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Prentiss & Carlisle is one of the largest timberland asset managers in North America. P&C provides ongoing management services on approximately 1.5 million acres of timberland located in Maine, Vermont, New York, Michigan, Wisconsin 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:
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.
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Quarterly updates on conditions in our operating regions
Lake States price reporting service published by P&C
When a huge swath of forestland along the Klickitat River is formally secured for conservation by next year, it won't just be environmental advocates celebrating.
Protecting some 14 square miles of land — about 9,000 acres — also has the backing of local leaders and federal lawmakers from both parties. Spearheading the effort is the Columbia Land Trust, a nonprofit based in Vancouver.
The move will extinguish development rights and assures that none of the landscape will be lost to second homes or resorts — a real threat in forestlands across the country, including Washington, according to the land trust. But it also keeps the area in working forestry, allowing timber harvests to continue. The land is privately owned by Hancock Natural Resource Group.
"It doesn't erode that economic resource," Kearney said, noting recreational assets are also preserved. "It keeps the traditional access for hunting and fishing."
Like many of the Columbia Land Trust's efforts, the Klickitat Canyon Working Forest project has been years in the making. The organization wrote a grant proposal in 2012, and learned earlier this year that it had netted $3.975 million from the Land and Water Conservation Fund, through its Forest Legacy Program.
DNR is just beginning the process of acquiring the easement that will conserve the land. The transaction will likely be complete in 2015, Kearney said.
Sprott Asset Management has launched the Sprott Real Asset Class, a mutual fund that offers exposure to infrastructure, timber and agriculture.
The fund will be sub-advised by Capital Innovations, with Michael Underhill and Susan Dambekaln serving as lead managers, and it will be available starting on July 16, 2014.
“Diversified allocation to real assets…has historically offered investors lower risk and the potential for enhanced returns,” says John Wilson, CEO of Sprott.
Sprott offers three other real asset funds that are sub-advised by the same portfolio management team:
CatchMark Timber Trust, Inc. (NYSE: CTT) today has priced its underwritten offering of 12,500,000 shares of its Class A common stock at $11.75 per share. The offering was upsized from the previously announced public offering of 10,000,000 Class A common stock shares. The underwriters have a 30-day option to purchase up to an additional 1,875,000 shares. CatchMark expects to use the net proceeds from this offering, together with the available borrowing capacity under its multi-draw term credit facility, after giving effect to the application of the net proceeds from this offering, primarily for future timberland acquisitions, including previously announced pending acquisitions.
A few years ago, Bonner County’s largest contiguous tract of private forestland appeared headed for development.
Clagstone Meadows – 13,000 acres of timber, lakes and wetlands – had an approved development plan that included 1,100 homes, condos and RV lots, two 18-hole golf courses and an equestrian area. The plan would have created the equivalent of a new city between Coeur d’Alene and Sandpoint, with easy access from U.S. Highway 95.
Now, however, owner Stimson Lumber is entertaining the idea of selling the development rights, valued at $12.6 million, and keeping the land in timber production in perpetuity. Proponents say the deal would help protect the region’s drinking water, retain local timber jobs and unusual forested wetlands, and allow for nonmotorized recreational access to the private property.
The deal hinges on securing financing, but the Clagstone easement has ranked high on a short list for federal funding.
“Nothing’s for sure, but we feel pretty optimistic,” said Alex Diekmann, the Trust for Public Land’s senior project manager in Bozeman, who has been working with Stimson on the conservation easement.
A Supreme Court of Canada ruling on aboriginal land could eventually have as severe an impact on North American lumber supply as the mountain pine beetle, RBC Capital Markets warned on Monday.
The court’s unanimous decision on June 26 relates to a 30-year-plus land dispute between the Tsilhqot’in Nation and the British Columbia and Canadian governments. It entitles the B.C. First Nation to dictate what logging and other activities take place on its newly recognized 1,700 square kilometres of land.
Now with an established precedent to title, the provincial/federal governments in Canada will have to consult, and gain the consent of the respective First Nation(s) when development projects/timber harvesting concern unceded land, RBC analyst Paul Quinn told clients.
He noted that B.C. has accounted for roughly 24% of North American lumber production during the past 10 years.
If the Supreme Court ruling leads to delays and limitations in harvesting sawlogs in B.C., Mr. Quinn expects a tighter lumber market and higher prices.
Drax Biomass, a wholly owned U.S. subsidiary of Drax Group plc, may elect to develop a new pellet plant in Abbeville County, South Carolina. The county recently passed an ordinance that would allow the company an option to purchase a 119 acre tract of land.
According to information released by the county, the proposed pellet manufacturing plant would be located approximately three miles from Calhoun Falls, a town on the western boarder of South Carolina roughly 60 miles northwest of Augusta, Georgia.
In February, Dorothy Thompson, chief executive of Drax, indicated her company was pursuing options to develop up to 2 million tons of additional pellet capacity, primarily in the U.S.
Old Mutual Asset Management — a well-heeled, multi-boutique asset manager with $203.1 billion in AUM, has filed for an IPO.
Old Mutual Asset Management’s roots go back to 1980, which certainly was an ideal time to start an asset management firm given that was the start of America’s massive bull market. To build scale, the firm pulled off a variety of acquisitions of boutique operators.
Old Mutual currently has seven boutiques, and each has access to the parent company’s core infrastructure, such as compliance, distribution channels, talent management and risk management.
The boutiques include:
All in all, Old Mutual funds have chalked up competitive returns.
Financials have been solid, with revenues climbing from $435.7 million in 2011 to $528 million last year, while pre-tax income went from $124.3 million to $153 million.
As for the prospects for the Old Mutual IPO, it’s still tough to tell, as few asset managers have gone public recently, and the latest one — Ares Management (ARES) — was a disappointing deal. It was priced at $19, which was below the range of $21 to $23, and the stock hasn’t moved much from there.
Still, it might be hasty to think the Old Mutual IPO will fare just as poorly. After all, the firm has a strong brand and an enviable long-term track record, not to mention a broad platform of investments.
Old Mutual IPO Notes
Sam Radcliffe's insight:
Campbell Global, formerly The Campbell Group, has 3.1 million acres of timberland under management.
Jemi Fibre Corp. (TSXV: JFI) ("Jemi Fibre" or the "Company") is pleased to announce that it has completed the first of two timberlands acquisitions from Tembec Inc. ("Tembec"), previously announced on April 25, 2014.
The Company has closed on the acquisition of approximately 17,700 hectares, and timber rights for an additional approximately 1,900 hectares, for a purchase price of $15 million. The timberlands are located in the Regional District of East Kootenay, British Columbia and are the first phase of a two phase purchase of timberlands from Tembec. The second phase is for approximately 31,800 hectares, which the Company anticipates closing in September 2014 for a purchase price of $20 million. The closing of the second phase is subject to the Company obtaining adequate financing and other customary conditions. There can be no assurance that the second phase will be consummated in whole or in part.
Phaunos Timber Fund Ltd Tuesday said it has reached a deal with Stafford Timberland Ltd to manage its portfolio of assets, after Stafford suggested some changes to its portfolio after conducting a review.
Stafford was initially employed to carry out a strategic review of Phaunos' assets, and has now completed its review. The main findings of the review included the finding that recent falls in log prices in China could hit the fund's cash flows in the second half of the year, and it should seek to exit some of its higher- and medium-risk assets on its portfolio.
Stafford also warned that Phaunos is reliant on a relatively small number of mature timberland assets for annual cash flows and these assets are subject to export or single product market risk. There are several assets whose valuations are subject to significant uncertainty and a forced liquidation value could be more than 30% below the December 2013 net asset value, it added.
Paul Quinn - RBC Capital Markets
Mike Covey - Chairman and CEO
Paul Quinn - RBC Capital Markets
Eric Cremers - President and COO
Mike Covey - Chairman and CEO
Paul Quinn - RBC Capital Markets
Eric Cremers - President and COO
Particularly just give me some of the challenges as Mike you alluded to with how competitive it remains for Timberland acquisition. And again as I look your stock trading at discount to NAV, it seems like there is some value there and repurchasing your own timber, if you will this type of discount?
Mike Covey - Chairman and CEO
And our board has been very conscious about that. And I think it’s just as a matter of priority, kind of work through and said capital allocation to our wood products business, dividend increases and acquisitions are higher priorities in share back. That’s not that we’re going to rule them out but they are just at the bottom of the stack. Well, when moving to the top of the stack, obviously is a major retraction. I think in our share price for whatever reason -- for the below NAV than it is today and then certainly we do revisit with board.
Some investors are trying to get more grounded—by dedicating a chunk of their investment portfolios to farmland or timberland. Interest in land from high-net-worth investors is up at a time when stocks hover near record highs and bonds could be hurt by rising interest rates.
U.S. Trust's Specialty Asset Management group, a part of Bank of America, BAC -0.03% is hiring to bulk up its farm and timberland investment groups to keep up with client demand. U.S. Trust currently has $170 million of investor money waiting to be invested in farmland and ranchland and another $215 million for timberland, on top of the $1 billion-plus in farmland it already manages and $300 million in timberland. Clients have at least $50 million in investible assets and invest a minimum of $5 million, says Dennis Moon, the head of the specialty asset group.
The new fund will have a minimum investment of $1 million, and the money will be locked up for at least five years. American Timberlands' existing fund charges fees of 1.5% and 20%, and returned 24.2% last year, net of fees.
The recent strong returns and investor interest have some longtime investors sounding notes of caution. "The market is overheated," says William Ade, a 60-year-old geologist who grew up on an Indiana farm and has purchased 1,000 acres of Midwestern crop and forest land since the early 1980s.
Oregon's timber harvest topped 4 billion board feet last year, the first time it has reached that level since 2006, a state report released Tuesday shows.
The 4.2 billion board feet harvested in 2013 represents a 12 percent increase from the year before and marks the fourth consecutive year of increases since the recession low of 2.7 billion board feet in 2009.
The state Department of Forestry said in its annual harvest report that the increase can be chalked up to a strong export market and a domestic housing recovery.
However, the upward trend might not continue in 2014 because housing forecasts have been revised lower and the export market recently cooled, said Brandon Kaetzel, the top economist at the department.
Sixty percent of Oregon's forest land is federal. Industrial and family owned lands comprise another 34 percent and the rest is divided between entities such as the state, counties and tribes. Percentage-wise, the largest harvest spike in 2013 was on non-industrial private forestlands, where the harvest increased 61 percent to 511 million board feet.
"This is most likely due to small forestland owners taking advantage of higher prices as a result of a still strong export market in 2013," Kaetzel said in a statement.
The harvest on industrial forestlands increased 8 percent, from 2.56 billion board feet in 2012 to 2.75 billion board feet last year.
In trading on Thursday, shares of the iShares Global Timber & Forestry ETF (Symbol: WOOD) crossed below their 200 day moving average of $51.55, changing hands as low as $51.53 per share. iShares Global Timber & Forestry shares are currently trading down about 1.3% on the day. The chart below shows the one year performance of WOOD shares, versus its 200 day moving average.
Looking at the chart above, WOOD's low point in its 52 week range is $45.84 per share, with $54.32 as the 52 week high point - that compares with a last trade of $51.92.
Think of a modern cityscape and any number of materials come to mind: the glass and steel of an office tower, the stately brick and stone of a townhouse, the asphalt pavement and stark concrete canyons of 20th-century urban redevelopment.
All of these have, at some time, heralded visions of the city’s future. Now, if a growing chorus of architects have their way, the next generation of urban buildings will be crafted from an innovative, versatile structural material that’s key to sustainable large-scale development. You’d know it as wood.
In the quest to limit the energy and resource costs of construction, a number of global architects have begun designing and constructing modern buildings from a substance we now associate more with suburban homes. Thanks to novel composites, several multistory buildings have already been erected around the world with timber skeletons, and plans for taller buildings are in the works.
“We all are hard-wired to see the city as being steel, glass, and concrete,” says Yugon Kim, an architect at design firm IKD who curated a new exhibit on the benefits and possibilities of timber construction at the Boston Society of Architects’ BSA Space in Boston. “Our proposal is that we need timber to save us.”
They’ve been making a larger argument to the industry and to policy makers that to build cities with a lower environmental impact, wood is not just promising but necessary. It’s a plentiful resource that grows back relatively quickly, and even pulls carbon out of the atmosphere as it does.
CatchMark Timber Trust, Inc. announced today agreements to acquire a total of 55,671 acres of prime timberlands in two separate transactions totaling $106 million. The properties are located primarily in Middle and South Georgia (approximately 95% of the acreage) as well as North Florida. If completed, these acquisitions are expected to add 2.5 million tons of timber to CatchMark's merchantable inventory, comprising 72% pine plantations by acreage and 48% sawtimber by tons, and are expected to increase the company's annual harvest volumes over the next decade by 230,000 to 250,000 tons.
The two transactions—known as Oglethorpe and Satilla River—are expected to close during the third quarter, subject to completion of CatchMark's due diligence and the satisfaction of closing conditions, including verification of inventory and title. The transactions will be financed through a combination of CatchMark's credit facility and cash on hand. During 2014, CatchMark has acquired or entered into agreements to acquire approximately 100,000 acres of timberlands, representing a 36% increase in its total acreage relative to year-end 2013. In aggregate, these acquisitions, assuming completion of the Oglethorpe and Satilla River transactions, are expected to increase CatchMark's annual harvest volumes over the next decade by approximately 440,000 to 480,000 tons.
Sam Radcliffe's insight:
Some arithmetic: $1,904 per acre; $42.40 per ton of inventory; $442 per ton of increased annual harvest
A local investment company has withdrawn its $20 million anticipated investment in Thermogen Industries, the startup planning to build a wood pellet plant at the site of the former Great Northern Paper mill in Millinocket.
CEI Capital Management, a for-profit subsidiary of Brunswick-based Coastal Enterprises Inc., confirmed Monday that it will withhold $20 million it planned to invest in Thermogen as part of the Maine New Markets Capital Investment tax credit program. The company also announced it would withhold an additional undisclosed amount of investment in Thermogen as part of the federal New Markets Tax Credit program.
The news is the latest blow for Thermogen’s efforts to finance its $140 million wood pellet project, which it claims could provide 55 direct jobs in Millinocket. In April, it lost $9 million in state-backed financing when the Finance Authority of Maine’s board voted to reduce the amount of a bond it would sell on Thermogen’s behalf from $25 million to $16 million. The board determined that a change in production technology was substantive enough to require a new vote.
While pulpwood prices across North America are driven by competition for fiber, we tend to see higher price volatility in pulpwood prices in the Northeast and Lake States due to availability factors that are unique to these markets. These factors include:
Seasonality – Wood production tends to be volatile in these regions from one quarter to the next. This is especially true when comparing a high production first quarter to a low production second quarter...Higher delivered prices are fairly common in April and/or May as wood production is limited by weather. This 2014 winter harvest season was also longer than average with March hardwood pulpwood deliveries remaining extremely strong.
Distance Hauled – As the overall supply of hardwood increases during these months, mills are able to purchase wood originating in forests closer to the mill...Lower haul distances coincide with lower delivered prices, such as those observed over the first quarter of this year despite the competitive fiber markets over the course of the winter.
Competition for Other Species and Other Types of Fiber – Logging capacity, particularly as it relates to the “surge capacity” needed to fill inventories during the winter or when unexpected events drive inventory shortfalls, has been a pervasive topic of conversation in the Northeast and Lake States. Capacity issues such as these often affect hardwood production. The overall supply of hardwood pulpwood, for instance, is affected by aspen and softwood demand and the availability of pulp quality chips. If softwood sawmills are running more hours, this will increase the supply of softwood chips, thereby freeing up constrained logging capacity for hardwood production. This interaction affected hardwood production this winter, and the additional supply lowered prices.
Supply Agreements – Supply agreements are frequently used in the pulp and paper industry with strict requirements for deliveries that affect the price of fiber on the open market...Depending on the calculation mechanism, this can create a delayed effect on market pricing.
While these factors come into play in all regions in the North American timber industry, they are typically more pronounced in the Northeast and Lake States regions. Price volatility is therefore higher in these regions as seasonality, haul distances, competition for other species and types of fiber and supply agreements put pressure on prices from opposite directions.
Sam Radcliffe's insight:
In addition, a large portion of the Lake States timber supply is from public lands, where sales are made by competitive auctions. Auction prices are often driven by the desperation of a particular contractor or mill, increasing price volatility.
Matt Ciaschini, who oversaw $700 million of natural resource investments at Harvard University's endowment, has resigned, bringing departures of money managers to at least four since May.
A Cape Breton environmental group is calling for an emergency review of harvesting practices at Nova Scotia Power’s biomass plant in Point Tupper.
On Friday, the Margaree Environmental Association issued a letter to Premier Stephen McNeil requesting a delay in harvesting to allow the province to examine the plant’s wood supply.
Association co-chair Neal Livingston said the plant has shown itself to be a “voracious” consumer of wood fibre. Not only is quality material being directed to the plant, there is also too much forest resource being cut, he added.
NSP has said up to 650,000 tonnes of wood waste will be needed to run the plant per year. The 60-megawatt power generating station, located in Richmond County, is part of Nova Scotia’s plan to source 25 per cent of the province’s electricity from renewable sources by 2020.
But in recent months, business owners who rely on the forest for a living have told The Chronicle Herald that high-quality hardwoods are making their way into the biomass plant.
On Friday, NSP spokeswoman Neera Ritcey denied that quality hardwoods are winding up that the plant.
“We require our suppliers to follow strict conditions on the biomass they supply for use at the plant,” Ritcey said in an email. “We have checks and balances in place to ensure rules are followed.”
The Department of Natural Resources got the green light to begin selling 10,000 acres of state land. The Natural Resources Board on Wednesday approved the land sales, to take place by June 30, 2017.
The 10,000 acres available for sale represent less than 1 percent of the DNR’s more than 1.8 million acres, including easements. Proceeds from the land sold will be used to repay outstanding debt related to the Knowles-Nelson Stewardship program.
“The Knowles-Nelson Stewardship Program has done wonders for our state’s natural resources — this next step will ensure that it continues to create new recreational opportunities throughout the state,” DNR Secretary Cathy Stepp said in a statement.
The program has added more than 600,000 acres for public recreation.
Parcels with legal access from a public road will be offered for sale to local or tribal governments first and later to the general public through a competitive bidding process.
UNESCO’s World Heritage Committee has voted to protect all Tasmanian forest from logging — striking down the Australian government’s attempt to withdraw 183,000 acres (74,000 hectares) from the U.N. list of cultural and natural wonders.
Canberra claimed that parts of the forest had already been degraded by the timber industry and should therefore be fair game for further logging. However, U.N. delegates in Doha, Qatar, sided with conservationists who claimed that most of the forest was unscathed and that only 8.6% of the 3.5 million acres (1.4 million hectares) had been damaged.
Prime Minister Tony Abbott told the Australian Broadcasting Corporation (ABC) that he was disappointed with the decision, believing that the untapped Tasmanian logging would aid his nation’s already floundering timber industry. “The application that we made to remove from the boundaries of the World Heritage listing — areas of degraded forest, areas of plantation timber — we thought was self-evidently sensible,” Abbott said.
An increase in U.S. housing construction is expected to raise significantly the price of lumber by the end of the year, offsetting the depressing effect China's recent downturn in property investment has had on lumber demand.
Capital Economics, a London-based financial research consultancy group, expects prices to increase almost 30 percent, from $313 per 1,000 board feet to $400, by the end of 2014. The group attributes the expected rise to increased demand in the U.S. housing market.
Lumber's recent price weakness stems partially from China slowing down property investments. China’s “reduction in commodity-intensive activity” had a hand in the fall in lumber prices, as well as construction metals, because Chinese demand accounts for roughly 10 percent of North American production exports, Capital Economics said in a note Friday.
Lumber prices fell in May for the first time in two years. Construction is revving back up in the U.S. but slowed considerably because of the unusally cold winter, hitting a nearly two-year low in March.
While the report states the future of the U.S. housing sector looks positive and a quarter of the mills that closed in 2004 have reopened, “a significant amount of capacity is likely to have been permanently lost, as mills fell into disrepair and skilled labour moved onto other jobs. This will prevent output quickly ramping back up to 2004 levels.”