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Timberland

Timberland Investing: Key Lessons and Top Owners and Managers

May 30, 2019

Introduction

Capital continues to flow into private timberlands, including publicly-traded timberland-owning firms. The benefits of timberland continue to speak to investors during periods of uncertainty: they secure wealth and produce cash through the cycle and over time. And part of managing these investments requires consistent attention to market data and perspectives from industry executives.

Top Timberland Owners and Managers in the U.S. and Canada

Top 10 lists grab our eye and interest, from the Leader Board at The Masters Golf Tournament to businesses on the Fortune 500. Forisk tracks and collects timberland ownership and management information. Currently, this research covers nearly 100 million timberland acres, including 336 private organizations in the United States and Canada that each own or manage 10,000 timberland acres or more.

Figure 1 lists the 2019 top 10 timberland owners in North America. Cracking the top 10 required owning at least 900,000 acres. Weyerhaeuser, which also tops in 2018, still leads with 12.3 million acres, about the same as the next six firms combined. J.D. Irving’s 1.2 million acres in Maine secure its place at number 7 in the U.S., and its 1.9 million acres in New Brunswick and Nova Scotia make it the second-largest owner on the continent. Rayonier, Sierra Pacific, PotlatchDeltic, and Green Diamond also remain in the same slots as last year.

Figure 1. Top 10 Timberland Owners in the U.S. and Canada

Source: Forisk 2019 North American Timberland Owner & Manager List.

Figure 2 looks separately at the top 10 timberland managers in North America, or those firms that manage forest activities on behalf of their clients. Timberland investment management organizations (TIMOs), who manage timber assets on behalf of institutional investors and large private investors, hold six slots; these six TIMOs manage 15.5 million acres, or 58% of the 26.8 million acres managed by the top 10 firms. Four forestry consulting and management firms, including the largest organization on this list (American Forest Management), account for the balance.

Figure 2. Top 10 Timberland Managers in the U.S. and Canada

Source: Forisk 2019 North American Timberland Owner & Manager List.

Perspectives from Forest Industry Executives

How do forest industry executives “deploy capital” and make investment decisions? In December 2018, Forisk hosted its second “Wood Flows & Cash Flows” conference. In addition to industry analysis, the event included a panel on forest industry investments. Participants included:

  • Brian Davis, Chief Financial Officer (CFO) of the timberland-owning REIT CatchMark Timber Trust (ticker symbol: CTT);
  • Jason Denton, Director of MetLife Timberland Finance Group, which provides financing to timberland investors and forest industry manufacturers; and
  • Kevin Hudson, Senior Vice President of WestRock (ticker symbol: WRK), one of the world’s largest paper and packaging manufacturers.

Panelists addressed how clients and their firms think about and prioritize investment options. Key themes emerged. For example, prioritize good partners that understand the asset class. This applies to lenders and borrowers, as it helps avoid bad (forest) management decisions where a lender “forces” a borrower to generate cash through harvesting at a suboptimal time, and also screens out borrowers new to timber who may not understand their own cash flow patterns. As Kevin Hudson noted, “your partnerships are even more valuable when times are tough.”

Also, communicate and confirm expectations. Jason Denton said, “[timberland] is a long-term asset, but you often get measured on short-term goals.” Getting everyone with a common understanding, therefore, is critical or, as Brian Davis emphasized, you suffer the “stresses caused by unrealistic expectations.”

Conclusion

Investment opportunities exist in the forest industry, regardless of the state of the market. The benefits of timberland continue to speak to investors during periods of volatility. This reminds us to know and remember why we want timberlands in the portfolio. Objectives such as wealth preservation matched with realistic return expectations provide a useful starting point. In addition, timberlands generate some cash and diversify the portfolio (while also providing a place to hike, fish and hunt…).

This guest post is courtesy of Brooks Mendell, Ph.D., President and CEO at Forisk Consulting, a Georgia-based firm that specializes in forest-industry, timber-REIT, bioenergy, and timber-market research. For more information, visit www.forisk.com.

About the Author
Dr. Brooks Mendell is President and CEO at Forisk, where he leads the firm’s research program. Founded by Dr. Mendell in 2004, Forisk publishes the Forisk Research Quarterly, which provides market analysis, operations research and timber forecasts to senior management and investors in North America’s forest products industry and timberland investing sectors. Dr. Mendell is an internationally recognized business advisor, researcher, and speaker in the fields of forest business, timberland investing, wood bioenergy and business communications. He has broad domestic and international experience supporting small businesses, Fortune 500 corporations and public organizations. His industry experience includes roles in harvest operations, wood procurement, management consulting, and academia. A Fulbright Scholar, his forestry-related books include “Loving Trees is Not Enough,” “Forest Finance Simplified,” and “Aunt Fanny Learns Forestry: Managing Timberland as an Investment." Dr. Mendell earned BS and MS degrees at M.I.T., an MBA at the University of California at Berkeley, and a PhD in Forest Finance at UGA.