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US timberland values returned by 9.8% in the year to the end of March – the strongest annual performance since the third quarter of 2008, as the world was entering economic crisis, the National Council of Real Estate Investment Fiduciaries said.
These returns are still lower than those obtained from cropland, estimated by the council last week at 17.4% over the past year.
However, on terms of price appreciation alone, the forestry market has nearly caught up.
The timberlands return figure comprised price growth of 7.0%, with the balance from income.
Growth in cropland values has slowed to 8.4%.
The rising returns reflect in part revival in US housebuilding, a key source of demand for timber.
"US housing recovery continued at a modest pace, supporting increased timber harvest volumes across the US," said Mary Ellen Aronow, chair of the Ncreif timberland committee, and a senior forest economist at Hancock Timber Resources Group.
However, she also highlighted "strong" export orders for wood, "in particular demand from China".
This demand was "reflected in record-setting prices for timber in the Pacific North West," a key US timber-growing region, largely in Washington state.
Indeed, returns in the Pacific North West were particularly strong over the year to the end of last month, hitting 18.1%, up from 14.1% in the previous year.
Ms Aronow forecast continued strength in the sector, terming "positive" the outlook for both timber and forestry markets.
The NCREIF Timberland index returned 9.69% in 2013, its highest return since 2007 when the index returned more than 18%. Last year’s return consisted of 2.8% income and 6.75% appreciation.
Timberland returned 7.75% and 1.58% in 2012 and 2011, respectively.
Mary Ellen Aronow, senior forest economist at Hancock Timber Resource Group and chair of the NCREIF timberland committee, noted in a news release that properties contributing 70% of the index’s market value were appraised during the fourth quarter. Appraisers “recognized a strengthening timberland market, with lower discount rates, citing timberland transaction evidence which indicates higher land values. In some cases, appraisers have also raised their outlook for timber prices.”
The NCREIF Timberland index returned 1.05% in the third quarter, split between 0.45% appreciation and 0.6% income return. The return is up 12 basis points from the prior quarter and up 30 basis points from the year-ago quarter.
It also marks the highest third-quarter return since 2007. Mary Ellen Aronow, senior forest economist at Hancock Timber Resource Group, said in a news release quarterly gains were driven by “continued recovery in U.S. housing markets combined with Chinese demand for imported logs and lumber.”
Returns on US forestry hit their highest since the global economic crisis, and are poised for further gains, despite setbacks to hopes for housebuilding, a key destination for lumber.
A timberland index compiled by National Council of Real Estate Investment Fiduciaries showed returns of 9.36% in the year to the end of June, the highest figure since autumn 2008, as the world was falling into slump.
The figure, of which income accounted for 2.71 points and capital appreciation for 6.51%, came against a backdrop of disappointment for the domestic property market, slowed by rising borrowing costs.
"The second quarter rise in US interest rates and the 9% drop in overall US housing starts triggered a slight downward adjustment in forecasts for housing demand for the remainder of 2013," the council said.
The National Council of Real Estate Investment Fiduciaries (NCREIF) has released third quarter 2012 results of the NCREIF Timberland Index. The 0.75% total return, while still sluggish, is a vast improvement over the past several quarters. It is the highest return since 0.75% total return in the first quarter last year. The return was split between 0.23% appreciation and 0.52% income.
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."
I wrote a similar article to this last year titled "Timberland Values Increase 7.76% in 2012". Again, the data come from a quarterly newsletter from Brookfield Timberlands Management LP, a wholly owned subsidiary of Brookfield Asset Management Inc. (BAM). In it, the company discussed the NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index results for 2013. NCREIF is an appraisal-based index. It included both third-party independent appraisals as well as internal appraisals of timberlands purchased for investments. Its members are generally the TIMO (Timberland Investment Management Organizations) community. TIMOs manage privately owned timberland investments. As far as I know, none of the timber REITs are members of NCREIF. Pope Resources (POPE), however, is.
In any case, the results would also reflect on the value of the timberlands owned by the publicly traded timber REITs and companies - Weyerhaeuser (WY), Plum Creek (PCL), Rayonier (RYN), Potlatch (PCH), CatchMark (CTT) and Acadian (OTC:ACAZF). Timberland properties are routinely bought and sold by the TIMOs and timber REITs to and from each other.
For 2013, the total return from timberland investments in the NCREIF index was 9.69%, up from 7.76% in 2012. This is broken down between EBITDDA returns and appreciation returns. Total EBITDDA returns were 2.80% for 2013 versus 2.68% in 2012. Appreciation returns for 2013 were 6.75% compared to 4.97% in 2012. The NCREIF Timberland Index in 2013 was made up of 457 properties totaling 13.6 million acres with a total market value of $23.1 billion.
The Index is further broken down by region.
Sam Radcliffe's insight:
IMO, Tom Kametz made an error in his calculations of land appreciation, by using both the EBITDA and capital appreciation portions of NCREIF total returns. If change in timberland value is the desired metric then only the capital appreciation is relevant.
After I recalculated using only the capital appreciation portion of NCRIEF, the implied change in value of the REIT timberlands is significantly lower: PCL goes from 8.5% to 5.9%, WY 11.6% to 10.3%, PCH 13.9% to 6.7%.
NCREIF recently reported Q4 2013 total returns for private US timberlands of 5.92%. This total return number accounts for nearly two-thirds of the total 9.69% return for all of 2013. Big moves during the fourth quarter for the NCREIF Timberland Index remain a common occurrence as a disproportionate number of the acres tracked by the index report their appraised market values towards the end of the year. This reality of tracking timberland investment performance reduces the value and rigor of comparing quarterly results to other asset classes, while reinforcing the usefulness of annual performance metrics.
While publicly-traded timber REITs, as measured by the Forisk Timber REIT (FTR) Index, crushed the field in 2012 with returns of 34.12%, the S&P 500 captured the yellow jersey in 2013 with a 26.90% gain. The summary results, though capturing an arbitrary snapshot, remain consistent with the timberland investing thesis that direct ownership of timberlands provides superior capital preservation and diversification and stability, as reflected in balanced returns for 2012 and 2013. Alternately, public timber REITs offer superior liquidity and total returns over time with more risk as equity values can and will dive with the overall market.
CalPERS’ annual review of its infrastructure and forestland programs shows the fund’s infrastructure program has outperformed its benchmark by 130 basis points annually since the program’s inception, while its forestland investments trailed the NCREIF Timberland index by 380 basis points from its inception.
Through March 31, the latest returns available, CalPERS’ infrastructure investments returned 8.1% annually from inception, 13.9% over five years, 17.6% over three years and 5.7% over the one-year time frame. In each period, returns were above the benchmark of CPI plus 400 basis points.
Annualized forestland returns of 0.6% (from inception), -1.1% (five years), -2.5% (three years) and 6.5% (one year) trailed the NCREIF Timberland index in each period.
I recently read a quarterly newsletter by Brookfield Timberlands Management LP, a wholly owned subsidiary of Brookfield Asset Management Inc. (BAM). In it, they discussed the NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index results for 2012.
For 2012, the total return from timberland investments in the index was 7.76%. This is broken down between EBITDDA returns and appreciation returns. Total EBITDDA returns were 2.68% and appreciation returns were 4.97%. The NCREIF Timberland Index is made up of 443 properties totaling 15.1 million acres with a total market value of $26.0 billion.
The Index is further broken down by region.
Sam Radcliffe's insight:
See the original article for a breakdown of NCREIF returns by region and return component.
The fortunes of the timber industry wax and wane with that of the housing industry, so it isn't surprising that as the housing industry begins its recovery, the timber industry is recovering as well.
According to the fourth quarter 2012 report on the timber index by NCREIF, the total return for the category was 5.92%, the highest since fourth quarter 2007. The return was split between 5.33% appreciation and .59% income. For the year, timberland had returns of 7.76%, split between 2.68% in income and 4.97% in appreciation.
The last time appreciation in the timber index was greater than 5% was in fourth quarter 2007 when timberland appreciated by 8.71%, according to the NCREIF report. Even though the index had three consecutive quarters of positive appreciation, it remains more than 5% below its previous peak. The Pacific Northwest continues to be the strongest region with a total return of 10.02% of which .97% was income. This marks the sixth consecutive quarter in which it was the leading region in the index, according to the report.
The National Council of Real Estate Investment Fiduciaries (NCREIF) is proud to release its initial Timberland Fund and Separate Account Index (TFSAI). The index is comprised of results from 101 funds and separate accounts contributed by 11 distinct mangers. Going forward, NCREIF will release this report quarterly showing returns from the current quarter, previous quarter and the quarter from a year ago. The report will also have one year and three annualized returns. All of results will be shown on a gross and net and on a value weighted and equal weighted basis.
Results from the first quarter 2012 show the index returned 0.06% gross and (0.14%) net. This is an increase of 17 basis points on a gross basis and 27 basis points net from last quarter. The value weighted one and three year returns on a gross basis were 0.18% and (1.72%). However, the equal weighted returns were positive, 1.18% and 0.60% respectively. In addition, timber acreage increased slightly to 11.9 million while gross assets fell slightly to $19.9 billion.