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S&P revises Potlatch Corp outlook to stable

S&P revises Potlatch Corp outlook to stable | Timberland Investment | Scoop.it

Overview

  • Improving housing markets combined with good demand and pricing for wood products have resulted in better-than-expected earnings for U.S. timber real estate investment trust (REIT) Potlatch Corp.
  • We are revising our outlook to stable from negative and affirming all existing ratings, including our 'BB' corporate credit rating.
  • The stable rating outlook reflects our expectations that improving housing and lumber markets will result in Potlatch's leverage declining to 4x over the next several quarters.


Rating Action
On Oct. 29, 2012, Standard & Poor's Ratings Services revised its outlook on Spokane, Wash.-based Potlatch Corp. to stable from negative. At the same time, we affirmed all existing ratings, including our 'BB' corporate credit rating on the company.


Rationale
The outlook revision and affirmation reflects our improved view for Potlatch's EBITDA performance in light of recovering housing markets and better than previously anticipated wood products segment earnings. As a result, we now expect Potlatch's leverage to decline to approximately 4x at year end 2012 and be maintained below 4x in 2013.

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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:

  • Click on the Follow  button (upper left), and Scoop.it! will deliver a summary of our new content to your inbox every morning.
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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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New Forests completes investment in hardwood plantation in Laos

New Forests completes investment in hardwood plantation in Laos | Timberland Investment | Scoop.it

New Forests, on behalf of its Tropical Asia Forest Fund (TAFF), has completed the acquisition of a majority shareholding in one of the largest hardwood plantation estates in Laos. TAFF’s portfolio now comprises investments with diversified timber species and market exposures across plantation companies in Malaysia, Indonesia, and Laos. TAFF includes capital commitments from nine investors and is the only institutional forestry fund dedicated to investing in sustainably managed timber plantations in Southeast Asia.

 

TAFF’s latest acquisition is an 85% interest in a mature plantation estate that will be known as Mekong Timber Plantations. New Forests intends to develop the plantation as a high-quality timber asset serving regional markets for certified plantation hardwood. The purchase further supports TAFF’s investment thesis of acquiring significant interests in plantation timber companies and investing to transition these assets toward higher value end markets and to service the growing demand for certified, sustainable timber in Asian markets. The fund’s investments include eucalyptus and acacia plantations as well as a rubber plantation that will produce both latex and timber products.

 

Mekong Timber Plantations will manage 22,000 hectares of leased area mainly in Bolikhamxay and Khammouane provinces of Laos. TAFF also has equity interests in Acacia Forest Industries Sdn Bhd of Sabah, Malaysia and PT Hutan Ketapang Industri of West Kalimantan, Indonesia. In total, the fund has invested in more than 150,000 hectares of concessions, leases, and gazetted land, currently including around 45,000 net planted hectares.

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AEG in proposed timber licence deal

AEG in proposed timber licence deal | Timberland Investment | Scoop.it
Active Energy has reached an agreement in principle for a timber licence and forestry management deal in the Province of Newfoundland and Labrador, Canada.

Active Energy said that if finalised it and its affiliate, Timberlands International, would have a Crown timber licence and forest management agreement relating to two forest management districts covering 1.2 million hectares.

Active Energy said that in addition, both parties were evaluating a number of other collaborative opportunities for both Timberlands and Advanced Biomass Solutions plc, another affiliate company of AEG, which involved timber processing and the commercialisation of the CoalSwitch product, the world's first 'drop in' biomass fuel that could completely replace coal in existing coal fired power stations without the need for expensive retrofitting.

Chief executive Richard Spinks said: "The proposed agreement with the Province of Newfoundland and Labrador represents an important step in the overall strategy for Timberlands in achieving a new and significant partnership in Canada.
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Ohio Police & Fire targets infrastructure, agriculture and distressed debt with new commitments

Ohio Police & Fire targets infrastructure, agriculture and distressed debt with new commitments | Timberland Investment | Scoop.it

Ohio Police & Fire Pension Fund, Columbus, made five new commitments totaling up to $210 million, spokesman David Graham said in an email.

The $15.1 billion pension fund committed up to $100 million to IFM Global Infrastructure Fund, an open-end infrastructure fund managed by IFM Investors, and up to $50 million to ACM Fund II, a closed-end agriculture fund managed by ACM Management Co.

They are the first infrastructure and agriculture fund commitments for the pension fund since the creation of a new 5% real assets target, which includes timber, infrastructure and agriculture. Previously, the 5% target was solely for timber, and the pension fund expanded the allocation because the pension fund has had difficulty finding “acceptable timber opportunities that would allow OP&F to reach the 5% target,” Mr. Graham had said following the Nov. 16 board meeting at which the new target was created. The actual allocation is currently 2%.

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Western vs. Eastern Forest Economists

Western vs. Eastern Forest Economists | Timberland Investment | Scoop.it

Almost every year, two great events for forest economists are organized in the United States of America. First one, the conference of Western Forest Economists will be held at Colorado State University in Ft. Collins (CO), while the second – International Society of Forest Resource Economists (ISFRE), will be hosted in New Orleans (LA). This year, forest economists will have a really tough choice, and they have to use their ecnonomic theories and scarce resource (time) to select, which conference they want to attend, as both of them are organized in the exactly same time, i.e. May 30 – June 1, 2017

 

READ MORE: 

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Tracking the Top Timberland Owners and Managers in the U.S. and Canada, 2017 Update

Tracking the Top Timberland Owners and Managers in the U.S. and Canada, 2017 Update | Timberland Investment | Scoop.it

The table below lists the 2017 top 10 U.S. timberland owners by acres. Overall, the ranking “order” remained relatively unchanged from 2016 while the composition changed with the addition of two firms. First, Green Diamond joined the list after we reclassified the firm from asset “manager” to asset “owner.” Second, Tall Timber Trust, not on the list in 2016, comes in at number nine (9) this year after acquiring 290,000 acres in Maine in 2016. Overall, these 10 owners of U.S. timberland have 24.1 million acres; timber REITs account for 68.5% of this total. This does not include the approximately 3.0 million acres directly and indirectly controlled by the two largest non-profit conservation owners.

 

When looking separately at the top 10 timberland managers, TIMOs, who manage timber assets on behalf of institutional investors and large private investors, hold seven slots; these seven TIMOs manage 16.7 million acres, or 65.7% of the 25.4 million acres managed by the top 10 firms. Of these firms, the key change since 2016 was Forest Investment Associates (FIA) moving up to number 4 from 6, and Campbell Global moving down to number 6 from 4. Three forestry consulting and management firms, including the largest organization on this list (American Forest Management), account for the balance.

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How to Invest in Agriculture [or Timberland] With Your IRA

How to Invest in Agriculture [or Timberland] With Your IRA | Timberland Investment | Scoop.it

Traditionally, investors only consider stocks, bonds, mutual funds and exchange-traded funds when choosing investments for an IRA. However, these are not your only options. Agriculture can be a great addition to any portfolio, providing a low-risk option that generates stable income in the form of profit from the farm and capital gains as the land appreciates in value.

 

In order to add nontraditional investments to a portfolio, investors must choose a self-directed IRA. This is a type of IRA that allows the account owner to choose their investments instead of having all investment decisions made by the financial institution managing the IRA. Investors should seek counsel from their tax professional and choose a self-directed IRA custodian to set up this structure.

 

While investing in agriculture with an IRA may not be the norm, it can provide a great low-risk addition to a portfolio. Agriculture investments can help your IRA grow in two ways. A farm produces crops, and these crops generate income when sold. In addition, the value of the land may increase over time, resulting in a capital gain.

***

There are some important things to note when choosing to invest in agriculture with your IRA. All expenses related to the investment must be made through the IRA, so the IRA must have sufficient funds to pay these amounts. Having to rely on outside capital to cover expenses can lead to the loss of tax benefits or the incurrence of penalties. Also, all income generated by the investment must be paid into your IRA. Additionally, agricultural investments that provide a personal benefit to the investor are considered prohibited transactions by the Internal Revenue Service. An example of this would be a purchase of a timber stand where the investor wants to hunt. You can also not purchase a piece of agricultural property you or a family member owns with a self-directed IRA. The IRS considers this self-dealing.

 

 

That said, investing in agriculture with your IRA has some great tax benefits. There are no taxes on capital gains when the investment is within an IRA. Taxes on income are deferred indefinitely, as you only pay tax when you take assets out in the form of income.

Sam Radcliffe's insight:

This article talks about agriculture but all of the principles hold for timberland as well.

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Rayonier's (RYN) CEO Dave Nunes on Q1 2017 Results - Earnings Call Transcript

Rayonier's (RYN) CEO Dave Nunes on Q1 2017 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Dave Nunes - President & CEO

Before discussing our results for the quarter, I'd like to briefly address our recent equity offering and portfolio moves in the U.S. south. On March 16, we announced that company had entered into three transactions to acquire approximately 95,100 acres of high quality industrial timberlands located in Coastal Florida, Georgia and South Carolina.

 

We recently closed on the transactions for a final aggregate purchase price of $214 million or roughly $2250 per acre. We're very excited about these acquisitions as they meaningfully increase our footprint in some of the strongest markets in the U.S. south. Further, these properties are highly productive with an average site index of 78 feet and average productivity of 4.7 tons per acre per year.

 

Over the next five years we expect that these properties will contribute on average roughly 13 million of incremental adjusted EBITDA per year to our Southern Timber segment. So while these properties transacted at a relatively high per acre value reflective of their high quality, we expect them to generate a strong cash yield and an attractive long-term return for our shareholders.
***
Mark Wilde - BMO Capital Market

Okay. And then finally Dave if I could one of the trade papers recently had an article suggesting some cooling in the Southern timberland markets I assume you seen this and I wondered if you had any thoughts on that?

 

Dave Nunes - President & CEO

Our view is always been that it really is quality dependent and I think that you’re seeing a mix of quality assets there's plenty of deal flow right now but there's a mix of assets. Certainly at one end of the spectrum you have the transactions that we recently completed, that were very high quality assets in high quality markets. There are other assets that are going to be at lower quality and I think that depending on how you look at markets and which of those assets you're looking at, it’s going to color your view of markets.

 

But I think we still are seeing strong market dynamics in terms of capital trying to get into the asset class and I don't know that we espoused to the markets cooling as much as we do really been driven by the quality of the assets that are out there.
***
Steve Chercover - Davidson

My last question again, forgive me if I might've missed it, but in southern sawtimber, the price is about as flat as a board. So when do you expect tension in that market that will help elevate prices?

 

Dave Nunes - President & CEO

I think it's quite variable. In our discussions with investors, we are focusing on the relative build in inventory across the U.S. south and we continue to believe and see that there is going to be very variable price elasticity going forward. And in some of our more tensioned wood baskets, we're experiencing that price elasticity now and in other wood baskets that are less tensioned, we're not.

And I think it it's been to some degree exacerbated by the weather factors and the demand reductions associated with these two pulp mill incidents that Doug referenced that I think have exaggerated perhaps some of the effects. The La Niña conditions that have currently translated to a lot of dry weather in abundance of supply, as well as the demand reduction, neither of those two things are going to be long-term in nature.
***
Chip Dillon - Vertical Research

And then maybe lastly when you think about the 95,000 acres you bought they all seem to be relatively close to I95 and I know there is some very empty spaces still along the highway. But that doesn't mean that in five or 10 years whether it’s warehouses or other types of development could occur. Is there some optionality on these 95,000 acres in your mind, you might not have valued it as such when you made your deal, but do you think it's reasonable that if things progress that you could see some HBU potential among these acres?

 

Mark McHugh - SVP & CFO

I expect that we’re going to sell probably 20,000 to 30,000 acres a year into those HBU markets. And you kind of see the price premiums. I think the last couple years we've averaged 2500 to 2750 an acre, so that kind of gives you a sense as to our kind of run rate expectation for that business and I think it was generally kind of translate into a similar range to what we're forecasting for this year.

 

And so as it relates to the upside potential in the recent acquisition you know it’s absolutely something that we see is creating some upside over time. We didn’t underwrite it into our acquisition underwriting. We didn’t need to. This was a property from a timber standpoint really supported the valuation without that but clearly these markets are again in that sort of path of growth in the I95 corridor and so we do see some upside there over time keeping in mind that because the timber value here is so high it’s sort of hurdle rate to actually sell into that HBU market is going to be materially higher as well.

 

Dave Nunes - President & CEO

Chip another thing to think about it is that there's a portion of those assets that actually have HBU value from an agricultural conversion and that's not something that you see very often, but it speaks to when you have site index that’s that high and you see surrounding lands that are in active agriculture, it’s suggestive of that.

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New Impact Investing Performance Data Show That Impact Funds In The Private Real Assets Arena Have Delivered Returns On Par With Similar Funds With No Environmental or Social Objectives

New Impact Investing Performance Data Show That Impact Funds In The Private Real Assets Arena Have Delivered Returns On Par With Similar Funds With No Environmental or Social Objectives | Timberland Investment | Scoop.it
Private real assets impact investment funds, which invest in assets such as timber, real estate and infrastructure and aim to advance environmental or social objectives in addition to generating a financial return, can generate returns comparable to similar funds that do not have specific environmental or social goals.

That’s according to the Financial Performance of Real Assets Impact Investments report, which presents the first comprehensive analysis of the financial performance of private real assets impact investment funds in three sectors: timber, real estate, and infrastructure. The report launches three benchmarks developed and compiled by global investment firm Cambridge Associates in partnership with the Global Impact Investing Network (GIIN), which seeks to increase the scale and effectiveness of impact investing around the world. Cambridge Associates will provide updated performance data on the three benchmarks on a quarterly basis.

Real assets play a number of 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 present opportunities for alignment with a number of important impact objectives. For example, in this study many timber-focused impact funds pursue sustainable timber production or land conservation; real estate-focused impact funds are typically focused on green real estate and/or affordable housing; most infrastructure-focused impact funds targeted renewable energy generation.
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Senators propose 100 percent renewable energy in US by 2050

Senators propose 100 percent renewable energy in US by 2050 | Timberland Investment | Scoop.it
Oregon Sen. Jeff Merkley and Sen. Bernie Sanders, I-Vermont, along with Sens. Edward J. Markey, D-Massachusetts and Cory Booker, D-New Jersey, introduced landmark climate legislation that would transition the U.S. to 100 percent clean and renewable energy by 2050.

 The “100 by ’50 Act” lays out a roadmap for a transition to 100 percent clean and renewable energy by 2050. It is the first bill introduced in Congress that will fully envision a transition off of fossil fuels for the United States.

:America is home to innovative entrepreneurs and scientists who have tackled many challenges in our nation’s history—from harnessing electricity, to putting a man on the moon, to curing disease,” said Merkley. “The power to end the use of fossil fuels and completely transition to clean and renewable energy is within our hands, but just as with the moon landing, we need a roadmap, a goal, and a passionate, shared national commitment to get us there. If an asteroid were hurtling its way through space towards our planet, we would do everything in our power to stop that asteroid. Our commitment to fighting climate change should be no less. Starting at a local, grassroots level and working toward the bold and comprehensive national vision laid out in this legislation, now is the time to commit to 100 percent by 2050.”
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Potlatch Corporation's (PCH) CEO Michael Covey on Q1 2017 Results - Earnings Call Transcript

Potlatch Corporation's (PCH) CEO Michael Covey on Q1 2017 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Paul Quinn - RBC

Okay. And then just looking at that last RISI timber report, they were mentioning some softness, potential softness in timberland values based off increased discount rates, and I guess, a disappointment in Southern sawlog pricing. You seem to suggest that timberland values are pretty steady right now, is that your expectation?

 

Eric Cremers - President and COO

Yes. I mean, just go look at that Rayonier transaction in the first quarter, Paul, I mean, it's -- that was a pretty good number and the stuff that we're seeing and we're competing in, we've seen no letup in pricing.

 

Michael Covey - Chairman and CEO

I think you always have to look at what was the quality and stocking of the timberland that was purchased. And I think high quality, well stocked Southern U.S. timberland continues to have benchmark prices that are in this $2,000 an acre kind of a range sometimes higher, sometimes a little lower. But we haven't seen any change.

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There ain’t no free lunch in forestry – an interview with Bob Izlar

There ain’t no free lunch in forestry – an interview with Bob Izlar | Timberland Investment | Scoop.it

Rafal Chudy: Recently, I have noticed that at many forestry schools in Europe and U.S., there is a reduction in positions related to forest economics, management, which are getting outnumbered by programs focused on forest ecology, or for instance, effects of climate change on forests. It seems that your Center is selecting a different way, and tries to fulfill this gap. Is it true? And, do you expect any potential competitors in this niche educational market in coming years?

Bob Izlar: We have noticed with great sadness the demise of many world class forestry schools who have taken a different path as you so correctly note.  This trend seems to have begun in the mid-1970s. We have chosen a different – so might say radical way – in that we have remained steadfast in our adherence to traditional forestry education. As a friend of mine from Texas noted: “Conservation without cash is just conversation.”  All the green programs in the world won’t amount to anything, if you can’t pay for them. “There ain’t no free lunch.” Someone has to actively invest in land, labor and capital to make our forests work for a financial return and many amenities – green benefits if you will. Your forest has to make money or its ownership will gravitate to some owner who will. Those who are averse to “hanging a dollar on things”, don’t get that.

With that being said, we are almost the last US School left with a forest  business/industrial/economic focus. There are about four more I could name who are much like us. We welcome any competition in our forest investment science niche, but I think they will have to follow our model to succeed. 

 

Bob Izlar has been the Director of and Faculty member in the Harley Langdale, Jr. Center for Forest Business at the the University of Georgia’s Warnell School of Forestry and Natural Resources since 1998.

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US home buyers foot the bill for Canadian lumber tariff

US home buyers foot the bill for Canadian lumber tariff | Timberland Investment | Scoop.it
In a blow to millions of prospective American home buyers, the U.S. Department of Commerce has imposed countervailing duties averaging 20 percent on imports of Canadian lumber to the U.S.

Why should such a development be of concern to Americans? Because U.S. trade policy can have a direct impact on housing affordability.

Commerce Secretary Wilbur Ross is mistaken when he says the tariffs will have little effect on the cost of housing. If these duties remain in effect throughout the year, the National Association of Home Builders estimates they will result in the loss of:

  • $598.3 million in wages and salaries for U.S. workers
  • $350.2 million in taxes and other revenue for governments in the U.S.
  • 8,241 full-time jobs
Moreover, lumber prices have already jumped 22 percent since the beginning of the year, largely in anticipation of new tariffs. This price spike has added nearly $3,600 to the cost of a new single-family home. When you consider that each $1,000 increase in the median price of a new home makes homeownership unaffordable to 150,000 households, you can quickly see how this tariff can have a ripple affect across the nation.
 

It’s not just home buyers and consumers who are hurt by tariffs. According to the Bureau of Labor Statistics, in 2016, housing and related industries that used softwood lumber employed nearly 4.5 million American workers and outnumbered U.S. lumber-producing workers 31 to 1.

This new tariff will do little to increase U.S. lumber industry employment or the share of U.S. lumber supply coming from domestic production, but it will mean bigger profits for U.S. lumber mills and private landowners. Essentially, the import restrictions represent a subsidy to U.S. timber companies paid for by American home buyers.
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State Signs Off On Wetlands Loss For $65M Sand Processing Project

State Signs Off On Wetlands Loss For $65M Sand Processing Project | Timberland Investment | Scoop.it

The state has granted permission for a timber company to fill wetlands as part of a $65 million sand processing plant and rail spur in Monroe County.

 

Company officials say the project will pair economic development with environmental preservation. However, environmental advocates say the Wisconsin Department of Natural Resources may have contradicted state law when it granted the company a wetland permit.

 

The DNR approved the permit last week for Meteor Timber’s plans to fill about 16 acres of wetlands as part of the project. Meteor Timber is proposing the multi-million dollar project as part of plans to process sand from a nearby mine, which would then be shipped to customers in North Dakota and Texas.

 

Company spokesman Evan Zeppos said the project protects more than 40 acres of wetland for every acre impacted.

"When you look at a project that is impacting 16 but preserving another 643, many of which are high-quality wetlands, and you add in things like the Rudd Creek restoration, the eco-passages, as well as the $65 million investment and 100 new jobs, I think this project warrants support," Zeppos said.

 

In an environmental review, the DNR acknowledged the project could set a precedent by using wetland preservation as a means of mitigation. The agency also points out the project would impact wetlands primarily in a white pine-red maple swamp, which is considered an "imperiled" wetland community in Wisconsin.

 

Environmentalists question whether the DNR approved the company’s wetland permit in accordance with state law. Stacy Harbaugh, communications director for Midwest Environmental Advocates, said the DNR also points out that the loss of white pine-red maple swamp "is expected to be irreversible and has high significance."

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Church Commissioners for England announce total return of 17.1% on investments for 2016

Church Commissioners for England announce total return of 17.1% on investments for 2016 | Timberland Investment | Scoop.it

The Church Commissioners for England announced today publication of their 2016 financial results and annual report.

The Church Commissioners' total return on its investments in 2016 was 17.1%, compared with the previous year's return of 8.2%. Over the past 30 years the fund has achieved an average return of 9.6% per annum.
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First Church Estates Commissioner Sir Andreas Whittam Smith congratulated the fund on exceeding its investment target of the rate of inflation plus five percentage points.

"We were well ahead of our return target in 2016. In 2016, the fund returned 17.1% whereas inflation plus five percentage points was 7.5%.

"Contributing to this stellar outturn was a strong showing by global equities (+32.9%), partly reflecting the depreciation of sterling. Equally helpful were our interests in private credit strategies (+33.1%), private equity (+26.1%) and timberland (+24.3%). The combined property portfolios delivered a creditable 11.6% in a relatively weak market environment.
***

The Commissioners' forestry estate covers 120,000 acres in the UK, the US and Australia with the timberland and forestry portfolio delivering a return of 24.3%.

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5 Top Dividend Stocks in the Forestry Industry

5 Top Dividend Stocks in the Forestry Industry | Timberland Investment | Scoop.it

The forestry industry is a great place to go for dividend income. That's because many companies operating in the sector have chosen to structure as real estate investment trusts, or REITs, for tax purposes. Not only does that give them a tax exemption on the corporate level, but one of the requirements to maintain that status is that these companies must pay out 90% of their income out to shareholders via dividends.

The net result is that the dividend yield of the top forest owners is often more than double that of the average stock in the market:

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BMO’s Timber & Wood Products Summit: Trip Notes

BMO’s Timber & Wood Products Summit: Trip Notes | Timberland Investment | Scoop.it

Bottom Line: BMO recently hosted its annual Timber & Wood Products Summit in Seattle. Sixteen major companies from across the sector presented at the Summit. In addition to publicly listed North American companies, we were joined by a pair of large family owned companies, two prominent timber investment management organizations (TIMOs), and a privately held European lumber producer with operations.


Key Points
The tone around southern timber prices and timberland valuations is growing steadily more cautious. In general, private owners/asset managers are more cautious than public companies. Weyerhaeuser suggests that 1.3MM starts should prove a demand trigger for southern sawlog pricing. In contrast, a large southern-oriented TIMO argued that fresh thinking was in order and that southern sawtimber would not recover to past "real" price levels and that recovery will be gradual and long-dated (5+ years). 


Virtually all lumber and panel producers acknowledge some modest easing in prices over the past 2 weeks. In lumber, the market is stuck in a standoff between Canadian producers and their customers. The Canadians are trying to maintain a pricing
run-up that occurred prior to the announcement of countervailing duties (CVD) in late April. Although unaffected by the U.S./CN lumber dispute, plywood and OSB have enjoyed a price rally through early 2017 and are now tapering-off modestly.

 

One point of clear consensus: investors should brace themselves for unusually volatile lumber prices through 2017. The on-again/off-again nature of the countervailing duties on Canadian lumber will help drive volatility. After going into place in late April, the ~20% preliminary CVD duties will expire in late August and will
only go back into place after a final duty determination is made in late December.


The prospects for a 2017 resolution of the lumber dispute appear dim. Going into the Summit, we had handicapped the chances of a 2017 resolution at 50/50. Coming out of the Summit, we think the prospects are no more than 20%.

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Canadian forest companies see silver lining to softwood dispute

Canadian forest companies see silver lining to softwood dispute | Timberland Investment | Scoop.it

Despite a 20% tariff on wood products shipped to the United States, the Canadian forest industry is still basking in the sunshine because of high lumber prices, Russ Taylor, president of International Wood Markets Group, said Thursday at the close of a day-long global lumber conference in Vancouver.

 

“The storm is coming, but we are still in the sunshine,” Taylor said in an interview summing up the generally positive attitude of lumber producers towards the U.S. market. The storm he was referring to is the future impact of a countervailing duty on softwood lumber products that went into effect May 1.

 

What’s behind the optimism is lumber price increases since February that have covered the cost of the duty. It’s already built into prices, so selling lumber into the growing U.S. housing market is still a lucrative business, said speakers at the conference, sponsored by International Wood Markets.

 

The storm will come when those high prices collapse. Lumber is a commodity subject to volatile price swings and what goes up, comes down, U.S. lumber producer Ahren Spilker, operations and export sales manager of the Idaho Forest Group, said in his remarks to the 260 people attending the conference. But until that happens, the duty has already begun to pay off for U.S. lumber companies.

 

“We have had a heck of a year. This last run [in prices] is one of the strongest we have ever seen,” Spilker said.

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It's unanimous: Elliott State Forest will remain publicly owned

It's unanimous: Elliott State Forest will remain publicly owned | Timberland Investment | Scoop.it
The Elliott State Forest, the 82,500-acre Coast Range parcel the state nearly sold to a timber company, will stay in public ownership, bringing an end to Oregon's years-long flirtation with divesting the land.

Oregon Gov. Kate Brown, Secretary of State Dennis Richardson and state Treasurer Tobias Read voted Tuesday in Salem to halt the sale, pulling the remote forest back from the brink of a plan that was wildly unpopular with hunters, anglers and environmental groups.

The potential divestiture had put Oregon at the forefront of a nationwide debate over publicly owned land, leaving a Democrat-controlled state positioned to do something that some Republicans, including President Donald Trump's interior secretary, have rejected.

Huge questions about the forest in Coos and Douglas counties remain unanswered. Chief among them: Which agency will manage the land, what role logging and recreation will play in its future and how many acres of the forest will be protected with a proposed $100 million investment from state taxpayers.
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Canada Considers Retaliation Against U.S. In Escalating Timber War

Canada Considers Retaliation Against U.S. In Escalating Timber War | Timberland Investment | Scoop.it
Canadian Prime Minister Justin Trudeau says he’s carefully and seriously considering a request from the premier of British Columbia to deny U.S. coal exports through Vancouver.

The ban would be a retaliation in the escalating trade war over softwood lumber. But one Montana timberman says it may just be election rhetoric. British Columbia votes for its premier tomorrow. Gordy Sanders is a resource manager at Pyramid Mountain lumber in Seeley Lake.

“As you well know, anytime folks are running for office, they’re likely to say and do a number of different things to position themselves to get elected," says Sanders.

In April, the Trump administration placed tariffs on softwood lumber coming from across the border. While they could save some timber jobs in Montana, it could also cost over a thousand jobs in British Columbia. So, last month, B.C. premier Christy Clark asked Trudeau to retaliate by banning shipments of U.S. thermal coal. On Friday, Trudeau responded, saying he was giving her request careful consideration.

Analysts say Cloud Peak Energy, which owns a mine near Decker, Montana, would be the biggest coal exporter affected by a ban. The company’s stock has dropped by about ten percent since Clark made her request.

Trudeau is also considering slapping duties on products imported from Oregon, including plywood, flooring, wood chips, packaging material and wine. That move, The Canadian Press reports, is a slapback against Oregon senator Ron Wyden, a hardliner in the lumber dispute.

On Saturday, the Trump administration called Canada’s threats inappropriate, and insisted they would have no effect on the U.S.’s course of action. A second round of duties on Canadian softwood lumber are expected in June.
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Maine Forest Industry Positioning Itself for the Future

Maine Forest Industry Positioning Itself for the Future | Timberland Investment | Scoop.it

Sometimes you need to step back, take a breath and evaluate things objectively. With a string of pulp mill closures, the Northeastern US forest products industry has lost markets for about 4 million tons of pulpwood and biomass since 2014. In a state with a total timber harvest of about 14 million tons, that’s a big deal. The entire supply chain—landowners, loggers, truckers and mill facilities—has felt the impact of these losses, and it hasn’t felt good.


As the situation continues to impact the supply chain, the forest industry in the Northeast is moving beyond talking about what has been lost and is now looking ahead to new opportunities. Just a few short years ago, firms looking to develop new projects in Maine faced stiff competition for almost every tree species and grade. Today, there’s lots of biomass and low-grade softwood available, and that means opportunities for new and expanding wood-consuming industries to establish themselves.

With demand prospects on the horizon, the new challenge will be in determining what opportunities are best for Maine, what existing and emerging products best fit the resources and infrastructure, and how to capture these market opportunities. The University of Maine and the state’s forest industry trade associations, which represent Maine’s diverse supply chain and manufacturing sectors, are now collaborating on a project called the Maine Forest Economy Growth Initiative to chart a path forward. With the support of over $1 million in federal funds—due in large part to the state’s Congressional delegation—as well as some state funding, the group is tasked with answering a number of questions, including:

  • What do the future forest resources of Maine (and its neighbors) look like? What are the species and grades available from the forest, and how will this change in coming years?
  • Who currently uses this wood, and what wood is underutilized by species, grade or geography?
  • What existing or emerging markets can utilize Maine wood in order to manufacture products the market demands?
  • How can Maine position itself to attract companies that want to invest in the forest sector?

 

Of course, the market doesn’t always wait for studies. Right now, multiple firms are looking at opportunities in Maine for siting bio-refining and biofuels facilities, and most of these firms are also looking to repurpose closed pulp mills and put idled assets to work. At least two firms have announced plans to export wood chips overseas. Other groups are evaluating wood pellet mills and engineered wood manufacturing operations.

It’s not just emerging industries that are drawn to Maine’s opportunities; investment at existing Maine forest industry facilities is strong as well. For example, one pulp mill recently commissioned two new tissue machines, and another mill has committed to nearly $200 million in investments to its wood-handling system and the rebuilding of a paper machine. A new biomass combined heat and power system is now operational at a Maine pellet mill, and another is being built at a local sawmill. 

Instead of focusing on what once was, Maine is now positioning itself to move forward by identifying and seizing on new opportunities. The state still has a robust and diverse forest, which is almost entirely under private ownership, and most timberland is managed under one of the leading recognized certification programs. The state also has an existing and efficient supply infrastructure, as well as communities that welcome forest manufacturing.

Maine has all of the pieces in place for participants in the forest products industry to flourish. As the state looks towards the future, the challenge will be finding those producers that are the best fit for Maine and its resources, and then attracting the private capital to help the state’s industry succeed well into the 21st century.

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Sino-Forest investigation: OSC accuses Ernst & Young of ‘failure to perform sufficient audit’

Sino-Forest investigation: OSC accuses Ernst & Young of ‘failure to perform sufficient audit’ | Timberland Investment | Scoop.it
The country’s top stock market regulator has accused Ernst & Young LLP of failing to conduct a proper audit of now-collapsed Chinese timber firm Sino-Forest Corp.

The unusual move comes just days after the prominent global account accounting firm agreed to pay a record $ 117 million to settle a class-action lawsuit with Sino-Forest shareholders.

The Ontario Securities Commission alleged Monday that the audits performed by Ernst & Young on Sino-Forest’s consolidated financial statements for 2007, 2008, 2009 and 2010 “failed to meet relevant industry standards.”

The accounting firm, in an emailed statement, denied the allegations, saying its work met all professional standards.

“The evidence we will present to the OSC will show that Ernst & Young Canada did extensive audit work to verify ownership and existence of Sino-Forest’s timber assets,” it said.

E&Y also said it has cooperated with the OSC throughout the Sino-Forest investigation.

The OSC will pursue the case through its internal tribunal. Under the province’s Securities Act, its commissioners have the power to issue reprimands, professional sanctions and financial penalties. None of the allegations against Ernst & Young have been proven.
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Catchmark Timber Trust (CTT) Form JV with MPERS to Acquire North Georgia Timberlands

Catchmark Timber Trust (CTT) Form JV with MPERS to Acquire North Georgia Timberlands | Timberland Investment | Scoop.it

CatchMark Timber Trust, Inc. (NYSE: CTT) announced that it has formed a joint venture with the Missouri Department of Transportation & Patrol Retirement System (MPERS), which today acquired 11,031 acres of high-quality timberlands in North Georgia, known as the Dawsonville Package. Under terms of the 50-50 joint venture with MPERS, CatchMark will be the fiduciary for the public pension fund's investment and will manage the timberlands.

 

The timberlands acquired in the Dawsonville Package border the Chattahoochee National Forest and are located within 90 miles of both Atlanta and Chattanooga. Heavily stocked at an average of 51 tons of merchantable timber per acre, the timberlands are 75% pine with 41% sawtimber.

 

Jerry Barag, CatchMark's President and CEO, said: "The acquisition marks CatchMark's first transaction with an institutional partner and is in keeping with our strategy to acquire prime timberlands with sustainable characteristics and well above average harvest stockings to propel durable revenue growth. The tracts are extremely well located in metropolitan growth paths and over the long-term offer higher-and-better use options."

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Moody's: Canadian lumber tariff may take up to 6 months to impact U.S. homebuilders

Moody's: Canadian lumber tariff may take up to 6 months to impact U.S. homebuilders | Timberland Investment | Scoop.it
It may take homebuilders up to six months to feel the financial impact of the Trump administration’s recently announced tariff on Canadian softwood lumber imported into the U.S.

Canadian lumber producers, however, don’t share the same timeline and will feel an impact immediately, but since many U.S. homebuilders lock in lumber prices months in advance, they will only have to reckon with higher prices when these forward contracts expire, according to a report from Moody’s Investors Service.

The new anti-subsidy tariffs, averaging 20%, on Canadian softwood lumber imports were announced to address a long-standing issue between the U.S. and Canada on lumber.

“The U.S. lumber industry alleges Canadian wood is heavily subsidized and that imports are harming American mills and workers. Canadians argue the U.S. depends on its lumber for home construction and won’t be able to meet demand without its neighbor to the north. It’s a rift that goes back decades,” Jen Skerritt explained in an informative Q&A on the issue.

The issue reached a boiling point when the quotas and taxes on Canadian lumber exported into the U.S. expired in last 2015.

Since the beginning of the year, the Moody’s report explained that people have been anticipating some sort of action by the Trump administration. But as a side effect of this, the report stated that western Canadian softwood lumber prices (the type of lumber frequently used in home building) have already risen 29% since the start of the year.

Now more than a quarter into 2017, homebuilders have already felt, or will soon feel, the impact of higher softwood lumber prices, and the additional cost impact of a 20% tariff may range from negligible (in accordance with the old Wall Street adage of ‘buy on the rumor; sell on the news’) to as high as 20%, Moody’s stated.
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Oregon drops several defenses in $1.4 billion timber lawsuit

Oregon drops several defenses in $1.4 billion timber lawsuit | Timberland Investment | Scoop.it
The State of Oregon has conceded that a class action lawsuit seeking $1.4 billion for insufficient timber harvests isn’t blocked by the statute of limitations.

The state government has also dropped its argument that county governments and local taxing districts don’t have legal standing to sue Oregon for alleged breach of contract.

Last year, Linn County filed a lawsuit accusing Oregon of violating contracts with 15 counties by reducing logging on about 650,000 acres of forestland the counties had donated to the state.

The lawsuit was certified as a class action by Linn County Circuit Judge Daniel Murphy, which means the 15 counties and roughly 150 taxing districts, such as schools and fire departments, were joined as plaintiffs in the case.

Since then, Clatsop County’s government and Clatsop County Community College have opted out of the lawsuit while other taxing districts within Clatsop County have not.

Attorneys for the plaintiffs had asked the judge to eliminate 12 “affirmative defenses” intended to shield the State of Oregon from the class action lawsuit.

During oral arguments on April 20, Oregon’s attorneys agreed to drop several of these defenses, including the expiration of statute of limitations, the plaintiffs’ lack of legal standing and the court’s lack of jurisdiction over the case.

However, Oregon’s attorneys also argued for the validity of remaining defenses, such as the claim that the federal Endangered Species Act and Clean Water Act preclude the level of logging sought by the plaintiffs.

Counties turned over the forestlands in the early 20th Century in return for a share of timber revenues, but plaintiffs claim Oregon has curtailed logging due to environmental and recreational considerations.
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Duty on Canadian lumber cheers timber industry

Duty on Canadian lumber cheers timber industry | Timberland Investment | Scoop.it
Oregon timber executives said Tuesday they will consider adding jobs, instituting new shifts, and investing more in existing Northwest mills as a result of a new 20 percent duty on Canadian softwood lumber announced by the White House.

President Donald Trump announced the billion-dollar duty late Monday at a meeting of conservative media representatives. He said more tough trade tactics could be in the works against certain Canadian industries, with the Canadians vowing to retaliate.

For operators in the Northwest, the duties could bring some relief from Canadian lumber suppliers they claim are heavily subsidized by their government. Thanks to that government support, Canadian lumber suppliers have won more than 30 percent of the U.S. market.

“This is all about jobs,” said Steve Swanson of the Swanson Group, owner of a plywood mill in Springfield and sawmills in Roseburg and Glendale. “We should be able to add a few employees — 25 to 30 workers — in each of our sawmills.”

Trump joined a 35-year trade dispute Monday when he announced the 20 percent duties. U.S. Customs and Border Protection will begin requiring importers to pay cash deposits or post bonds equal to the estimated amounts of unfair subsidies.

The Commerce Department said that so-called countervailing duties ranging from 3 percent to 24 percent would be applied retroactively on five Canadian lumber exporters, The Associated Press reported. Overall the duties would average about 20 percent and could amount to a total of around $1 billion. Additional penalties could be levied if the Commerce Department determines that Canadian lumber is being dumped into U.S. markets.
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