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Timber REITs Crush 2012 Estimates And Look To Do The Same In 2013

Timber REITs Crush 2012 Estimates And Look To Do The Same In 2013 | Timberland Investment | Scoop.it

In reference to his company's results, Daniel Fulton, CEO of Weyerhauser (WY), said: "This year is a bit of an anomaly. We're seeing prices moving up in every single market for similar-type products.


All 4 timber REITS beat analyst consensus estimates for both 4Q12 and FY12.


The various factors which led to their success in 2012 are detailed in each of their earnings press releases, but I am more interested in what they can accomplish in 2013. We will begin by examining 4 catalysts, then discuss which companies are best positioned to take advantage.

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Timberland Investment
Timber Industry | Deals & Transactions | Investment Rationale | Financial Performance | Investors | Asset Managers
Curated by Sam Radcliffe
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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 1.5 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:

  • 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.


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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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A New Rayonier, But The Same Old Problem

A New Rayonier, But The Same Old Problem | Timberland Investment | Scoop.it

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.
***
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, acquiring more timberland now is a tricky move. Rayonier doesn't really need to acquire more land, particularly since it sold its lower-value Northeast lands in 2013, but adding more higher-value land in areas like the Pacific Northwest wouldn't be terrible. All told, though, Rayonier's best move is just to manage its harvests appropriately, take advantage of new opportunities to sell pulpwood (like for wood fuel pellets), and wait for prices to improve.

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.

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Jack D Bridges's curator insight, August 26, 1:37 PM

https://www.youtube.com/watch?v=9MiO-2Qnm8M

 

It's a simple question: What if this is as good as it gets? Please apply that to the current state of the housing market (or at least the rate for new construction of single-family homes in the US).

 

We've had artificially low interest rates for how many years now? How many rounds of asset purchases & market operations by the Fed, along with a $4 Trillion balance sheet supporting our financial system? Given this backdrop, what if this is as good as it gets?

 

I don't mean to imply that the US will never see 1.5M housing starts again. No. I just think it's folly to consider this the baseline case, as many analysts and timber REIT CEOs think. This lot seems to forget the massive credit bubble, and how it disproportionately fed into home construction & the housing market in general (and don't forget the Fannie / Freddie role in supporting the push for homeownership, either). 

 

Now, even if the housing market doesn't catch fire again, what does this mean for timberland owners? Since wood baskets are hyper local, it really depends on where one looks. For the PNW, as long as China / Japan / Korea need fiber, and it remains a desirable place to live, the market dynamics shouldn't change a whole lot. It's a very competitive marketplace--with industrial users, TIMOs, and land conservancies all jockeying for prime land.

 

For the SE, broadly speaking, a slow uptrend or steady annual home starts number might mean more deferred harvests. Or, as Sam Radcliffe keenly observes, it could see large investors in the timber REITs to clamor for unlocking value in other ways (M&A). 

 

I'm not so sure Wall Street is keen to pursue hostile take-over & unwinds of such varied assets as the timber REITs. Why? The public / private valuation per acre spread that Sam notes isn't a simple thing to arbitrage. It would take loads of capital--and even more time.

 

Even if one stores value on the stump during the liquidation of hundreds of thousands of acres, such a wave of sales would surely depress prices in the short-to-intermediate term. I suppose the cost savings from downsizing from a public REIT (bye-bye investor relations staff, a huge HR department, etc.), might help--especially if one chops the salaries of those in charge of this mighty unwind.

 

But, the purchase and profitable parsing of a huge timber REIT is beyond what most I-banks are equipped to do these days. Those guys would much rather play stalker to unprofitable start-ups in Palo Alto for a chance at the next hot IPO. Wall Street gets much higher fees for crafting myths and telling tales about unicorns, than it does for selling transparent, sober businesses like forest product concerns. 

 

Thanks again to Mr. Sam Radcliffe (prentissandcarlisle.com) for starting yet another interesting discussion. I'm sure it's one we'll revisit again in the future.

 

JDB

 

 PS. If any bankers happen to read this, and want to pitch buying / unwinding a timber REIT, don't hesitate to get in touch. I'm looking for a job at present, and would be happy to consult on such a massive undertaking. Seriously.

 

 

 

 

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China plans to establish strategic timber reserves over 14 million hectares by 2020

China plans to establish strategic timber reserves over 14 million hectares by 2020 | Timberland Investment | Scoop.it

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.

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As fungus kills bats, MN timber industry winces

As fungus kills bats, MN timber industry winces | Timberland Investment | Scoop.it

A cave fungus that’s killing millions of bats across the country is threatening to become a big problem for Minnesota’s timber industry.

The U.S. Fish and Wildlife Service will decide next spring whether to add the northern long-eared bat, which is being wiped out in places by the disease called white nose syndrome, to the endangered species list.

Such a decision would trigger a blanket prohibition against killing the bats, even accidentally. That would halt logging in much of the country during warm months, when the little animals roost in the forest and raise their vulnerable young in trees.


Only an estimated 5,000 of the bats live across a wide area of Minnesota, but national efforts to protect the species raise the specter of a showdown between regulators and businesses dependent on cutting down trees. Road and pipeline projects could be affected, and an end to summer logging would cut off crucial supply lines for sawmills and paper and strand-board mills.

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Secondary trades in alternative investments up 47%, survey shows

Secondary trades in alternative investments up 47%, survey shows | Timberland Investment | Scoop.it

The secondary market for alternative investments has grown by 47% in 12 months, reaching a volume of $22bn (€16.4bn) in the first half of this year, according to a new survey.


In its latest report on the secondary market for alternatives – on which closed-end funds and direct investments in private equity, real estate and infrastructure, as well as hedge funds, change hands – Canadian secondaries broker Setter Capital said January to June had been the market’s busiest period so far.


In its 2013 report on the first half of that year, Setter Capital estimated total secondary market volume had been $15bn. 


The firm said more and more investors were becoming permanent fixtures on the secondary market, seeing it as an important portfolio management tool.

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McKinsey: Assets in alternatives reach record high of $7.2 trillion

McKinsey: Assets in alternatives reach record high of $7.2 trillion | Timberland Investment | Scoop.it

Alternatives are continuing to see net inflows, with assets hitting a global record high of $7.2 trillion in 2013, said a report released Wednesday by McKinsey & Co.


The alternatives category — which McKinsey defines as hedge funds, funds of funds, private equity, real estate, commodities and infrastructure — has now doubled in size since 2005, with global AUM growing at an annualized pace of 10.7%, twice the growth rate of traditional investments.


Net inflows into alternatives as a percentage of total assets were 6% in 2013, compared to the 1% to 2% rate for non-alternatives.


“The demand for alternatives has never been higher,” said Ju-Hon Kwek, an associate principal in McKinsey's wealth and asset management practice and co-author of the report, in a telephone interview. “The demand is being driven by both cyclical and structural factors. There's been a fundamental change in the way people are thinking about asset allocation that's expanded the aperture.”

***

The report asserts that net inflows in the global alternatives market are expected to grow at an average annual pace of 5% over the next five years, well above the 1% to 2% expected annual pace for the industry as a whole. By 2020, alternatives could make up about 15% of global industry assets and produce up to 40% of industry revenues. At the end of 2013, alternatives made up 12% of global industry assets and 33% of industry revenues.

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Trust forced into capital raise to stave off bankruptcy

Trust forced into capital raise to stave off bankruptcy | Timberland Investment | Scoop.it

The £420 million Phaunos Timber  fund has announced an emergency equity issue to prevent it going bust.


The London-listed trust warned that ‘as a consequence of a number of changed circumstances’, which include a suspension of dividends from one of its holdings due to reduced timber prices in China, there was ‘material uncertainty over the immediate liquidity requirements of the company and its cash position’.


The board concluded that ‘without action, the company may be unable to pay its liabilities as they fall due within the next three to six months’.

Phaunos Timber has therefore proposed an equity injection through the placing of approximately 5% of its issued share capital ‘within the next few weeks’. Both the trust’s board and manager, Stafford Timberland, will participate in the placing.

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Forestry Related Industry Performance - June 2014

Forestry Related Industry Performance - June 2014 | Timberland Investment | Scoop.it

In one of the more positive recent notes for the economy, industrial production (IP) rose 0.6% in May, more than turning around April’s 0.3% decline. Total IP was 4.3% above its level of a year earlier. Other details from the report showed:· Manufacturing output also increased by 0.6%, much better than April’s -0.1%.

  • Wood Products output jumped 1.7%; building on the +0.9% increase in April.
  • Paper declined by 0.5%, partially reversing April’s +1.8%.
  • Construction notched an 0.8% increase, far better than -0.6% in April.
  • Consumer Goods edged up 0.1% in the wake of a 1.1% decline in April.


The capacity utilization rate for manufacturing increased 0.3 percentage point in May (to 77.7%). Wood Products capacity utilization jumped by 1.3%. Paper retreated by 0.3%.


Manufacturing capacity expanded by 0.2 in May. Wood Products capacity extended its upward trend with a 0.4% rise. Paper, on the other hand, contracted by 0.1% to its lowest point since January 1986.
***
The Institute for Supply Management’s (ISM) monthly opinion survey showed that expansion of economic activity in the U.S. manufacturing sector slowed slightly in June. The PMI registered 55.3% (Figure 2), a decrease of 0.1 percentage point (50% is the breakpoint between contraction and expansion).
***
The pace of expansion in the non-manufacturing sector, which accounts for 80 percent of the economy and 90 percent of employment, also edged lower in June. The NMI registered 56.0 percent, 0.3 percentage point lower than in May.
***
Commodities up in price included gasoline and diesel, lumber, paper, and natural gas. No relevant commodities were down in price. Wood pallets were once again in short supply.

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North Dakota board puts Timberland Investment Resources on watch

North Dakota board puts Timberland Investment Resources on watch | Timberland Investment | Scoop.it

North Dakota State Investment Board, Bismarck, put Timberland Investment Resources on watch for performance, said David Hunter, executive director and chief investment officer, in an e-mail.


Timberland Investment Resources manages a $190 million portfolio for the board's $4.5 billion in pension assets. The board's current allocation to timber is 4.5%.


Tom E. Johnson, managing director, client service and business development at Timberland, said that short-term performance has been challenged by the slow housing recovery. However, “inception to date, since we have been managing the portfolios, we are 400 basis points above the benchmark index,” he said.

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US timberland prices gain, despite lumber slowdown

US timberland prices gain, despite lumber slowdown | Timberland Investment | Scoop.it


Timberland in the US accelerated its price growth, despite some lumber market concerns centered on China and the domestic market, which prompted one of the top forestry groups to warn on profits.


US timberland prices were 7.2% higher in the April-to-June quarter than a year before, nudging 0.2 points higher than the rate of annual appreciation recorded for the January-to-March period, the National Council for Real Estate Investment Fiduciaries (NCREIF) said. Factoring in income of 2.6%, the total return from forestry land over the year was 9.9%, the highest figure in nearly six years, although still behind the 17.2% achieved from farmland.


The performance "reflects a combination of strong export demand from China for logs and lumber and a healthy domestic demand in the US for timber products", said Mary Ellen Aronow, chair of the Ncreif timberland committee. However, Ms Aronow, a senior forest economist at Hancock Timber Resource Group, acknowledged some challenges to these factors, saying noting "some hurdles still facing the recovering US housing market, and a cloudy outlook for Chinese demand".


Earlier this week, Plum Creek Timber, which controls 6.7m acres of US forestry, cut its forecast for full-year earnings to $1.05-1.25 a share, from $1.30-1.50 a share, citing a market recovery in 2014 which "has been more muted than we and other industry participants initially expected".
***
Wood Resources International reported earlier this month that US lumber markets began falling in the spring, with "lumber prices falling over 10% so far this year", with "weaker log export markets in Asia" a big factor.


"Demand for wood in China has declined somewhat because of a slowing in the construction sector, which has increase log inventories in the ports and on vessels waiting to unload logs," Hakan Ekstrom, principal of Wood Resources International, told Agrimoney.com. However, he added: "I see this as a temporary blip on the long-term upward trend in demand for wood raw material - logs, lumber and wood chips."


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GMO - A Farmland Investment Primer

GMO - A Farmland Investment Primer | Timberland Investment | Scoop.it

Farmland is a real asset that combines solid investment fundamentals with the potential for attractive cash yields, inflation hedging, and consistent returns from biological growth. Furthermore, farmland total returns tend to be uncorrelated with financial asset returns, offering genuine portfolio diversification for institutional investors. While institutional ownership within the asset class has grown steadily over the past few years, it still accounts for less than 1%1 of total global agricultural land ownership, presenting significant opportunity for sustainable yield enhancement through targeted farmland investment in certain regions.


The pages that follow present an overview of the key characteristics and potential risks of farmland investing, consider the routes for implementation, and make the case for a diversified, cross-regional approach to the asset class.

Sam Radcliffe's insight:

Great read to become acquainted with the ag investment sector.

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Forestland Group aims to raise $350M

Forestland Group aims to raise $350M | Timberland Investment | Scoop.it

Heartwood Forestland REIT III LLC, formed in 2014, recently filed a transaction with the SEC after the company raised $85.5 million of the $350 million it is hoping to raise. Ten investors have signed on to the fundraiser, according to the SEC filing.


Heartwood Forestland REIT III LLC falls under Forestland Group LLC, which was formed in 1995, and manages 3.5 million acres of forestland in 24 states and Belize, Canada, Costa Rica and Panama. The company focuses on naturally regenerating hardwood and softwood forests.

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Some Nuggets from Potlatch's Q2 2014 Earnings Call Transcript

Some Nuggets from Potlatch's Q2 2014 Earnings Call Transcript | Timberland Investment | Scoop.it

Paul Quinn - RBC Capital Markets
Okay. And then Mike you mentioned a number of timber sales that you’re taking a look at right now, is that -- would you describe the current market as more sales out there and what’s the general flavor in terms of competitive pressures?


Mike Covey - Chairman and CEO
I think that especially the southern timberland market is as competitive as it’s ever been at least in the last five years or six years that I can remember. Certainly since the downturn, I think we are seeing higher prices and more competitors than we’ve ever seen both from the suite of weak competitors as well as (indiscernible). And there are only a handful of properties for sale. There is -- I don’t know by handful there is probably half a million acres on the market and half a dozen transactions. So they are small, there is not many of them and they are extremely competitive.


Paul Quinn - RBC Capital Markets
I think that increased competition has pushed up transactions values. I mean we really haven’t seen that many transactions. I mean there was one closed I guess the Catchmark sale in Q1 that was over 2000. Is 2000 an acre now sort of the new norm in the US now?


Eric Cremers - President and COO
Well, the price per acre heavily depends on stocking and quality of the timber and proximity to markets. So it’s hard to just pick one number, but certainly the large Plum Creek transaction with (indiscernible) and the Catchmark transaction that was completed in Q1, those were approximately $2000 an acre which have been higher than what we’ve seen in the past. But you could also see something trade for $1500 an acre which might be an extraordinary price if it was poorly stocked. So it’s hard to say that 2000 is new norm.


Mike Covey - Chairman and CEO
Paul, I think part of what’s driving those higher prices that we are seeing is there is more conviction that there is going to be a housing recovery in the U.S. If you look at forward demand for lumber going up 4, 5, 6 billion board feet a year. Almost everybody agrees that’s got to come from the U.S. south. So price curves for saw logs in southern yield pine continue to strengthen. And with more conviction of there being a housing recovery, it’s pushing discount rates down. Those two combined factors and what’s driving those higher values.


Paul Quinn - RBC Capital Markets
Okay. And we are seeing some price appreciation in different parts of the U.S. south on the pine saw log side, but you are not seeing any in Arkansas. Is it more to do with just the growth versus drain ratio in that -- in your jurisdiction?


Eric Cremers - President and COO
It’s probably that, the growth versus drain, as well as just the dynamics of the sawmill and plywood capacity, that’s installed in the area. Ad I think as you go to coastal and central Georgia, the Carolinas, North Florida, parts of Texas there is just a more robust market for lumber and plywood producers than is south central Arkansas where we’ve seen a fair amount of idle capacity.
***
Collin Mings - Raymond James
Okay. All right. And then just one other follow-up, just on the share repurchase. I’m just curious, I mean, some of your peers have gone as far as offered a specific trigger point on the share price that they see where they might get more aggressive. And I know that’s probably not something you guys would love to do but just can you talk a little bit more about maybe the dynamics where as you alluded to where that’s kind of the bottom of your capital allocation priorities. What might happen or what way you might see the move that up the stack a little bit?

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
Well, we don’t dispute. We certainly believe, we traded at a discount to NAV and certainly in this market, perhaps buying our own trees through our own stock is one of the more attractive alternatives that we have for the use of capital, but I also think the landscape related with people who do share buybacks that have not got that right in hindsight.

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.

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Jack D Bridges's curator insight, July 24, 9:03 PM

Considering the Potlatch discussion of the "competitive" timberland markets in the US Southeast, let's turn to a similar issue: Why are large investors ignoring or overlooking the Lake States timberland market? 

 

Sam Radcliffe of P&C (www.prentissandcarlisle.com) has addressed this before, but it's an interesting issue. For starters: 

 

1) The wood basket as a whole has nearly no export markets, unlike the PNW and SE, which give the regions a better margin of safety during recessions / times of lower domestic demand / pricing. S. Radcliffe could probably quantify this fact, but let's just say for those who do not defer harvests during recessions--or owners exposed to closing mills / poor pulp demand / or delivery economics--it matters.

 

2) Due to demographics, on aggregate, HBU values are typically lower in the Lake States (though, not always) Why? In the Lake States, almost 40% of timberland ownership is comprised of state, county, or federal agencies; in the SE wood basked, that number drops to 5.5%. (source: http://www.keweenaw.com/pdffiles/2nd-2014.pdf, page 2).

 

So, this complicates things for owners of timberland in the Lake States; it can weaken HBU potential for certain properties (timberland is abundant for recreation, due to the ample state / national forest lands open to the public); conservation easements become tougher to "sell;" since forested buffer zones are abundant; demographics precludes raw or recreational land values from reaching prices seen in other timber regions (Pope Resources land outside Seattle; Plum Creek's lands near Gainesville, etc.).

 

3) Despite no export markets, and lower average HBU potential, high-grade Northern Hardwood sawtimber (Hard Maple, Cherry, Walnut, etc.) is a valuable commodity. And yet, Northern Hardwood wood baskets are generally not as well understood by investors. This is S. Radcliffe's point from his excellent presentation, found here: 

 

http://www.myminnesotawoods.umn.edu/wp-content/uploads/2013/12/TIMOs-REITs-the-new-face-of-industrial-forestry-v2.pdf

 

(I think Sam is spot-on about this--and I suggest reading more of his writing on the subject.)

 

But I digress...so the industrial and institutional marketplace for Lake States timberland is smaller, while in the SE and PNW there are more players chasing fewer assets. This, in turn, impacts prices accordingly.

 

These are just 3 brief reasons why investors (and industrial owners, like Plum Creek, Rayonier, and others) overlook the Lake States. What could change this? 

 

Since I've invested in the Lake States region personally, and for others for quite a long time, this issue is something I kick around a lot. From my perch the answer is simple: A region wide effort by timberland stake holders, green power advocates, and policy makers, to develop infrastructure to support biomass for power generation. 

 

Now, this will draw cries from those who argue biomass is impractical or even uneconomical in many cases. Without subsidies or federal support, perhaps. But, many "new" industries with some tangible benefits for all (cleaner air) get a nudge from the public--as long as the 'support' has roots in economic reality, and doesn't completely pervert sound market principles. 

 

This is not a new idea, either. In the recent past, several projects proposed building $12M+ pellet plants (fed by wood waste, tree tops, etc.) which would then supply regional power generators. Unfortunately, the energy suppliers had no incentive to spend huge sums retrofitting their plants to support a more carbon-friendly raw fuel, without incentives from state & federal agencies. So, no tax breaks to help ease the blow of capital costs = no new revenue stream for timber companies / crews to use waste = no joint ventures to build scalable pellet plants.

 

My question is this: Where is the initiative among the timberland / forest products crowd to invest in making this a reality? It would create a few jobs, take waste products and turn them into fuel, and help reduce the amount of coal burned by Lake States power concerns. 

 

It's easy to see why this hasn't happened, though. The effort involved to create a modest economic impact--even for areas that could use ANY boost in jobs--would be great. And, while the forest industry in the Lake States punches at a decent weight ($32.9B in size), it tends to carry a very quiet stick on the federal level. In other words, states like California tend to lead the agenda in areas like this; Michigan & Wisconsin, not so much. 

 

Barring a big shift in investor perception and behavior, without more revenue streams (more, not less mills; more environmental market activity like mitigation banks or carbon credit sales), it's hard to see how the Lake States timber markets will attract more capital. For now, we will just have to be content with the returns that biology, sound management, and opportunistic purchases provide.

 

May Mr. Dangerfield RIP--the Lake States don't get no respect, either.

 

JDB

Further Reading:

 

http://www.prentissandcarlisle.com/assets/PCnwslttr_2QTR-14.pdf

 

http://bluesource.com/news/view/Blue-Source-and-The-Forestland-Group-Register-Largest-Carbon-Project-with-California-s-Cap-and-Trade-Program

 

A look at Lyme Timber III--and how Lyme generates returns for investors--

 

http://www.thegiin.org/cgi-bin/iowa/resources/profile/18.html

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West coast log exports up, lumber exports down in second quarter of 2014

West coast log exports up, lumber exports down in second quarter of 2014 | Timberland Investment | Scoop.it

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.

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Ruling Against Big Timber, Federal Court Maintains Habitat Protections for Endangered Frog in Mississippi and Louisiana

Ruling Against Big Timber, Federal Court Maintains Habitat Protections for Endangered Frog in Mississippi and Louisiana | Timberland Investment | Scoop.it

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.


Today’s ruling by U.S. District Judge Martin L.C. Feldman rejected the arguments made by private landowners and the Weyerhaeuser Company, which holds a timber lease on the frog habitat in St. Tammany Parish, La. One of the landowners is represented by the Pacific Legal Foundation, a radical private-property-rights group.


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.

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Timber Co. Fights IRS Over Nixed $2M Easement Deduction

Timber Co. Fights IRS Over Nixed $2M Easement Deduction | Timberland Investment | Scoop.it

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.


Petitioner Salt Point Timber LLC granted the easement in perpetuity to a conservation organization known as Lord Berkeley Conservation Trust and deducted $2.2 million from its tax returns in 2009.
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Salt Point claims that a separate IRS audit had valued the easement at $1.2 million. “As such, the IRS appraisal itself is evidence of the arbitrariness and unreliability of the IRS valuation at zero,” the petition said.


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.

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The case is Salt Point Timber LLC v. Commissioner of Internal Revenue, case number 18057-14, in the U.S. Tax Court.

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Closing of Maine mill sets back paper industry's biofuel effort

Closing of Maine mill sets back paper industry's biofuel effort | Timberland Investment | Scoop.it

Wednesday’s closure of the Old Town Fuel and Fiber mill is a setback for the Maine pulp and paper industry’s efforts to break into biofuels production, industry representatives said.


The mill, owned by New York-based private equity firm Patriarch Partners, has ceased operations indefinitely and furloughed about 180 employees. While pulp remained the mill’s core business, it was the only facility in Maine experimenting with the production of biofuel on a commercial scale.
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The Old Town mill had initiated a pilot program in 2008 to produce “biobutanol,” supported by a $30 million grant from the U.S. Department of Energy. The project was a collaboration with the University of Maine, which has done extensive research on how to distill fuels from wood. Butanol is a motor fuel that can be used in place of gasoline without any engine modifications.

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Audubon forest in SC sells carbon credits

Audubon forest in SC sells carbon credits | Timberland Investment | Scoop.it

A black water swamp in South Carolina owned by the Audubon Society is helping companies in California meet their carbon emission goals to ease global warming. About 5,200 acres of the 17,000-acre Francis Beidler Forest, Audubon Center and Sanctuary near Harleyville have been registered with California's cap and trade program as carbon offsets in a program that also brings dollars to preserve the South Carolina landscape. In cap and trade, the government issues permits allowing companies to emit a certain amount of greenhouse gases but giving them flexibility how they comply. More than 5,500 acres at the forest about 40 miles northwest of Charleston is covered by a conservation easement, a legally binding document meaning it can never be developed.

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REITs Retreat Modestly in July, But Still Outperform Broader Market; Timber is Weakest

REITs Retreat Modestly in July, But Still Outperform Broader Market; Timber is Weakest | Timberland Investment | Scoop.it

REITs retreated modestly in July, but still outperformed the broader market as wider macroeconomic concerns set the trend for the month, according to analysts. The total return on the FTSE NAREIT All REITs Index dipped 0.2 percent in July, although the decline was smaller than the 1.4 percent fall in the S&P 500 Index during the same period.

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Infrastructure REITs were among the best performers in July with total returns increasing 2.9 percent. Residential REITs also had a strong showing in July, up 2.4 percent. Timber REITs were among the weakest performers as returns dropped 5.4 percent for the month.

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Acadian Timber 2Q net sales fall 23%

Acadian Timber 2Q net sales fall 23% | Timberland Investment | Scoop.it

For the 2Q, Acadian Timber Corp. generated net sales of $12 million on sales volume of 229 thousand cubic metres which represents a $3.6 million, or 23%, decrease in net sales compared to the same period in 2013.


Results were less than the same period last year reflecting the delayed recognition of sales in the prior year due to the vendor managed inventory program that was in place at the New Brunswick operation. On a year-to-date basis, net sales are 2% lower than in the same period last year with a slower start-up of operations in the 2Q due to an extended mud season being largely offset by improved log pricing.
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Operating earnings for the 2Q, at $1.8 million, decreased $0.9 million year-over-year, largely reflecting the timing of sales.
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"Demand remains strong in Acadian's operating region," said Reid Carter, CEO of Acadian. "Softwood timber selling prices are benefiting from the continued positive outlook for lumber demand and strong demand from regional hardwood pulp and structural panel producers is supporting hardwood pulpwood prices."

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Campbell Global sells conservation easement in Texas

Campbell Global sells conservation easement in Texas | Timberland Investment | Scoop.it

The Nature Conservancy, Texas A&M Forest Service, and the U.S. Forest Service have collaborated to purchase a conservation easement on 4,785 acres of forestland in the Longleaf Ridge area of East Texas, permanently protecting some of the best longleaf pine habitat in the state.


The groups purchased the easement for $2,277,000 from Crown Pine Timber LP, a limited partnership managed by Campbell Global, a timber investment and management firm based in Portland, Oregon. Campbell Global manages over 1 million acres of timberlands in East Texas on behalf of Crown Pine Timber.


The easement was funded through the Forest Legacy Program, a federal program managed by the USDA Forest Service. The Nature Conservancy provided $569,250 in matching funds.


This type of conservation – often called a “working forest” conservation easement – keeps forestlands in private ownership while conserving the land for future generations. Landowners and local communities continue to realize economic gain from timber management while the forest provides other benefits such as watershed protection, wildlife habitat, recreation and scenic values.

Sam Radcliffe's insight:

$475 per acre, only slightly higher than similar easements have sold for in the Lake States

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New Forests cuts itself out of timber firm bid

New Forests cuts itself out of timber firm bid | Timberland Investment | Scoop.it

New Forests is believed to be out of the race to buy Forest Enterprises Australia, with sources suggesting that RMS — the world’s second-largest timber management company — has positioned itself as the successful buyer.


New Forests recently purchased Gunns’ forestry portfolio for about $330 million and was believed to be a strong contender to buy FEA, but is understood to have missed out on price

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Resource Management Services, a private timberland investment firm, serves pension funds, endowments, foundations and family offices.
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The company had been among five groups in the running to buy FEA, with others including New Forests, US-based Campbell Group, GMO Renewable Resources and Global Forest Partners.
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The sales price for the forestry business could be anywhere between $200m and $400m, sources said. On offer is 97,900ha of mature hardwood forests and 46,000ha of land in NSW, Queensland and Tasmania.

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Manulife Turns to Agronomists and Foresters to Beat the Market

Manulife Turns to Agronomists and Foresters to Beat the Market | Timberland Investment | Scoop.it

Manulife, which has long invested in commercial real estate, farmland, oil and gas, private debt and timberland to support its insurance business, is now pouring resources into efforts to offer these asset vehicles to outside institutional investors and to develop new alternative products. All of its existing private markets businesses — representing about C$74 billion ($68.4 billion) in assets — have been brought under the remit of Kevin Adolphe, CEO of the new Manulife Asset Management Private Markets group.
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The insurer is hoping to take advantage of investors’ increasing interest in alternatives and private assets that can potentially provide more diversification, plus a liquidity premium — the return for holding assets like a forest that are hard to buy and sell.
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Daniel Christensen, CEO of Manulife’s Hancock Natural Resource Group, which includes timber, agriculture and renewable energy, stresses, however, that it takes time for investors to build quality portfolios out of specialized asset classes. “Investors need the patience because there are a finite number of opportunities out there,” he says. “We have to work hard to find ones that meet our criteria.”


Darien, Connecticut–based Casey Quirk & Associates expects that real assets such as real estate and infrastructure will see a big spike in search activity among institutional investors as they seek long-dated, unlisted investments that generate strong cash flows. Real assets already represent the most new searches for consultants this year — about 14 percent of what’s forecast, up from 6 percent in 2013.
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Boston-based Christensen joined John Hancock in 1992. Timber makes sense for insurance companies like Hancock, he explains, because its long duration can be matched against the liabilities of their life policies. Hancock got into the business in the mid-1980s as large-scale integrated forest companies — which had held the majority of timberland — started selling off property. Once that massive transformation took place, pension funds and others were able to invest.


Christensen says that timber is just one of many asset classes that were once off-limits to investors but have in recent years added significant returns to institutional portfolios. Trees, for instance, grow even during a recession. “We can grow our inventory in downturns and can wait for markets to return,” says Christensen, who worked as a forester for 15 years in Maine before joining Hancock. As the largest timberland holder in Australia and New Zealand, Hancock continued to market logs to China after the financial crisis, while in the U.S. it held on to its inventory and only now is releasing timber into the states where prices are high.


Hancock is also developing renewable-energy investments for Manulife’s general account from its farms and forests, including biofuels. Condensed wood pellets are burned like coal, for example, but are considered carbon-neutral. Christensen expects to offer these types of investments to third parties as well.


Christensen is a big believer in direct investments, even if they require specialized talent to run. He says that owning stakes in farms and forests provides a good balance to the mostly securitized assets in typical investor portfolios. “This doesn’t just happen by accident,” he adds. “You have to know how to farm, know how to grow forests.”

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Weyerhaeuser and DuPont Pioneer Enter Technology License Agreement

Weyerhaeuser and DuPont Pioneer Enter Technology License Agreement | Timberland Investment | Scoop.it

Weyerhaeuser Company  today announced a technology license agreement with DuPont Pioneer that will advance seed technologies to help meet growing global demands for food, feed and fiber.


The agreement brings together agricultural and forestry know-how to sustainably improve crop productivity for corn growers around the world. Based on scientific research behind years of Weyerhaeuser NR sustainable forestry, the manufactured seed technology allows for the storage, nourishment, planting and germination of cells capable of growing into a plant. This technology provides a means to cost-effectively regenerate valuable, limited or fragile plant material.

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Plum (PCL) Tones it Down-- CEO R. Holley says housing market still "anemic."

Plum (PCL) Tones it Down-- CEO R. Holley says housing market still "anemic." | Timberland Investment | Scoop.it

Via Jack D Bridges
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Jack D Bridges's curator insight, July 29, 12:58 AM

What follows is a quick look at Plum Creek's (PCL) Q2 Conference Call. 

 

On the housing market, Mr. Holley strikes quite a different tone than he did in early 2014. To wit, we'll call this section humble pie.

 

Mr. Holley begins, "The economists have moderated their growth expectations for residential construction this year, in part due to the lackluster activity during the first six months of the year."

 

Holley continues, "As housing demand improves, we expect to see increased lumber demand and increased lumber production and log prices in the U.S. South. However, the overall pace of demand growth in 2014 is not as robust as originally expected and we have moderated our price growth expectations to Southern sawlogs in the second half of 2014.

 

This reduced view of demand / pricing in the US South is why PCL is deferring so much previously planned harvest (500K--1M tons deferred, in fact).


In Holley's own words, "With this in mind, we have chosen to defer a portion of our sawlog harvest to certain other southern micro-markets and as a result we now expect our harvest to be at the low end of our 20 million to 21 million tons harvest range we gave you at the beginning of the year. The great thing about timber is that we are not foregoing this income or cash flow; we are simply delaying its delivery."

 

And, while my thoughts on the SE cabal of optimists are well known, this isn't a bad move for Plum, given their views of the future. I just think we'll see more unscheduled deferrals when the Southern Sawlog revival keeps getting pushed out another year at a time.

 

So, what does Mr. Holley feel is ailing the housing market?

 

Steven Chercover- DA Davidson

Go it. And then finally, would be willing to hazard a guess as why the housing recovery in so anemic; is it lack of lots of labor jobs or policy?

 

Rick Holley - Chief Executive Officer

All the above. We want to learn that from your guys, but no, I think it’s all the above. I just think it’s a jobs thing, it’s a housing formations thing, it’s still tough for young couples to get a mortgage and then they are trying to improve some of that. The outlook for most people and job out don’t feel good to people, so I think it’s why I can come up with a better word; it’s anemic. It’s just kind of, it’s not there yet. So it’s a combination of all the above.

 

And, then Mr. Holley addresses the broader timberland marketplace in the US: 

 

Rick Holley - Chief Executive Officer

There is still at any point in time, two or three or four five transactions in the market place, generally kind of 40,000 to 60,000 acres. A lot of the TMOs are bringing some lands outs of the funds that they’ve had over time and bringing them back to market. So a lot these are in the U.S South and we look at all of them and as the question was asked earlier and the ones that have transacted generally been north of $2,000 an acre and I think it’s justifiable given the productivity, a lot of those properties that they have come to market.

 

I think one of the things that a lot of investors probably, or just even Plum Creek for a long time maybe we are behind on is how productive these lands are with some of the silvicultural treatments that we’ve all put in place over the last couple of decades, and how much cash flow they are going to generate off that productive and then you start to see a better pricing  environment. You can clearly justify our per acre number with a two in front of it.

 

But there’s always a few things in the market place and I think they seemed to get snapped up pretty quickly, so there’s still lot of capital looking at those.

 

Moving onto Rick Holley's thoughts on rural / raw land markets:

 

Rick Holley - Chief Executive Officer

Well, one of the comments that I made in my prepared remarks today was that some of the markets that have been pretty dormant the last several years like Montana have kind of lit up again, so we see a lot more interest in lands in some of those areas. A lot of the buyers are places from like Texas. Some of those market places are looking at Montana now.

 

Clearly we see a lot more recreational interest in the south. Values still aren’t where we expect them to be longer terms, so we’ll be pretty stingy about selling a lot of these higher various properties in the south, but we are starting to see some movement in the market place and prices are starting to recover a bit.

 

But we’re very pleased to see Montana, because it was a great market a number of years ago as you know and it just went to sleep for the last years. It’s awake now, so that’s a positive trend.

 

Wrapping it up:

 

Me again. In keeping with my recent post about the Rodney Dangerfield-like treatment of the Lake States region, the Plum conference call barely even mentioned the northern resources segment at all--excluding the planned Wisconsin divestiture which closed this summer. 

 

Looking at the equity market reaction to Plum's reduced harvest forecast (and lowered profit / revenue for the remainder of 2014), the stock was off about 3% after-hours. The damage should be mitigated by the accretive value of the 500K MWV acreage Plum diluted shareholders to buy.

 

But, it also bears mentioning how many shares of PCL are shorted--some Wall St. types think betting against Plum is a good way to short the housing market. There are better ways to execute this view--and whatever I think about management's housing forecast, I wouldn't want to bet against Plum Creek. Maybe if the equity market ever corrects, it does drop below $40 for a little while. We also know that's the magic number where Mr. Holley starts talking about buying back stock. 

 

Here is the full Plum CC transcript link:

 

http://seekingalpha.com/article/2350265-plum-creek-timber-company-pcl-ceo-rick-holley-discusses-q2-2014-results-earnings-call-transcript?part=single

 

And, what a 10-year chart of Plum Creek equity looks like--

 

http://screencast.com/t/7u9qwBibAbu

 

JDB

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Hancock to sell conservation easement on 9,000 acres near Klickitat River

Hancock to sell conservation easement on 9,000 acres near Klickitat River | Timberland Investment | Scoop.it

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.

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The land won't have to change hands to be protected. A nearly $4 million grant will allow the state Department of Natural Resources to secure the area by purchasing a conservation easement, Kearney said.


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.

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