nothing.

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USDA Fails to Monitor Foreign Owners of Farmland (and Timberland)

USDA Fails to Monitor Foreign Owners of Farmland (and Timberland) | Timberland Investment | Scoop.it

A law requiring foreign investors to report transactions of farmland to the U.S. Department of Agriculture has been on the books for almost 40 years.

 

But as the amount of foreign-controlled farmland doubled in millions of acres between 2004 and 2014, the USDA has lapsed in enforcing the law, a review of USDA documents has found.
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About 27.3 million acres of agricultural land in the United States are controlled – either owned or under a long-term lease agreement – by foreign investors, according to a USDA database of foreign investment in farmland. The land, roughly the size of Tennessee, is worth $42.7 billion.

 

But, since 2011, the USDA has only assessed 10 fines under the law, worth $115,724, according to records obtained by the Midwest Center for Investigative Reporting through the Freedom of Information Act. And no fines were assessed in 2015, 2016 or so far in 2017.

 

Lesa Johnson, the manager of the USDA program, acknowledged her office does not review the filings for completeness or accuracy. She said her office also does not investigate to see if companies with foreign ownership file these forms because of a lack of staff and resources.

 

Even before the recent downturn in enforcement, the USDA only assessed 187 penalties between 2004 and 2010, valued above $667,000. But the largest fine of $111,266 during that time, which made up a sixth of the total, was the result of a company self-reporting its lack of compliance with the law.
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Under the act, every foreign person or entity that acquires at least 10 percent interest in agricultural land must file what is known as an FSA-153 form. Agricultural land is defined as a parcel of land at least 10 acres in size or that could produce $1,000 in revenue from agricultural activities.

 

The form requires disclosure about a broad number of things, including how the project is financed, who the owner is and where the owner is from.

Penalties for not filing within 90 days can be as severe as a fine of up to 25 percent of the fair market value of the land.
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Because the USDA has little capability to review filings of foreign investors, the result is that the USDA relies on companies to report errors.

 

For example, in 2010, a team of attorneys at Atlanta law firm Morris, Manning & Martin realized they had failed to file a $98.9 million purchase of 55,000 acres of Alabama, Mississippi and Tennessee timberland. The firms’ corporate and realty teams had miscommunicated, and no one had filed the FSA-153 form with the federal government, according to Rebecca Vandiver, then an attorney at the firm.
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Records show the form was required because their client, RMK Select Timberland Investment Fund I, LLC, a timber investment management organization, had ownership interest from Denmark.
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Morris, Manning & Martin decided to voluntarily file late, which would result in an $111,266 fine, covered by malpractice insurance, rather than be in noncompliance.

 

But Vandiver said that it didn’t appear the federal government would have ever known the fund was in noncompliance if the firm hadn’t self-reported. And records and comments from the USDA confirm her perception.

 

The fine for RMK Select Timberland Investment Fund I, LLC, was the largest fine since at least 2004, enforcement records show.
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“With a lot of these LLCs, finding out who the investors are would not be easy, to be honest,” Vandiver said.

 

Because of that difficulty, getting around the filing requirement— either by negligence or intention — would not be that hard, Vandiver said.

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Portfolios with farmland, timber deliver better returns: global research

Portfolios with farmland, timber deliver better returns: global research | Timberland Investment | Scoop.it
Australian super funds are showing a greater willingness to invest in farmland and timber at a time when new global research shows diversification into alternative real assets can deliver improved returns.

"We're getting requests for more information, more meetings and the conversation is continuing," said John Goodreds, head of alternative solutions at US investment giant Nuveen (formerly TIAA), which has more than $1.1 trillion of assets under management.

Australian super funds remain hugely underinvested in agriculture, which makes up just $2.6 billion of the more than $2.2 trillion of retirement savings they manage.

"One of things we are finding when we talk to clients and educate them is that sophisticated investors need data. They need to know how adding new asset classes to their portfolios will benefit them," Mr Goodreds told The Australian Financial Review.

To provide better data, Nuveen undertook new research, examining portfolio returns over the past 25 years, to demonstrate the potential of farmland, timberland and commercial real estate to improve the risk-adjusted returns of traditional portfolios consisting of stocks and bonds.

Over the past 25 years, the report found that real assets provided "similar or higher returns than stocks with much lower volatility, resulting in higher risk-adjusted returns".

"Farmland also had higher risk-adjusted returns than bonds, with timberland equal to and real estate lower than bonds," the report found.

Between 1992 and 2016, stocks delivered an average annual return of 8.78 per cent, bonds 6.07 per cent and commercial real estate 8.68 per cent. By comparison farmland delivered an average annual return of 11.98 per cent and timberland 10.34 per cent.

The report also found that while a traditional portfolio of stocks and bonds delivered an annual average total return of 6.49 per cent, adding farmland (to 43 per cent of the portfolio) lifted the return to 8.74 per cent.

It concluded that "private real assets offer institutions compelling potential to enhance risk-adjusted returns, based on low correlations with other asset classes, and serve as inflation hedges".
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Hancock Timber Resource Group Acquires Approximately 79,000 Acres of Timberlands in Wisconsin

Hancock Timber Resource Group Acquires Approximately 79,000 Acres of Timberlands in Wisconsin | Timberland Investment | Scoop.it
The Hancock Timber Resource Group has completed the acquisition of 78,986 acres of timberlands in northwestern Wisconsin, Hancock Timber Resource Group President Brent Keefer said today.

The 78,986 acres of timberlands, located in Bayfield, Burnett, Douglas and Washburn counties, were acquired from investment funds managed by The Lyme Timber Company, a private timberland investment management organization based in Hanover, New Hampshire.

"These assets are attractively stocked with primarily red pine, jack pine and hardwood forest types. They will supply a diverse customer base who manufacture utility poles, lumber, studs and pulp and paper products. We are very pleased to add these high quality productive timberlands to our clients' portfolios," Mr. Keefer said. "We also look forward to managing these timberlands which have been protected under conservation easements. This type of management is consistent with our long standing stewardship ethic."

More than 90% of the timberlands are managed under working forest conservation easements purchased from Lyme Timber by the Wisconsin Department of Natural Resources. These easements were acquired as part of the Brule-St. Croix Forest Legacy Project that ensured the lands will be available for forest management and timber production to serve the wood products industry, and will remain open to the public for nature-based recreational activities.
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