Cambodia's forests are being destroyed at a dizzying pace, with much of the wood destined for China. Much of the logging is carried out illegally — and people who get in the way of the loggers face violence and in some cases death.
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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 1.75 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:
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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Some trees are growing up to 70 percent faster than just a half century ago, as global warming supercharges their metabolism, German researchers report in a new study published in Nature Communications
The California Air Resources Board and the Québec Ministry of Sustainable Development, Environment and the Fight against Climate Change today announced their first joint cap-and-trade auction will take place November 19, 2014.
The two jurisdictions have worked together for several years to ensure their cap-and-trade regulations are equally stringent and can be integrated. The two programs officially linked on January 1, 2014, and have been working toward a joint auction. California held its first cap-and-trade auction in November 2012 and Quebec held its first auction in December 2013.
“This joint auction is a logical next step in our efforts to develop a cost-effective, inter-governmental model for reducing greenhouse gases,” said CalEPA Secretary Matt Rodriquez. “California has worked closely with Quebec to develop our cap and trade programs with this kind of linkage in mind.”
The November joint-auction will be held in the same online platform both parties have used for their individual cap-and-trade auctions. The platform was tested by stakeholders during a joint practice auction in August of this year. Carbon allowances sold in the auction may be used in either the California or Québec cap-and-trade programs. All participants must be registered in the Compliance Instrument Tracking System Service (CITSS) and the auction platform.
Timbervest LLC, an Atlanta-based company that manages timber-related assets and investments, today announced it acquired 13,220 acres of timberland for its Timbervest Partners III, LP (TVP III) investment fund. The $400 million commingled fund consists of 250,000 acres of timberland located throughout the country, and is comprised of institutional and high-net-worth investors.
The approximately 2,550 acres of industrial grade timberland in southeast Georgia is located 30 miles northwest of the Port of Savannah and 15 miles north of Interstate 16. Accessible by county roads, the Effingham property is a large contiguous tract that is predominantly merchantable pine plantations with flat terrain and little elevation change. A portion of the wood fiber harvested from the property will possibly be exported to Europe as wood pellets.
Located 80 miles from Nashville in northwest Tennessee, the 9,400-acre property consists mostly of mixed hardwoods and loblolly pine plantations. Comprised of 20 non-contiguous parcels of institutional grade timberlands, the property’s diverse terrain includes hill country and some steep elevations with beautiful viewsheds of Kentucky Lake.
The east central Vermont property is approximately 1,270 acres of mixed hardwood timberland, and consists of three non-contiguous tracts. The property is 20 miles from Montpelier in an area that is heavily forested and scattered with small family farms. Green Acres’ high quality hardwoods are a result of the strong forest management practices used by previous owners. The tracts include flat terrain and gently rolling hills, and are accessible by paved frontage roads on portions of the property. Additionally, a well-maintained internal road infrastructure allows for easy access to most areas.
FIM Services, the UK-based forestry and renewable energy investment manager, has launched its first institutional fund, the FIM UK Timberland Fund, with an initial target of £100m (€125m) to be raised from a number of cornerstone investors, including pension funds worldwide.
The fund is intended to give institutions the chance to invest in high-quality, well-located commercial plantations, taking advantage of current opportunities FIM has in the pipeline.
Anthony Crosbie Dawson, forestry portfolio manager at FIM, said timberland was an attractive asset for pension funds to consider because it had no correlation with equities, and served as a hedge against inflation.
Assets will also be selected on their potential for ‘higher and better use’ (HBU), particularly in relation to wind farms.
Campbell Global doesn't seek the spotlight. The firm prefers to tend to its knitting, acquiring and managing forestland for investors. But, by all accounts, the people who work there are a happy bunch, which is why the company is being honored this year as one of The Oregonian's Top Workplaces. Employees say their opinions are respected, managers are approachable and the workplace friendly and flexible.
"We place a high value on relationships with clients and with our employees," Gilleland said. "Receiving this award is a great affirmation of those values."
At quick glance, the aerial view of Maine’s forest products industry looks pretty much the same now as it did 20 years ago.
First and foremost are the 17.6 million acres of forest that comprise 89% of the state’s total acreage, making Maine the most heavily forested state in the country. The U.S. Forest Service’s 2012 tree census reported 24 billion trees of at least an inch diameter growing on all those acres — an increase of 6.3% since 2007 and the equivalent of 18,688 trees for each of the state’s 1.3 million residents. For the past 22 years, Maine has harvested an average of 6.7 million cords each year.
Then and now, no question about it, Maine’s forest products industry is a major sector in the state’s economy, with its current economic impact pegged at $8 billion. Although no one questions that Maine’s forest products industry is a major business sector, it would be a mistake to conclude from a quick aerial view that not much has changed over the past 20 years. “This is not your grandfather’s forest products industry anymore, or even your father’s,” says Patrick Strauch, executive director of the Maine Forest Products Council since 2004.
Allstate Corp. is betting on timber and real estate to boost returns at a struggling annuity unit. “We do need to figure out what we do with our annuity business,” Chief Executive Officer Tom Wilson, said at an investor presentation today.
Allstate, the largest publicly traded U.S. home-and-auto insurer, has been retreating from annuities as low interest rates weigh on results.
In annuities, insurers profit when investment returns exceed the promised payouts to policyholders. Allstate said in its annual report that investment returns on immediate fixed annuities exceed customer payouts by 0.9 percentage points. The company will benefit when rates eventually rise, Wilson said today.
“In the meantime, we’re putting more money into alpha investments,” Wilson said. “We’re investing in things like timber and some real estate.”
The folks at Gresham’s Law just published a nifty interactive chart of real (i.e., inflation-adjusted) interest rates since the 1960s that explains a lot about today’s world.
So what now? History as depicted here says the borrowing binge/asset bubble continues until real rates spike, either because nominal rates soar or inflation plummets. It also implies that the phase change, when it comes, will be sudden. Looking at 1975, 1980 and the volatility since 2007, it’s clear that a financial system based on fiat currencies is inherently unstable — i.e., incapable of finding a stable price for money. So the least likely scenario is a return to a nice, placid world of “normal” interest rates.
Sam Radcliffe's insight:
Provided by Industry Intelligence
US automobile production may have risen at its fastest in five years last month. But it is not enough to help out struggling Phaunos Timber Fund, for which a wet Brazilian soybean harvest, would also help reverse its somewhat disappointing performance.
The first public report by forestry consultancy Stafford Timberland of Phaunos's assets, which recommends the sale of at least one of the investments, has revealed the breadth of the influences on the performance of the portfolio. These include well-recognised drivers, such as the performance of China's construction industry, a well-documented, major timber consumer, likes its peer in the US, but whose slowdown prompted a 16% drop in lumber imports in the January-to-March period, compared with the quarter before. The impact, thanks to raised log inventory levels at Chinese ports, has been a 20-30% slump in log prices in the April-to-June quarter in New Zealand, a major timber exporter, where Phaunos Timber Fund owns 35% of forestry group Matariki.
And US auto production is also a driver, through its consumption of pig iron which has, historically, been largely sourced from Brazil. Phaunos's 19,000-hectare Mata Mineira operation in Minas Gerais, a state better known for coffee production, provides eucalyptus logs for converting into charcoal, in turn a major component of pig iron. "[Brazilian] pig iron produced from charcoal has declined by approximately 33% since 2007, due in part to decreasing US demand and unfavourable exchange rates," Stafford said.
For the major publicly-traded timberland owners - a list that includes Rayonier (NYSE:RYN), Plum Creek (NYSE:PCL), Weyerhaeuser (NYSE:WY), Pope Resources (NASDAQ:POPE), and Potlatch (NASDAQ:PCH) - the frustrating wait for a housing-led recovery goes on. Although Rayonier does have a relative advantage to Plum Creek with its larger (as a percentage) weighting to the Pacific Northwest and its New Zealand joint venture, not to mention the absence of wood products operations, the company can do relatively little in the face of persistent weakness in stumpage prices and sluggish demand for HBU real estate.
Earlier this year, Rayonier completed the spin-off of Rayonier Advanced Materials (NYSE:RYAM), the company's former specialty cellulose, ethers, and pulp business. Now, Rayonier is effectively a timberland pure-play - owning about 2.1M acres of U.S. timberland, another 200K acres designated as HBU land (to be sold for its real estate value), and more than 300K acres in New Zealand owned through a 65% interest in a joint venture with Matariki that focuses on Radiata pine for Asian export markets.
Unlike Weyerhaeuser and Plum Creek, Rayonier does not have a wood products operation. I'd call that a mixed-to-positive factor for the company. These wood product operations (which manufacture products like lumber, plywood, and engineered structural products) can generate pretty good cash flow when residential building activity picks up, but they typically command lower multiples than timberlands on a "dollar for dollar" basis.
Sam Radcliffe's insight:
"Timberland operators are sort of stuck right now - because the equity markets assign a lower per-acre value to timberland acreage than actual real-time private transactions." Where have I heard that before? Oh, that's right, it was the reason Sir James Goldsmith targeted timber companies for hostile takeovers in the 1980's. It was the reason Wall Street pressured timber companies to divest of their timberlands in the late 1990's and early 2000's.
I happen to agree entirely with the observation that equity markets are assigning a lower value than private transactions would bring. Given the amount of institutional dry powder right now, might that suggest the time is ripe for a hostile run at the timber REIT's? The rationale has already played out twice in the last thirty years.
In order to balance timber supply and demand and guarantee national timber security China plans to establish, by 2020, strategic commercial timber reserves over 14 million hectares in 25 provinces including Guangxi, Guangdong, Hu’nan, Sichuan, Guizhou, Yunnan, Inner Mongolia Autonomous Region, Liaoning, Jilin and Heilongjiang, ITTO reported.
Of the 14 million hectares, 4.5 million will be new plantations, 5 million will be improvement of existing mature forests and a further 4.5 million hectares will require intensive management of young and maturing forest. The aim is to create a base yielding an annual average volume of around 142 million cubic metres.
According to the China National Timber Strategic Reserve Production Base Plan (2013-2020), 1.87 million hectares will be established in Guangxi Province to yield 13% of the target production.
Sam Radcliffe's insight:
For context, 14 million hectares is nearly twice the combined acreage of the four major timber REIT's -- Plum Creek, Potlatch, Rayonier and Weyerhaeuser.
Like all renewable energy in the European Union, bioenergy has struggled against low-priced coal imports, low carbon dioxide prices in the emissions-trading system, and an economic and regulatory backlash against renewable-energy policies, including substantial cuts in government support. But don’t count out biomass-based energy just yet. Although today it fails to compete on cost with other renewables such as wind and solar, we believe bioenergy not only has the potential to significantly improve but could even become cost competitive with coal.
How can that happen? We believe the levelized cost of bioenergy—its cost per kilowatt-hour—has the potential to be reduced by almost half by 2025, making bio-based electricity close to competitive with coal depending on the type of plant. While there’s no denying this would require significant effort, it doesn’t require technological breakthroughs but rather simply making better use of the opportunities already at hand.
Sales of timber on state land hit a record $11.7 million last year, the Department of Natural Resources reported Tuesday. Sales rose 8% in fiscal 2014, which ended on June 30, over the previous year. In the past decade, timber sales have increased 125%, the agency said.
Since then, the state has been able to whittle down the backlog and approve more timber sales, according to Paul DeLong, administrator of the state forestry division of the DNR.
Private land is the largest source of timber in the state, followed by county forests and then state land, according to DNR officials. On county land, 50,971 acres were logged in 2013, generating $31.7 million in revenue for counties, DNR figures show.
If the first wave of crisp autumn air has you thinking about buying your firewood load to burn this winter, think again. Crimped by a wet spring and summer that kept loggers out of the woods, and on the heels of last year's long, hard winter that saw woodpiles dwindle to nothing, loggers and firewood suppliers say they just don't have any seasoned wood to sell this fall.
The shortage of wood has hit paper mills, too, with loggers unable to bring in their usual summer supply. Wayne Brandt, executive vice president of the Minnesota Timber Producers Association industry group, called the wood shortage "unprecedented." Wood supplies that dwindle annually in the spring, when conditions are too wet for loggers' equipment, never improved during the summer. "I can't recall any time where it's gone this long, over a pretty broad area, where they couldn't get into the woods. It just kept raining,'' Brandt said.
The industry called on state, federal and county land managers to check future timber sales for land that might be more accessible to log now. "They've helped a lot ... and things have improved a little in the last few weeks," Brandt said.
Mike Schultz, managing director of the Sappi Fine Paper mill in Cloquet, called it "one of the most challenging years that I can recall for wood procurement'' but said the mill has had enough to keep operating. "Our supplies are lower than we're comfortable with,'' he said. "But we haven't run out."
The University of South Alabama Foundation's assets have continued a steady climb over the last year, with the latest financials showing $323 million in net assets as of June 30. That's an 8 percent gain since June 2013, when net assets were at $298.5 million.
The foundation expects to bring in $456,000 in hunting revenue; $461,419 from thinning; and $2.3 million in proceeds from clear cutting.
Foundation officials had planned three timber sales in 2014, but ended up rejecting all bids at the summer sale.
"The prices that we received on bids were lower than the projected valuation because the timber market was impacted by very dry weather and an oversupply of timber," Roberts said. The next sale is planned in November.
Who Will Own the Forest? 10
September 16-18, 2014
World Forestry Center
The Who Will Own the Forest? 10 conference is now full and registration is closed.
Since vertically integrated forestry firms began to divest themselves of forest assets, and institutional and high net worth investors bought up these forestlands through TIMOs and REITs, it is estimated that the timberland investment arena is currently worth over $50 billion. The investable universe is likely three times as large, with investors allocating part of their portfolios to forestland as they seek diversification, inflation protection, and potentially higher rates of return than the bond or equity markets.
Sam Radcliffe's insight:
This is one of the premier events in the timberland space. I look forward to seeing friends and colleagues next week in Portland!
N.C. State University has retooled its controversial plan to sell the massive Hofmann Forest near Jacksonville. It now will sell nearly all of the timberland to an investment company that specializes in sustainable timber management.
That company, Alabama-based Resource Management Service, will buy 56,000 acres, while the original buyer, Hofmann Forest LLC, will purchase the remaining 23,000 acres, including the major open tracts, university officials said Tuesday.
NCSU also agreed to cut $19 million from the original $150 million price, but the new terms could eventually reap an additional $9 million if the buyers are able to negotiate a deal to sell training rights on and over the forest to the U.S. military or to sell protection rights to a conservation group.
Opponents of the sale say that the university has underplayed the land’s value for research and that if better-managed, it could yield steadier income. They also say it plays a host of vital environmental roles. The original buyer is led by members of a major Illinois farming family. Opponents of the sale, who are suing to block the deal, have said they fear that Hofmann LLC would chop down the trees to make way for row crops. They said the original deal was deeply flawed because it gave no iron-clad protections for the forest, which the university uses for income from timber farming and for research.
The new deal was signed Sept. 2. Officials expect a closing on or before Nov. 17. It’s unclear, Woodson said, whether the EPA investigation will be complete, but the new contract includes wording to allow for that contingency.
Investing in farmland and forest tracts is sometimes described as "gold with a coupon"—a hedge against inflation, because land prices tend to rise along with overall inflation, that also pays a steady income. Small investors have access to these markets through publicly traded real-estate investment trusts. Share prices of REITs that buy farm and timber land have dropped in recent weeks, but most of them yield dividends well above the current yields of about 0.95% on the three-year U.S. Treasury note and 2.11% on the seven-year Treasury.
For farms, there are two relatively new REITs. Gladstone Land raised $57 million in its January 2013 initial public offering and now owns 6,833 acres on 28 farms in California, Florida, Michigan, Oregon and Arizona, according to securities filings. Its dividend yield was about 5.82% in recent trading. Farmland Partners, meanwhile, had a $53 million initial public offering in April and owns 41 farms with 23,630 acres in Illinois, Nebraska and Colorado, along with three grain-storage facilities. Its dividend yield is about 0.90%.
Publicly traded timberland REITs have been around longer.
Plum Creek Timber owns 6.7 million acres in the Northwest, Northeast and South—and six wood-product conversion facilities in the Northwest. Its dividend yield is about 4.35%.
Rounding out the biggest timberland REITs are Potlatch Corp. and Rayonier, with dividend yields of about 3.20% and 5.78%, respectively.
The mountain pine beetle is about a third of an inch long and probably not endowed with advanced powers of financial analysis, but it has something important to teach investors about how environmental risk is changing.
In the past decade, the beetle has killed millions of trees from New Mexico to northern Canada. For investors in North American timber, the obvious response to an outbreak in one place would be to diversify into assets unaffected in other areas – but the beetle has spread so fast that such a strategy was doomed to failure.
What the beetle is telling investors is to stop viewing environmental risk in terms of isolated events.
There is increasing evidence that extreme weather, resulting in floods in the Somerset Levels or drought in California, is posing systemic financial risk, not just affecting a single asset at one time but large swathes of portfolios over time. Similarly, government initiatives to reduce environmental impact, for example by developing regulations to limit pollution, can also create widespread financial risk that is impossible to mitigate. Asset owners should pay more attention to these developments, improving their analysis and seeking out suitable hedges or mitigation steps.
Hugh Craig, counsel for OSC staff, spent about an hour Tuesday laying out a “road map” to the commission’s case against former Sino-Forest chief executive Allen Chan, pictured, and four other senior executives.
Sino-Forest raised $3-billion in Canada’s capital markets before a short-seller’s allegations of fraud and revenue inflation — and the subsequent OSC investigation — felled the firm and wiped out the holdings of scores of shareholders. “The risk of this loss was always present, given the flaws in Sino-Forest,” said Hugh Craig, counsel for OSC staff.
The executives are accused of backdating purchases and sales of timber assets, and misleading independent directors, auditors, and OSC investigators.
Log exports from Washington, Oregon, northern California, and Alaska totaled 515 million board feet in volume in the second quarter of 2014, an increase of more than 10 percent compared to the first quarter of 2014, the U.S. Forest Service’s Pacific Northwest Research Station reported today. During this same period, West coast lumber exports decreased by 4 percent to 247 million board feet.
The total value of these log exports increased by more than 5 percent to $390 million in the same quarter, while the total value of lumber exports decreased less than 2 percent to $183 million.
China remains a significant market.
“West coast log exports to China remained strong in the second quarter of 2014, increasing by more than 22 percent compared to the first quarter of 2014,” said Xiaoping Zhou, a research economist with the station who conducted the analysis and compiled the data. “China’s demand for West coast lumber, however, continued to decline, dropping by nearly 20 percent compared to the first quarter of 2014.”
Over 70 percent of the West coast’s log exports was shipped to China in the second quarter of 2014, compared to 64 percent in the first quarter of 2014, while lumber exports to China dropped to 35 percent of the total compared to 42 percent during the first quarter of 2014.
A federal district court in New Orleans today upheld protections for 6,477 acres of critical habitat in Mississippi and Louisiana for endangered dusky gopher frogs, which likely number fewer than 100 remaining in the world. The court denied three consolidated lawsuits challenging a 2012 rule that established the habitat protections, including 1,600 privately owned acres of unoccupied frog habitat in Louisiana.
The court held that the U.S. Fish and Wildlife Service reasonably concluded that the St. Tammany Parish land is essential for recovery of the frogs, which are now confined to just three sites in southern Mississippi — with only one site regularly showing frog reproduction. Although the frogs no longer live on the St. Tammany Parish lands, the Service found that those lands are essential because they contain five ephemeral ponds, each within hopping distance of the next. Dusky gopher frogs lay their eggs only in such temporary ponds — which are free of fish that would devour their eggs — and the St. Tammany Parish land was the frogs’ last known Louisiana breeding ground.
A South Carolina timber company is protesting the Internal Revenue Service's disallowance of a $2.13 million charitable contribution deduction arising from the company's grant of a conservation easement on a 1,000-acre property, saying the IRS erred in finding that the easement had no value.
The easement, located in Berkeley County, South Carolina, preserves views of natural, environmentally significant habitat on the Cooper River, Salt Point says. “Because of the easement, views of these areas will not be marred by residential or commercial development, as can be seen upstream, downstream and directly across from the easement property,” it said. The easement also prohibits or restricts the construction of roads, golf courses and residences, according to the petition.