Timberland Investment
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Potlatch Corporation's (PCH) CEO Mike Covey on Q1 2016 Results - Earnings Call Transcript

Potlatch Corporation's (PCH) CEO Mike Covey on Q1 2016 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Executives

Jerry Richards - Vice President and CFO

Mike Covey - Chairman and CEO

Eric Cremers - President and COO

Analysts

George Staphos, Bank - America, Merrill Lynch

Collin Mings - Raymond James

Chip Dillon - Vertical Research

Mark Weintraub - Buckingham Research

 

Mike Covey
We announced this morning that we have sold 172,000 acres of timberlands in Central Idaho for $114 million. As many of you know, Central Idaho is our realized strategic timberland holding based on productivity and location.
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This attractive sale provides the opportunity to take advantage of the dislocation in our public equity value. Our board is authorized to repurchase up to $60 million of our shares. Not only do we have a current opportunity to buy our shares at a discount in net asset value, we would get an immediate return of 4.4% which is the current dividend yield on our shares.
***
Collin Mings
On Slide 5, you referenced that $2000 per acre appraisal for 350,000 acres of Northern Idaho Timberlands. Just curious, the teams thoughts about how appropriate or valid that appraisal, that data point would still be, given to your point about maybe hitting the lands more aggressively given the maturity profile of the acreage in Northern Idaho. How much comp is that or how much sense does that four-year old comp make at this point?

Eric Cremers
Now in that appraisal, I’m sure the forecast or the appraisal assume that lumber prices were going to be moving higher and log prices along with it, and that’s exactly what happened. But if I had the guess, I’d say that appraisal is still very accurate and if we had another appraisal done today, it would be very consistent with the appraisal that was done back in 2012.
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Chip Dillon
When you look at the southern lands, I don't know if you would venture a guess here, but we saw recently, actually four state-pension plans step up and buy land across seven states. I am sure you are familiar with what I am talking about, at an implied value of $2150 per acre. Are there reasons why your lands in the South would be not comparable to those lands in terms of what you think the value would be?

Jerry Richards
Well every acre in the south of course is - markets are different, and productivity of the acres is different. I think collectively as we look at the property, that was transacted, I think it was about 250,000 acres in five states. The side index was slightly higher than some of our land in general. Stocking level were perhaps slightly higher, some of it in the Carolina's and Georgia probably is in better stronger market than say Mississippi or Alabama. But on average I think our properties fairly comparable, perhaps slightly less but not much I think certainly – we said southern timberland roughly is worth $2000 in acre and I think ours would stack up comparable to that.
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Chip Dillon
And then last question is, as you've been involved with talking to folks involved in timberland, five years ago, our view was that, well it's inevitable that rates go up and the pension obligations need to be paid out, so there's going to be an overhang.

 

I'm not so sure about the pension obligations, but what we do see, of course, is, not only continued low rates, but even negative rates in other parts of the world which makes, obviously, the current return on timberland just a tremendous positive relative to being a German pension plan and getting basically 20 basis points in a 10-year bond. With that backdrop, would you say that looking at various sales situations, that it's a lot more active on the buyer's side in U.S. timberland than say 2 to 3 years ago? Are you seeing more interest and, therefore, that what's makes you more of a seller than a buyer at this point?

Jerry Richards
Well there’s two questions there. The reason that we are a seller is we felt that the best opportunity to buy timberlands was to buy our own trees that we think are dramatically undervalued when the stock went trading at in the $30 to $35 price range, when our net asset value is roughly $45 according to analysts. So the best opportunity for us is been to buy our own stock and in order to do that, we felt that it made sense to sell land.

 

In terms of the number of – there’s certainly a number of properties that are going to be coming on to the market as some of these TIMO funds mature. We think that there is ready capital there to be deployed. I don’t think there is any more today than there was 3 years ago. I think the amount has been fairly stable.

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Potlatch Corporation's (PCH) CEO Mike Covey on Q4 2015 Results - Earnings Call Transcript

Potlatch Corporation's (PCH) CEO Mike Covey on Q4 2015 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Mike Covey, Chairman and Chief Executive Officer
Shifting to a strategy that we discussed on last quarter’s earnings call, we are actively pursuing opportunities to take advantage of the arbitraged between high private market timberland values and this deep discount in which are stock currently trades in the public equity market. Hence we have shifted from being a buyer of timberland to a seller with intend of using sale proceeds before successful to repurchase our share and reduce debt. 
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Collin Mings of Raymond James

First question from me just on the land sales front, can you discuss if there are any specific packages you are planning to market or actively marketing right now?

Mike Covey

Okay, well, we’ve been in the process of evaluating land throughout the company’s portfolio both in the south and then the west that would be suitable and attractive to institutional investors. We still think there is a lot of institutional pension fund few more money on the side lines. 
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Collin Mings

Okay. And then I think you kind of addressed this in the remarks but just to clarify, there is not really one region or you might have a bias of completing a transaction whether it be Idaho or the U.S. South as wherever you are able to maybe generate interest that at a price you think is fair?

Mike Covey

I think that’s a good summary certainly in the U.S. South, you know there is strong institutional interest in timberland there, you know it values that I think continued to be quite strong the most recent transactions that Plum Creek executed with Twin Creek’s joint venture. Last year you know point that timberland values for high quality timberlands over 2000 an acre certainly lesser stock lands would fetch a bit less. And in Idaho although it’s not as a dynamic of a market, we certain feel that our timberland there is attractive and highly valued. So we haven’t constrained to one area.
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Chip Dillon of Vertical Research

Yes, hi, good morning and afternoon. When you look at the guidance you gave for the log pricing in the - for the year succeed in the south you said you thought it would be roughly flat, is that a full year sort of look because I know it seems like prices where their weakest point in the fourth quarter, I didn’t know if you thought that they would stay at the fourth quarter level or maybe recover to the year and there might be a mix issue in there as well?

Eric Cremers, President and Chief Operating Officer

Yeah, Chip, it’s Eric. Yeah generally they are going to be flat year-over-year. There is a flat bit of seasonality in the south particularly as it relates to mix impacting the third quarter. So a lot of a hardwood stands, you really can’t access until you get to drier weather and that tends to occur in the third quarter. So you’ll see our prices pickup as hardwood logs sawlog sell for 70 to 80 bucks a ton compared to pine at 40 bucks. So you can see meaningful changes in our reported prices just from that mix impact. But generally pine prices are flat in the south.
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Mark Weintraub of Buckingham Research

Thank you. I was hoping if possible to get a little bit more color on what you are seeing in the timberlands market, I should say little sensitive given that you are potentially going that to market yourselves with some acreage. But just generally speaking, did you sometime seem to be in a whole lot of liquidity of late when it comes to the types of private transactions that we have been seeing previously, but maybe that’s not right, so if there is any color you could provide that would be helpful?

Mike Covey

Well Mark, the higher profile transactions that have occurred have been for what I would think of is not typical timberland assets the fully transaction, its North Florida was not a classic timberland package, the Campbell sale that happened in Louisiana. Last fall had a lot of impairments around it with leased acres, that wasn’t really a typical classic one. I think the - you know the best examples of kind of clean transactions have been the Plum Creek, Twin Creek’s joint venture announcement that was you know the fall of 2014. I think that was probably the cleanest timberland deal that was authorized what hasn’t closed yet, those prices were around $2,100 an acre. But there’s been several smaller transactions that I think have been indicative.

But I’d agree with you it’s not been as robust as maybe it was a couple of years ago, but I think having said that our discussions with teams in particular I think there is still fair amount of money. It’s been allocated to the asset class and people are looking for good assets to purchase.

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Deer hunters seek $19 million to save forest

Deer hunters seek $19 million to save forest | Timberland Investment | Scoop.it
The conversion of thousands of acres of central Minnesota’s pine forests to potato fields has sparked environmental concern.

Communities, citizens and state officials are worried the transformation is polluting and depleting aquifers.

But there’s another worry: loss of wildlife habitat.

In response, the Minnesota Deer Hunters Association (MDHA) is proposing a novel and ambitious $19 million plan to buy about 10,000 acres of forest from Potlatch Corp. in Cass, Wadena and Hubbard counties to prevent their conversion to cropland, reopen them for public hunting and allow people to use them to access thousands of acres of other public lands.
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Potlatch Taps Mark Bice to Manage Land Acquisitions and Sales in Southern US

Potlatch Taps Mark Bice to Manage Land Acquisitions and Sales in Southern US | Timberland Investment | Scoop.it
Potlatch Corporation (Nasdaq:PCH) announced today that it has hired Mark Bice as Real Estate and Acquisition Manager effective March 2nd. Bice will be responsible for all Real Estate activity including timberland acquisitions and small parcel sales for the company in Alabama, Arkansas and Mississippi. Bice will be located in Birmingham, Alabama.
"Potlatch is pleased to bring someone on board with such deep knowledge and experience in land transactions in the US Southeast," said Mike Covey, chairman and chief executive officer for Potlatch Corporation. "Timberland acquisition in the US Southeast is a key part of our growth strategy, especially where opportunities exist to 'bolt on' to our recent Alabama and Mississippi acquisitions," added Covey.
Bice comes to us from BTG Pactual Timberland Investment group (formerly Regions Timberland Group), a Timberland Investment Management Organization headquartered in Atlanta, Georgia. Bice is a recognized 30-year plus industry veteran having negotiated and closed over $1 billion in timberland transactions, in the US south as well as other regions in the country. Potlatch purchased 201,000 acres in Alabama and Mississippi in December of 2014. The company believes acquiring timberland in the US Southeast is timely given the expectation that housing starts will continue to increase in the coming years and that incremental volume to meet housing growth will mostly come from southern timber markets.
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Potlatch Completes Timberland Acquisition and Board Increases Dividend 7%

Potlatch Completes Timberland Acquisition and Board Increases Dividend 7% | Timberland Investment | Scoop.it
Potlatch Corporation (Nasdaq:PCH) announced today that it has closed the previously announced purchase of approximately 201,000 acres of timberlands in Alabama and Mississippi from affiliates of Resource Management Service, LLC for $384 million. The transaction was first announced on October 20, 2014.

Potlatch also announced that its Board of Directors has declared a dividend of $0.375 per share payable December 31, 2014 to stockholders of record on December 16, 2014. This is a 7 percent increase relative to the prior quarterly dividend of $0.35 per share.

The timberland acquisition was financed using cash and $310 million of new long-term debt. Moody's confirmed our Baa3 investment grade debt rating with a stable outlook earlier this week.
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Potlatch Corporation Signs Purchase Agreement for 201,000 Acres of Alabama & Mississippi Timberlands

Potlatch Corporation Signs Purchase Agreement for 201,000 Acres of Alabama & Mississippi Timberlands | Timberland Investment | Scoop.it

Potlatch Corporation (Nasdaq:PCH) announced today its third quarter 2014 results and that it has signed a purchase agreement to acquire 201,000 acres of timberlands in Alabama and Mississippi from affiliates of Resource Management Service, LLC for $384 million. The transaction is expected to close late in the fourth quarter of 2014 and is subject to the satisfaction of customary closing conditions.


"We are pleased to add these very productive timberlands to our southern portfolio," said Michael Covey, chairman and chief executive officer of Potlatch Corporation. "The timberlands have been managed intensively and are well stocked. This transaction will expand our southern ownership by almost 50% into two new states contiguous to our existing Arkansas holdings and will increase our total acreage under management to nearly 1.6 million acres," concluded Mr. Covey.

Sam Radcliffe's insight:

$1,910 per acre, about $200/acre more than Plum Creek paid  a year ago for 500,000 acres from MeadWestvaco

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Idaho sues Potlatch over deadly wildfire

Idaho sues Potlatch over deadly wildfire | Timberland Investment | Scoop.it

Idaho officials have filed a lawsuit against a timber company and its contractor contending they're responsible for a wildfire that killed a 20-year-old Forest Service firefighter and burned more than 300 acres in northern Idaho.


The Lewiston Tribune reports the state filed the lawsuit Monday in 2nd District Court seeking an unspecified amount in monetary damages for costs in fighting the fire.


Anne Veseth of Moscow died Aug. 12, 2012, after being struck and killed by a falling tree while fighting the Steep Corner Fire near Orofino.


The lawsuit names Potlatch Land and Lumber, Potlatch Forest Holdings, Clearwater Paper Corp., Potlatch Corp., and DABCO Inc., a Kamiah-based logging contractor.


Idaho officials contend a logging crew started the fire using equipment that didn't meet Forest Service standards required by law.

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Finite Carbon and Potlatch register forest carbon project with California Air Resources Board compliance offset market

Finite Carbon and Potlatch register forest carbon project with California Air Resources Board compliance offset market | Timberland Investment | Scoop.it

Finite Carbon and Potlatch Corporation announced the successful completion and registration of the Finite Carbon – Moro Big Pine CE Improved Forest Management Early Action Offset Project with the California Air Resources Board. Located on 15,809 acres in south-central Arkansas, Moro Big Pine is the nation’s first and only improved forest management (IFM) compliance offset project completed for a publicly-traded timber real estate investment trust, as the company said in the press release received by Lesprom Network.


Finite Carbon provided all financing, development, and offset transaction support for the Moro Big Pine project which was initially developed and registered under the Climate Action Reserve forest project protocol. Upon registration with the California ARB greenhouse gas emissions trading program on December 26, 2013, Moro Big Pine received an initial issuance of 220,208 ARB compliance carbon offsets.


“The Moro Big Pine project effectively merges habitat conservation for the endangered red-cockaded woodpecker, industrial timber management, and carbon yields,” said Eric Cremers, President and Chief Operating Officer for Potlatch. “The increased carbon uptake and storage realized by the project results in carbon revenues that compliment traditional returns for Potlatch. Moro Big Pine demonstrates how management for conservation values and long term sustainable forestry can have synergy with the regulatory carbon offset market.”

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Potlatch began assembling the Moro Big Pine property in 1951 which now harbors Arkansas’ largest private land population of federally protected Red-cockaded woodpeckers. In 2007, the property was placed under what remains the largest conservation easement in Arkansas history and allows and promotes active forest management and public access. With the completion of the forest carbon project, the property is a showcase nationally for integrated forest, wildlife, and ecosystem value management.


“Registration of Moro Big Pine with the California Air Resources Board is another sign that California’s carbon market is real and maturing,” said Finite Carbon president Sean Carney. “The project demonstrates how industrial and institutional forest owners can participate in the carbon market and improve returns from their forests.” Potlatch’s Moro Big Pine is the second IFM project that Finite Carbon has financed, completed, and registered with the ARB in the past two months and is among over ten listed compliance projects that Finite Carbon expects to complete and register with ARB in the coming months.

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MN receives donation of forest land from The Nature Conservancy

MN receives donation of forest land from The Nature Conservancy | Timberland Investment | Scoop.it

The Minnesota Department of Natural Resources (DNR) recently accepted a donation of 2,751 acres of land in Cass County in north-central Minnesota from The Nature Conservancy. The property is adjacent to more than 200,000 acres of land owned by the county, the DNR and the U.S. Forest Service.

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The property contains mixed forests of pine, hardwoods, small ponds and wetlands and more than 3,000 feet of shoreline on Camp Lake. More than half of the property is within the Leech Lake watershed. The land includes more than five miles of grant-in-aid snowmobile trails. The donation will bring about more opportunities for hunting, fishing and paddling along undeveloped shoreline, hiking, bird watching and other activities.

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The Potlatch Corp. previously owned and managed the property and The Nature Conservancy acquired it in May. The nonprofit acquired the property with $3.1 million in private money raised as part of the Minnesota Forest Legacy Partnership, a coalition that includes business and conservation groups, along with the DNR. The groups have worked together to conserve more than 338,000 acres of industrial forest land to provide wildlife habitat, protect jobs and ensure public access for outdoor recreation.

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Potlatch Leaves Competition In The Dust With Robust Growth And Returns

Potlatch Leaves Competition In The Dust With Robust Growth And Returns | Timberland Investment | Scoop.it
Diversified forest products REIT Potlatch hit a 52-week high on Jan. 17, recording robust returns and a long-term expected growth of 5%.
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S&P revises Potlatch Corp outlook to stable

S&P revises Potlatch Corp outlook to stable | Timberland Investment | Scoop.it

Overview

  • Improving housing markets combined with good demand and pricing for wood products have resulted in better-than-expected earnings for U.S. timber real estate investment trust (REIT) Potlatch Corp.
  • We are revising our outlook to stable from negative and affirming all existing ratings, including our 'BB' corporate credit rating.
  • The stable rating outlook reflects our expectations that improving housing and lumber markets will result in Potlatch's leverage declining to 4x over the next several quarters.


Rating Action
On Oct. 29, 2012, Standard & Poor's Ratings Services revised its outlook on Spokane, Wash.-based Potlatch Corp. to stable from negative. At the same time, we affirmed all existing ratings, including our 'BB' corporate credit rating on the company.


Rationale
The outlook revision and affirmation reflects our improved view for Potlatch's EBITDA performance in light of recovering housing markets and better than previously anticipated wood products segment earnings. As a result, we now expect Potlatch's leverage to decline to approximately 4x at year end 2012 and be maintained below 4x in 2013.

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Which Timber REIT Is Right For Your Portfolio?

Which Timber REIT Is Right For Your Portfolio? | Timberland Investment | Scoop.it

The timber industry is headed into some promising times. It is simultaneously experiencing the cessation of negative events and the start of positive ones.


Negative Events


· The housing crisis is ending and domestic home production is once again on the rise.

· Excess supply and the resultant price declines from forced harvesting due to the Canadian pine beetle epidemic are nearly concluded.


Positive Events


· The sustaining Chinese economy combined with its paucity of forests creates excellent export potential.

· High oil prices increase the viability of biomass for heating and electricity.

· Increasing options for revenue as entitlements and conservation efforts become more prevalent.


While the industry is looking strong, we must look closer at the individual companies to ascertain which is in position to benefit the most in the upswing of the cycle.

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Potlatch Stock Upgraded

Potlatch Stock Upgraded | Timberland Investment | Scoop.it

Potlatch (Nasdaq:PCH) has been upgraded by TheStreet Ratings from hold to buy. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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REIT Potlatch Sells Idaho Timberlands For $114M

REIT Potlatch Sells Idaho Timberlands For $114M | Timberland Investment | Scoop.it

Potlatch Corp. has sold roughly 172,000 acres of timberlands in central Idaho to Georgia-based investment firm Southern Pine Plantations for $114 million for a steep loss, according to an announcement from the Washington-based real estate investment trust on Tuesday.


The company said it expects to record an after-tax loss of $36 million as a result of the sale, after holding the land for nearly a decade.

"We purchased the central Idaho timberlands in 2007 intending to take advantage of what was a strong rural recreational real estate market around McCall, Idaho. Unfortunately, that market declined significantly due to the recession and the bankruptcy of the Tamarack Resort," Mike Covey, chairman and CEO of Potlatch, said in a statement on Tuesday.

"The attractive offer for our less productive central Idaho timberlands frees up our capital without having to wait for the real estate market to rebound,” Covey added.

Southern Pine Plantations is based in Macon, Georgia. The company couldn’t be immediately reached for comment on Tuesday.

Sam Radcliffe's insight:

At $662 per acre, the recreational market must indeed be slow.

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Potlatch's (PCH) CEO Michael Covey on Q2 2015 Results

Potlatch's (PCH) CEO Michael Covey on Q2 2015 Results | Timberland Investment | Scoop.it

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Gail Glazerman - UBS Investment Research
Okay. And can you just give some broader perspective on the timberland market. There has been a lot of large deals out there, and just kind of what your thought is on the land that’s available on the market, and whether you think it’s an unusual amount, and if so what you think driving that?

Michael Covey - Chairman and Chief Executive Officer
Well, there are, I think, about four deals publicly announced for sale. I don’t think that’s a particularly a large amount, but I think what’s unusual is, they haven’t cleared as quickly as usual, which I think is indicative of some of the underlying challenges of the property whether it’s supply agreements, the underlying quality of the land, the heavy HBU component in the Foley tract. ... Molpus just announced a very small package on the market as well. I think, it wouldn’t surprise that, these haven’t sold quickly, and I think it will take some time to clear in the market and that wouldn’t surprise us that they traded a significant discount from where we’ve seen kind of the higher quality property. For example, a property that we purchased last year in Alabama and Mississippi for about $1,900 an acre, I would expect many of these will clear for less than that.
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George Staphos - Bank of America Merrill Lynch
Mike, recognizing this in advanced science, do you have a view on what the money on the sidelines might look to be typically the numbers thrown around are $2 billion, $3 billion, does that number come down significantly, recently, or is it even higher?

Michael Covey - Chairman and Chief Executive Officer
I have no idea. I really don’t. Like you said, it’s not a science, I don’t know.
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Paul Quinn - RBC Capital Markets
Okay. That’s great. And then just back on the timberline side, you referenced the number of large transactions out there. But it seems the volume of timberland put up for sale this year has been very light. What do you attribute that to, and what are your expectations going forward here?

Eric Cremers - President and Chief Operating Officer
Yes. So, Paul, I think at this point in time in the recovery, we really haven’t seen sawlog prices move much in the South. And so, it’s going to take time for that recovery to play itself out. My guess is, if you are a holder of timberland right now, you might be better served waiting until you see some of that price recovery, that’s the first thing.

Then the second thing is, it’s all just a matter of timing of when investors bought this timberland and generally there is 10-year holding period more or less and people can extend out that holding period if they want to in their arrangements with the TIMOs that are managing the property for them. So I think there are better times ahead for timber markets in the South. And in general, people may just be waiting for those better times.
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Mark Weintraub - Buckingham Research
... And I guess the question I have is, how easy or difficult do you think it would be for you right now to sell land at values that are comparable to the type of numbers you have embedded in your view of net asset value? And to then turn around and potentially use that for share repurchase, if you were to decide to go down that path? And what type of size of properties might be contemplated, if you were to go that path?

Michael Covey - Chairman and Chief Executive Officer
Well, there is lots of hypotheticals there. But our experience in the past in Idaho, we’ve sold some 20,000 to 30,000 acre tracts for around $1,500 to $1,700 an acre. We sold property in the south for similar numbers of $1,600 to $1,800 an acre, this is some years ago. Certainly, I think pricing is stronger in the west than it is in the south where we have - we are at very strong log prices in the west pricings recovered nicely. So I think while you make a point that perhaps there’s a reason to wait in the south to put timberland on the market, I don’t think that same logic exists in the northwest. I think pricing is still quite strong and we’ve seen some very high value transactions particularly in Oregon and Washington or of course we don’t own timberland there, but they’re going well.

So, I think in terms of size, I think and you would think in this 50,000 to 100,000, 200,000 acre range certainly is in the strike zone for many of the TIMOs and the kind of money that they want to allocate to timberland investments. And if we were to contemplate something, it would probably be in that size category, which probably would match up nicely. If we did decide, the board did decide to pursue a repurchase program and our stock continues to trade at a deep discount and that would leave a nice basket of proceeds to execute such a program.

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Potlatch Corporation's (PCH) CEO Mike Covey on Q1 2015 Results -- Earnings Call Transcript

Potlatch Corporation's (PCH) CEO Mike Covey on Q1 2015 Results -- Earnings Call Transcript | Timberland Investment | Scoop.it

***

Collin Mings - Raymond James
Okay. I guess on that front, Mike, just curious, given some of your peers have highlighted the potential to sell off some assets, kind of prove out NAV and recognizing your portfolio's a little bit different but have you guys considered at all maybe unlocking value if you will, maybe some of the Idaho Timberland or maybe even some of the legacy Arkansas to maybe generate some cash to then buyback stocks at these levels, kind of serving the dual purpose of proving out asset value while also gaining a little bit more flexibility on the share repurchase front.


Mike Covey - Chairman & CEO
Well I would agree it's an attractive arbitrage given where our stock price is today and what we think are still very high underlying values of our timberland. But you have to think about it on an after-tax basis as well. We are not in a position to get past the time period of built in gains tasks like some of the other timber REITs are. So the 10 year timeframe in our REIT conversion is up next year and until that time if we sell timberland out of the REIT we have a responsibility for a built in gain tax of 40% or to reinvest in timberland which is really not your point. So I think for those reasons, we don't find it as compelling at this point in time to pull the trigger on kind of an arbitrage option that you described.


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Potlatch's (PCH) CEO Michael Covey on Q4 2014 Results - Earnings Call Transcript

Potlatch's (PCH) CEO Michael Covey on Q4 2014 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Gail Glazerman - UBS
And I guess since you did talk about bolt-ons over time, can you just give a little bit of perspective on what you're seeing in the industrial timberlands market, in terms of both volume as well as valuation?

Michael Covey - Chairman and Chief Executive Officer
Well, last year was pretty active in terms of the number of acres that were sold. I think the single largest transaction was the one that we completed. And there's a couple of smaller deals in the market today in the South. But I think the nature of bolt-on acquisitions for us would be to identify and execute on transactions in Arkansas, Alabama and Mississippi that were more in the 10,000 to 25,000 acre range that we can draw upon our revolver if necessary and enclose those quickly. So that's the nature of our strategy as we referenced bolt-on acquisitions. But I think there's still a lot of money on the sidelines, there's institutional money, it's been there for a while, it's just there's not been a lot for sale.

Gail Glazerman - UBS
And in terms of rural land interest, have you seen any change or development as consumer confidence, employment markets are improving? Are you seeing any more interest in some of those properties than in the recent past?

Eric Cremers - President and Chief Operating Officer
Gail, there hasn't really been, what I would say, a noticeable change from the past. I mean, yes, gas prices have come down and consumer confidence has come up, but this gas price drop just happened very, very recently. And the majority of our land sales are still out in Minnesota. And as you might expect that Minnesota real estate activity that we have is somewhat seasonal. So it hasn't showed up yet, but we're optimistic that it will.

***
Eric Cremers - President and Chief Operating Officer
... a recognition that the Minnesota market is not really a viable timber market for us. We harvest less than, I don't know, 100,000 tons a year and we make less than a $1 million of cash flow in that market. So it's tiny. And you compare that to the real estate values that we're achieving in Minnesota, those real estate values are at many multiples of what the timber value is worth. So this is recognition that those acres in Minnesota, there are now all in one of the real estate buckets.
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Eric Cremers - President and Chief Operating Officer
Biological growth, sure. In the south, it obviously depends upon the age of the particular stand you're talking about, but it's probably anywhere from 6% to 9% for young trees, they're growing fast. If they're old trees, they're growing slow. And then I would say, if you go up into Idaho, again depending upon the age of tree, it's probably a 3% to 5% kind of growth rate.
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Mark Weintraub - Buckingham Research
And then lastly, recognizing crystal balls are always cloudy. But a competitor had suggested that, they felt in a 1.2 million housing environment, there would be an acceleration of pricing down in the South. That's not that far from where we are. Do you think we are close to that tipping point? Because you've obviously forecasted flat pricing for pine saw timber in 2015. Do you think we're getting close to a tipping point in your specific markets?

Jerald Richards - Vice President and Chief Financial Officer
Well, I think we're certainly getting closer, and I would say, it's probably a little bit tighter in Alabama and Mississippi than it is in Arkansas. We're not there yet, but you are seeing price moment for sawlogs in the south. I guess that in eight of the 10 states, we're seeing price increases. So I do think it's inevitable. And I don't know if it's 1.1 million, 1.2 million or 1.3 million starts, but certainly we're starting to feel it and see it in some of these markets.


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Potlatch (PCH) Q3 2014 Results - Earnings Call Transcript

Potlatch (PCH) Q3 2014 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Some excerpts re PCH's recent acquisition of 201,000 acres from RMS in Alabama and Mississippi:

***

Mike Roxland - Bank of America Merrill Lynch

Just two quick questions and I'll turn it over. On average, you know, you paid over, as Mike mentioned over $1,900 an acre. Is there any HBU potential associated with some of the new acreage you acquired?

Eric Cremers - President and COO
Yeah, absolutely. Like any large land purchase, you would expect there to be some acres that have got move value as HBU or real estate play than what the timberland is going to be worth just from a timber management value alone. And we estimate roughly 15,000 acres of HBU in total will get sold off of these properties over the coming years. It's not going to happen all at once, it will take time, but yes, there's very clearly an HBU opportunity here.

***

Gail Glazerman - UBS
Hi, good afternoon and congratulations on the deal. Just maybe a few more questions on the deal and then some on the markets. Is the average age class and mix, and I appreciate you'll give us more details next quarter, I mean, can you give a sense of how that compares to your Arkansas land?

Eric Cremers - President and COO
Yeah. What I would tell you is it's a very evenly split age class spread across the spectrum of zero to traditional maximum age in the South, might be 30 or 35 years. This is pretty even-aged timberland, so it's pretty straightforward from that standpoint.


As Mike indicated, it's fairly well-stocked. It's got over 10 million tons of timber on it. And it's, relatively speaking, it's traditional southern timberland. It's about 70% fine plantation, 25% hardwood. So, nothing unusual there. And it's been very well-managed, as Mike indicated, by RMS. They've chosen genetically improved seedlings and they've had a pretty aggressive fertilization program over the years. So it's good timberland.

***

Paul Quinn - RBC Capital Markets
Yeah, thanks very much, and congratulations on the acquisition. Just a couple of questions on that. I know that RMS property comes with some timber supply obligations. Maybe you could give us some background on what those are, the length and the percentage that's covered in terms of the harvest.

Eric Cremers - President and COO
Yeah, there are some supply agreements that come with those properties. I won't get into the details of the supply agreements, but it's roughly 350,000 tons per year of pulpwood and roughly 50,000 tons per year of saw logs.

***

Yeah, for the next few years. The pulpwood contract drags out farther than the saw log contract. And all of the mills that are under these contracts, you know, we spent a lot of time looking into them, they're all first and second quartile mills, so they're very competitive mills.

Paul Quinn - RBC Capital Markets
Okay. And my understanding, that's a volume commitment but pricing is off what?

Eric Cremers - President and COO
Yeah, it's off of local market data in the particular wood basket, and it's adjusted on a quarterly basis.

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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, 2014 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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From real estate to biofuels – the timber industry is changing

From real estate to biofuels – the timber industry is changing | Timberland Investment | Scoop.it

Mike Covey went to work for the Plum Creek timber company right after getting his forestry degree from the University of Montana in 1980, and stayed with Plum Creek for 23 years. Covey is now chairman and CEO of the Spokane-based Potlatch Corporation, another big timber holder in the Pacific Northwest.


Covey was in Missoula this week to lecture at his alma mater and he also took time to sit down in our studios with News Director Sally Mauk, to talk about the sweeping changes in the timber industry in the last few decades.


Listen Here

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In central Minnesota, potatoes are pushing out forest land

In central Minnesota, potatoes are pushing out forest land | Timberland Investment | Scoop.it

Agriculture is eating into central Minnesota’s forests so aggressively that state regulators and a prominent legislator are sounding the alarm about threats to wildlife habitat and a large, sensitive aquifer that stretches below parts of four counties.


The latest case is a 1,500-acre project in Cass County, which triggered a contentious legislative hearing last month over the owner’s plans to grow potatoes for McDonald’s and other customers on land that was covered with trees just 10 years ago.


In recent years, 5,000 to 6,000 acres of pine forests in Cass, Wadena and neighboring counties have been cleared for chemically intensive row-crop agriculture, and state officials say nearly 100 square miles of timber land now owned by Potlatch Corp. is at risk as the company divests itself of commercial forests in Minnesota.


Similar tensions could face the entire state faces as it copes with persistent water contamination and overuse, regulators say. The risk is especially worrisome along the border between traditional farm lands and the forested areas in central Minnesota, where contaminants can percolate straight through sandy soils into groundwater, and from there to trout streams and popular lakes.

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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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Longleaf's Mason Hawkins Chops Off More Than Half of Potlatch Stake

Longleaf's Mason Hawkins Chops Off More Than Half of Potlatch Stake | Timberland Investment | Scoop.it

The tree-growing, timber-selling wood products manufacturer, Potlatch Corp. ( PCH ) will now see less of Southeastern Asset Management, the adviser to Longleaf Partners Funds. 

The investment team, led by CEO Mason Hawkins , has reported selling more than 1.4 million shares, or 51.59 percent of its stake in Potlatch, according to GuruFocus Real Time Picks . 

From owning 6.99 percent of the company's outstanding shares in the third quarter of last year, Hawkins has descended down to 3.4 percent ownership. 

The reduction came as soon as Potlatch met its one-year peak, and sudden rise in market value. A week ago, the stock was trading around $38. Today, its price is $40.61, up 0.2 percent, minutes before market close. Since the year began, Potlatch has gone up 5.22 percent.

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Potlatch 3Q net income falls 27 percent

Potlatch 3Q net income falls 27 percent | Timberland Investment | Scoop.it

Timberland management company Potlatch Corp. said Monday that its third-quarter net income fell 27 percent due to rising costs and a deferred timber harvest during the quarter.


The Spokane, Wash., company said it lumber prices to bottom out in October or November before starting to rise again in December as buyers get ready for an improving housing market in 2013. Potlatch expects housing starts to continue to increase next year, bringing firmer log and lumber prices.

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