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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
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.
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.
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.
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.
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.
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.
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
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
Resource Management Services, a private timberland investment firm, serves pension funds, endowments, foundations and family offices.
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.
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.
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.”
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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.
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".
"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."
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.
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.
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.