Friday, November 16, 2007
FORSight Resources releases FORSim – Longleaf Pine Growth Simulator (LPGS)
North Charleston, S.C., USA – November 16, 2007 – FORSight Resources, a leading provider of decision support services for natural resource management, announced today the release of FORSim – Longleaf Pine Growth Simulator (LPGS). LPGS is a versatile tool that provides biometricians and inventory foresters with the functionality of a longleaf pine growth engine in an easy-to-use, excel-based interface. The growth engine provides for alternative thinning treatments. LPGS provides a means for quickly analyzing and comparing stand-level treatments through graphical and tabular outputs. LPGS also calculates scores for assessing foraging habitat for the endangered red-cockaded woodpecker (RCW), providing foresters and wildlife managers a powerful tool for developing and assessing treatment regimes in support of RCW recovery. Overall, users will find this to be a valuable addition to FORSim product
Thursday, November 15, 2007
It is unclear to me if the proposed investments are just in African companies or if they will actually be investing in plantation and natural timberland as well. The following is an extract from their promotional literature. --Brian
say YES to investments in:
African Plantation Forests
African Farm forests
African certified forest products retail
African Carbon sink establishments
AFRWOOD TIMBERLAND PARTNERS LLC is a for profit perpetual timberland investment firm registered in the State of Delaware USA, specializing in Africa with power to secure the market by investing in local retail outlets. The company will invest in African plantation forests, African farm forests, African eco-tourism, African certified forest product retail outlets and African carbon sink establishments. The firm is managed by African wood Inc, and may take on any number of additional managers depending on need. The partners, who must be qualified investors in their jurisdiction, should be able to commit a minimum of five million United States dollars in patient long term investment funds since the managers cannot guarantee an exit route in the medium term.
For Commitments and inquiries contact: David F Amakobe, President, African Wood Inc, Suite 902, One commerce Center, 1201 north Orange street, Wilmington, Delaware 19801,
T. 302-884-6737, F. 302-884-6738, Skype: afrwoodusa, www.linkedin.com/in/fundingafrica , www.afrwood.com
Tuesday, November 6, 2007
"During the third quarter of 2007, Bowater sold approximately 11,400 acres of timberlands primarily located in Tennessee, and during the first three quarters of 2007, Bowater sold approximately 119,200 acres of timberlands primarily located in Tennessee and Canada. One of Bowater's consolidated subsidiaries, which is owned 49% by a minority interest, sold approximately 25,000 acres of the 119,200 acres and recorded a pre-tax gain on the sale of land of $22.8 million during the first three quarters of 2007. During the third quarter of 2006, Bowater sold approximately 23,000 acres of timberlands, and during the first three quarters of 2006, Bowater sold approximately 519,000 acres of timberlands, its Degelis sawmill and its Baker Brook sawmill. As of September 30, 2007, Bowater has approximately 17,600 acres of timberlands classified as held for sale."
Thursday, November 1, 2007
- "Major Changes in the U. S. South: New items worthy of note
»» A decade of timber price declines
»» Retirement of the vertically integrated model for forest products
»» Improved competitive position
»» Maturing forestry investment industry
Southern Timber Trends: Key, Overarching Issues
• Increased Global Trade in Forest Products
• Shift in Manufacturing
• Role of Paper in Communications
• Energy and Bioenergy
»» Abundant Timber Supplies
• Planting Rates down
• New emphasis on thinnings
»» Consolidation and Dis-integration
• More concentrated products markets.
• Dis-integration essentially complete
»» Forestland Ownership Shifts
• New owner objectives and investment horizons unclear.
• HBU based values assuming new importance.
A long-term history shows nominal increases in stumpage prices"
The paper is well illustrated with charts and graphs illustrating the authors' observations. It covers "all the usual suspects" (price trends, ownership changes, transactions, etc.) but I think the most interesting observation is the impact of the declining U. S. dollar. The charts compare delivered prices of conifer pulpwood in the major wood producing regions as well as a more detailed comparison (see graph) between the U. S. South and Brazil. Guess what? The South is now very competitive!! So while we hear all of the wailing and gnashing of teeth due to the falling dollar on the nightly business shows, there is a very positive impact in our manufacturing sector (more jobs, higher wages, higher stumpage prices from increased demand? etc.).
I would recommend reading FORESTRY INVESTMENTS: Major Changes in the U.S. South made available from Forestweb. Harris and bunch did a good job. --Brian
Wednesday, October 31, 2007
Weyerhaeuser, Global Forest Partners Complete Sale of New Zealand Assets:
"FEDERAL WAY, Wash., Oct. 31 /PRNewswire-FirstCall/ -- Weyerhaeuser Company (NYSE: WY) and Global Forest Partners today announced the completion of the sale and transfer of assets from their former joint venture to GFP sole ownership after receiving the necessary government approvals."
"Under the agreement, GFP investment funds will acquire Weyerhaeuser New Zealand, Inc., and Weyerhaeuser's interest in the Nelson JV assets. These assets include approximately 67,000 productive hectares of plantation forests in the Nelson/Marlborough region and the Kaituna sawmill at Renwick, which has a log input capacity on a single shift of 80,000 cubic meters annually."
"Terms of the agreement were not disclosed."
The following copyrighted news article is supplied with permission and the courtesy of Forestweb. You can visit their site at www.forestweb.com.
Sierra Pacific acquires 140,000 acres of Washington timberland from The Campbell Group; simultaneously buys/sells off 43,000 Oregon acres to Rosboro
Oct 26, 2007 — Forestweb
By Audrey Dixon
SAN DIEGO, Calif., October 26, 2007 (Forestweb) — Sierra Pacific Industries (SPI) has acquired 140,000 acres of Washington timberlands from The Campbell Group (TCG), plus another 43,000 acres in Oregon that it simultaneously sold off to Rosboro.
Mark Pawlicki, Director of Governmental Affairs for Redding, Calif., based SPI, confirmed earlier this week the company had acquired the Washington land very recently but declined to divulge any more details.
Industry sources told Forestweb it had been a two-part transaction with TCG, and that about 40,000 acres of Oregon timberland had been sold to Springfield, Ore., based Rosboro.
Rosboro's CFO Scott Nelson confirmed Friday afternoon that his company had acquired 43,000 acres in western Oregon from SPI at the same time it completed its transaction with TCG, on September 27.
All news reports are copyrighted by the respective papers.
Tuesday, October 30, 2007
Hancock sold 10,000 acres:
of Coosa River timberland for Alabama's Forever Wild Land Trust program. "The Forever Wild Program was established in 1992 by constitutional amendment to provide for the purchase of public recreational lands. Since its inception, the program has purchased 133,000 acres of land for general recreation, nature preserves and additions to Wildlife Management Areas and state parks. To learn more about the Forever Wild Program, please visit http://www.alabamaforeverwild.com/."
"The Hancock Timber Resource Group has a long history of working with communities, states and conservation groups to protect environmentally sensitive land. To date, our Sensitive Lands Program has protected approximately 320,000 acres across the United States," said Mike Wolf,director of North American Forest Operations, Hancock Timber Resource Group. Read more about it.
Speculation on Weyerhaeuser's Conversion to a REIT:
I guess this speculation is a long way from new news but there is a very informative article in Barrons. Following are a few quotes from the article (as I write, WEYCO stock is trading at about $74/share).
"BASED ON RECENT PRIVATE-MARKET transactions, Zaret, a former forester, values Weyerhaeuser's timber assets at $13 billion, or $59 a share -- just a bit under the company's stock-market value of $14.6 billion. At current prices, that means investors are getting Weyerhaeuser's other assets for a relative pittance. The timber business generated just 5% of last year's sales of $22 billion, but accounted for 64%, or $762 million, of total operating income."
"Wood products, which chipped in almost $8 billion of revenue, is Weyerhaeuser's second-most-valuable business, according to Zaret, who estimates it's worth $3.2 billion, or $15 a share. The real-estate business, whose income Zaret expects to slump 58% in '07, comes in at around $10 a share. In all, the analyst values Weyerhaeuser's parts at $103 a share, some 51% above its current price."
"This tax disadvantage prompts the market to value timber held by publicly traded C corporations at a discount to land held by REITs or private owners. Plum Creek, the largest REIT with more than eight million acres of timberland, trades for 18 times Ebitda, well above the multiple of 10 or 11 for the average paper company. Weyerhaeuser fetches eight times Ebitda."
"Timber companies could get some relief this year from Congress, which is mulling passage of the Timber Revitalization and Economic Enhancement Act. Aimed at enhancing the industry's global competitiveness, it would cut the timber-harvest tax for C corporations by 60%, to 14%."
Read "A Tribute to Timber" in Barrons.
It is a very interesting article that shows the pickle that WEYCO is in. Its tax structure has to change. Either Congress makes changes or WEYCO becomes a REIT.
Pope and Talbot Seeks Financial Protection:
"Pope and Talbot, Inc (Pink Sheets:PTBT) today announced that, in order to address its financial challenges and to support efforts to be a more efficient organization, the company and its U.S. and Canadian subsidiaries have applied for protection under the Companies' Creditors Arrangement Act (CCAA) of Canada. Pope & Talbot's Board of Directors, in a unanimous decision, directed the company to take this action as the best alternative for the long-term interests of the company, its employees, customers, creditors, business partners and other stakeholders." Read release.
Tuesday, October 16, 2007
In addition to timberland returns, and the "shocks" that impact them, he compares and correlates the returns to other major investment alternatives. It is well worth reading. --Brian
Friday, October 5, 2007
"These funds will be used by the scientific team working with the foundation to assist in the development and expansion of a novel closed-system of tropical forestry".
Wednesday, October 3, 2007
Saturday, September 22, 2007
on American Forest Management
I think the most interesting, is the acquisition of I-P's Sustainable Forest Technologies subsidiary by American Forest Management which is to occur later this month. The IP subsidiary managed the 1+ million acre former IP land, among other lands, in Maine for GMO, a TIMO.
"Headquartered in Charlotte, N.C., and Sumter, S.C., American Forest Management manages more than 1.5 million acres and has 15 district offices and eight field offices. With the acquisition of Sustainable Forest Technologies, the company will now manage more than 4 million acres and operate 41 offices in 15 states." Read the article.
Pretty impressive and kudo's to AFM!
on Potlatch acquisition
"SPOKANE, Wash.--(BUSINESS WIRE)--Sept. 12, 2007--Potlatch Corporation (NYSE:PCH) today announced an agreement to acquire approximately 179,000 acres of timberland in Idaho for approximately $215 million from Western Pacific Timber, LLC, representing $1200 per acre. The transaction will occur in two phases, with the majority of timberlands to be acquired in the first phase, which is expected to close in September 2007, and the remaining timberlands to be acquired in the second phase, which is expected to close in January of 2008."
This is the former Boise Cascade lands in the McCall, New Meadows and Donnelly area. I spent some time there on a USFS timber inventory crew. It's a pretty area, grows good timber and certainly has significant recreation potential. For most of the time, we stayed in a trailer up above New Meadows. Later we went to Burgdorf (summer population was 2, winter population was zero). Nice hot springs in a pool built of logs. We worked 10 days on, 4 days off. Our off days were spent at the smokejumpers barracks in McCall. It is (was?) a beautiful place. So much for the reminiscing, this brings the total acreage for Potlatch to 1.7 million about half of which is in Idaho. Read the news release.
It seems like it wasn't too long ago when CalPERS was getting out of timberland investments...
"The California Public Employees' Retirement System sees big investment opportunities in the construction of roads, bridges, airports, utilities, water systems and similar projects.
The nation's largest public pension fund plans to allocate up to $2.5 billion into an inflation-linked new asset class that will include the pilot infrastructure program as well as investments in commodities, inflation-linked bonds and timber." Read article.
on MeadWestvaco timberland ownership structure
"As we continue to execute our land management strategy and build this business, we will explore alternate ownership structures that best support our business objectives and provide the greatest value to our shareholders," said John A. Luke, Jr., chairman and chief executive officer. "Our Board of Directors strongly supports our strategy, and believes that any alternative structure must recognize that successful implementation of the business plan will require continuity of vision and leadership, as well as community engagement and support." Read the news article.
Time to sell Canada's forests?
Read "Treasure in the Trees" for some thoughts by Clark Binkley and others.
Thursday, August 30, 2007
"WASHINGTON, Aug. 30, 2007 - Agriculture Secretary Mike Johanns today announced that $6 million has been awarded to the University of California - Davis to improve breeding technologies for conifer trees. Application of genomic-based breeding technologies will significantly reduce the breeding cycle time and the cost of extensive field evaluations at large, long-term test plantations."
"The Conifer Coordinated Agricultural Project (CAP) brings genomic-based breeding to major industry cooperative breeding programs within five years to develop a comprehensive undergraduate and graduate curriculum in modern plant breeding technologies to train the next generation of tree breeders. The program also will develop a comprehensive extension program to train existing tree breeders in the use of genomic-based approaches to tree breeding."
Read the entire news release.
Friday, August 24, 2007
International Paper, in particular, had a large forest seedling production capability. MeadWestvaco, although with less production capacity, also has outstanding seedling capability. Loss of these quality nurseries would be significant from a forest production standpoint and probably from a seedling cost standpoint.
Several years ago, a forest biotechnology company, called ArborGen, was created by I-P, MWV and Fletcher Challenge. Fletcher Challenge was later broken up and the Rubicon piece became the partner in ArborGen. The thinking behind ArborGen was that it might make more sense to combine existing technology and future research dollars than for everybody to do their own thing. The idea took, not quickly, and ArborGen was born.
ArborGen's product is improved tree performance through biotechnology. The product's package is the seedling. The founders have now provided ArborGen with all the packaging they need! All United States nurseries belonging to International Paper and MeadWestvaco are now owned by ArborGen. Rubicon's New Zealand and Australian nurseries are now owned by ArborGen. Along with the nursery operations come the seed orchards, germplasm, researchers, more technology and more intellectual property. ArborGen is entering a new era. Read the news release here. Visit ArborGen here. --Brian
"RICHMOND, VA – August 24, 2007 – In continuation of its land management strategy, MeadWestvaco Corporation (NYSE: MWV) today announced a definitive agreement with Penn Virginia Operating Co., L.L.C., a wholly owned subsidiary of Penn Virginia Resource Partners, L.P.(NYSE: PVR), for the sale of approximately 62,000 fee acres of forestland in West Virginia for $93.1 million. MeadWestvaco expects to complete the transaction in the third quarter of this year."
This completes the announced planned sales of MWV and leaves the company with about 800,000 acres. Read the entire news release here.
MeadWestvaco appears to have a very well thought through program for the remainder of it's timberland holdings. All lands have been (or will be) classified into one of four categories: Development, Emerging Development, Recreation and Timberland. The resulting implementation plan has three prongs.
- East Edisto: Development already well reported.
- Small Tract Sales: Appears to be the guts of the program. - 117,000 acres along Georgia/Alabama line (Mahrt mill), 95,000 acres in Virginia and West Virginia. SC not yet determined. The SC lands will be determined and a marketing plan for the entire program completed within a year.
- Continuation of Forest Management with select Sales over time. Rough acreages in this program are 150,000 acres in the Rupert WV area, 70,000 acres in the Appomattox, VA area and 320,000 acres currently in SC. The SC number will be reduced by the number of acres selected for the Small Tract Sales program.
Some people in the Charleston area are trying to pressure MWV into selling the East Edisto lands for "conservation" purposes. They continue to propose a price of $4,000 per acre which is way below the market value for that land.
On another note, Carl Icahn has taken a position of almost 3.8 million shares of MWV. It will be interesting to see why, and what he wants to see happen. He's not usually too passive! --Brian
Tuesday, August 14, 2007
While financial markets seesaw, a growing number of investors are sinking their money into another commodity: recreational land. Investors are paying anywhere from $1,000 to $20,000 an acre for land, mostly in Texas, the South and the western mountain states, that doubles as a private recreational escape and a diversifier for a long-term portfolio, Kiplinger.com reports. And the land values appear to be accelerating. Plum Creek Timber, an investment company that is the U.S.' largest private owner of timberland, says land it has sold for recreational development has gone from $2,300 an acre in 2004 to more than $4,000 now.
- Gannett News Service
You can read the more in depth article from Kiplinger here.
You can also read about one persons investment in a small tree farm in the latest issue of "Timberlines" magazine. I particularly enjoyed this one. Click on "A Labor of Love". --Brian
Monday, August 6, 2007
RICHMOND, VA – August 6, 2007 – MeadWestvaco Corporation (NYSE: MWV) today announced a definitive agreement with Wells Timberland REIT under which it will sell approximately 228,000 acres of owned forestland and approximately 95,000 acres under longterm timber contracts for $400 million. The sale is part of MeadWestvaco’s previously announced strategy to segment and manage its domestic land holdings for the highest value opportunities. MeadWestvaco expects to complete the transaction in the fourth quarter of this
year, and intends to return the value obtained to shareholders.
The agreement with Wells Timberland REIT includes a long-term fiber supply agreement for MeadWestvaco’s Mahrt Mill, which produces over one million tons of Coated Unbleached Kraft paperboard marketed under the CNK® brand. Under the terms of the agreement, fiber will be sold at market price and the forestlands will continue to be managed and third-party certified under the requirements of the Sustainable Forestry Initiative® Standard.
“Our ongoing land management strategy is delivering solid results for our shareholders,” said John A. Luke, Jr., chairman and CEO of MeadWestvaco. “The sale of these forestlands is part of our broader strategy to segment our land holdings for the best possible use, whether that is fiber supply, conservation, recreation or responsible development.”
Nearly 228,000 acres are owned by MeadWestvaco in Stewart, Marion, Quitman and Randolph counties in Georgia, and Russell, Barbour and Chambers counties in Alabama. The sale also includes the conveyance of long-term timber harvesting rights on approximately 95,000 acres owned by third parties.
MeadWestvaco is continuing the auction process for approximately 63,000 acres of forestland located in West Virginia. The company anticipates entering a definitive agreement for the sale of these lands in the third quarter. Upon completion of these forestland sales, MeadWestvaco’s U.S. land holdings will include approximately 800,000 acres throughout South Carolina, Georgia, Alabama, Virginia and West Virginia.
AUSTIN, Texas--(BUSINESS WIRE)--Aug. 6, 2007--Temple-Inland Inc. (NYSE: TIN) today announced that it entered into a definitive agreement with an investment entity affiliated with The Campbell Group, Inc. to sell 1.55 million acres of timberland for $2.38 billion. The acreage included in the sale consists of 1.38 million acres of land owned in fee and leases covering 175,000 acres.
The transaction is expected to close in fourth quarter 2007. The total consideration is expected to consist almost entirely of installment notes. Roughly 30 days after the sale is closed, the Company expects to pledge the installment notes as collateral for a non-recourse loan. The net cash proceeds from these transactions, after current taxes and transaction costs, are anticipated to be approximately $1.8 billion. Following the pledge of installment notes, the Company expects to use the majority of these proceeds to pay a special dividend, which is currently estimated to be approximately $1.1 billion, or $10.25 per share, to its common stockholders. The remaining approximately $700 million of the cash proceeds will be used to reduce debt.
The transaction includes a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber, the terms of which are both subject to extension. Fiber will be purchased at market prices. The agreements further require that the timberlands will continue to be managed and third-party certified under the requirements of the Sustainable Forestry Initiative(R) Standard. In addition, The Campbell Group and its investors have agreed to continue Temple-Inland's high conservation standards and focus on environmental stewardship.
"The sale of our timberland is a milestone in the execution of our previously announced transformation plan," said Kenneth M. Jastrow, II, chairman and chief executive officer. "The fiber supply agreements will enable us to capture a significant portion of the fiber grown on these lands. The quality of our forest is a tribute to our forest team's superb management of these timberlands for many years. We are pleased that many of our current forest employees will have the opportunity to continue managing these lands under new ownership."
John Gilleland, president of The Campbell Group, said, "The Temple-Inland forests represent some of the best managed, highest quality industrial timberlands in the world. Acquiring these forests enables our firm to further its strong commitment to timberland as a long-term asset class, and to continuing our history of sound environmental stewardship. We are looking forward to managing these lands responsibly and to producing the best product for our customers and quality results for our clients."
As previously announced, Temple-Inland's transformation plan includes: -- Retaining its manufacturing operations - Corrugated Packaging
and Building Products - as Temple-Inland Inc.;
-- Spinning off its financial services operation, Guaranty
Financial Group, in a tax-free distribution to shareholders;
-- Spinning off its real estate operation, Forestar Real Estate
Group, in a tax-free distribution to shareholders; and
-- Selling the Company's strategic timberland.
Temple-Inland reiterated that it is on track to complete its transformation plan by the end of 2007.
Goldman, Sachs & Co., and Citigroup Global Markets Inc. served as financial advisers and Sutherland, Asbill & Brennan LLP served as legal advisor to Temple-Inland in connection with the transaction. Morrison & Foerster LLP and Schwabe, Williamson & Wyatt served as legal advisors to The Campbell Group in connection with the transaction.
Temple-Inland Inc. operates four business segments: corrugated packaging, forest products, real estate and financial services. Temple-Inland's common stock (TIN) is traded on the New York Stock Exchange. Temple-Inland's address on the World Wide Web is www.templeinland.com.
The Campbell Group, LLC (www.campbellgroup.com) is a full-service timberland investment management company headquartered in Portland, Oregon. The company is focused exclusively on acquiring and managing high quality, investment grade forestland on behalf of institutional investors to produce superior risk-adjusted returns.
This release contains "forward-looking statements" within the meaning of the federal securities laws. These statements reflect management's current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to: general economic, market, or business conditions; the opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including the costs of raw materials, purchased energy, and freight; demand for new housing; accuracy of accounting assumptions related to pension and postretirement costs, impaired assets, and the allowance for credit losses; competitive actions by other companies; changes in laws or regulations and actions or restrictions of regulatory agencies; our ability to execute certain strategic and business improvement initiatives, including the Transformation Plan; closing the transactions described in this report; and other factors, many of which are beyond our control.
CONTACT: Temple-Inland Inc., AustinChris L. Nines, 512-434-5587SOURCE: Temple-Inland Inc.
Friday, June 8, 2007
Special Issue June 7, 2007
Forest Landowners Association Action Alert
Contact Your U.S. Senator Today
The Forest Landowners Association is excited about the federal movement to promote cellulostic ethanol as a renewable energy source for our country, which will benefit the almost 11 million non-industrial forest landowners across the United States. Cellulostic ethanol is produced from natural feedstocks such as woody biomass, trees, and a variety of other plant materials.
We need your help!
Congress is developing energy legislation that will be voted on soon. We are pleased to report that due in part to recent FLA efforts, the Senate Energy Bill now has language that includes cellulostic ethanol as a means to help solve our nation's energy crisis and spur the development of bioenergy markets for forest landowners.
A few manufacturers fear this new market for forest products will create increased competition which could translate into them paying higher prices to landowners for their wood. They are working very hard to change this bill, and others, in order to limit the forestland eligible for these new markets. We need your help to make sure they don't succeed in excluding your forestland.
Why is this so important?
In an effort to reduce America's dependence on foreign oil, power our nation, reduce greenhouse gas emissions, and diversify the nation's fuel supply, forest landowners can provide an alternative to fossil fuels by promoting, enabling, and utilizing all cellulostic biomasses.
New markets for woody biomass and other cellulostic feedstocks will improve forest health by reducing hazardous fuels, encouraging responsible forest management, and enhancing wildlife habitat. The use of wood for energy can sustain forestlands as desirable investments and stop forestland conversions to other uses. We value current markets, but forest landowners must have some assurance that there will be future markets for their investments in forestland. An unrestricted market in cellulostic biofuels is the best policy for forest landowners and renewable energy producers.
What to say to your Senator
Family forests can be part of the solution to America's energy needs and independence.
Trees are an abundant, renewable, and reliable energy source.
New markets for forest products will help landowners sustain the family forest.
A few manufacturers are proposing restrictive definitions of woody biomass in the energy bill and they want to limit competition for their raw products: trees.
Unrestricted markets are the best policy for forest landowners and renewable energy producers.
To contact a Senator's office, please call (202) 224-3121, ask for his/her office and then ask for the energy legislation assistant. Leave a voicemail message if you cannot speak directly to that person. Please be sure to contact your Senator by phone or fax as sending a letter takes too long and timing is important on this issue.
There is an interesting article documenting the change in International Paper's divestitures (timberland, wood products division, four North American mills shut down, 25,000 fewer employees) and new marketing areas of emphasis (products, that is) in Forbes. It provides a little insight into the CEO and the new strategy. It provides a lot of insight into IP's new geography. Read article. --Brian
Wednesday, May 16, 2007
"PORTLAND, Ore.--(BUSINESS WIRE)--GreenWood Tree Farm Fund L.P. (GTFF) today completed the acquisition from Potlatch Co. (NYSE: PCH) of a 17,000 acre hybrid poplar tree farm near Boardman, Ore. for $65 million. GTFF is a private equity fund organized to acquire, develop and intensively manage fast-growing tree farms in North America, and to manufacture and market Forest Stewardship Council (FSC) certified products from these tree farms. GTFF is managed by GreenWood Resources of Portland, Ore., International Forestry Investment Advisors, LLC of Cambridge, Mass., and Malkin & Co. of New York City, N.Y. The Collins Companies of Portland, Ore. will construct and manage on behalf of GTFF a $35 million lumber mill in the Boardman area, and will market a line of fast-growing tree farm products under the trademark “Pacific Albus”. Construction on the mill is expected to begin in the third quarter, and operations are expected to commence in second quarter of 2008. Once fully operating, the tree farms, harvesting, and mill operations are expected to employ more than 150 people."
“This acquisition is the beginning of a new venture to capitalize on a unique combination of leading-edge sustainable tree farm technologies, advanced manufacturing techniques and world-class environmental certification here in Oregon,” said Jeff Nuss, President/CEO and founder of GreenWood Resources."
Go to news release; GreenWood's website; International Forestry Investment Advisors website; the Collins Companies website. Lots of familiar names! --Brian
Tuesday, May 8, 2007
You will also see why it is so difficult for a company to convert to a REIT. Essentially, the company must first be destroyed. Temple-Inland is in this process now and this is what Weyerhaeuser is currently struggling with.
Hickman has also clearly outlined the scope of the ownership changes and made a good effort to determine what those changes might mean to forestry.
I was unable to maintain the exact format (it was in Word) in this web version but the content is unchanged. Thanks to Cliff Hickman for a task well researched. --Brian
March 19, 2007
TIMOs and REITs1
Situation in Brief:
Since the mid 1980’s, many vertically integrated forest products companies (VIFPCs) in the US, for reasons discussed below, chose to either: 1) sell-off all, or a large part, of their forestland holdings, or 2) restructure themselves so as to legally separate ownership and control of their forestland and timber from ownership and control of their manufacturing facilities. Where sales occurred, much of the land is now held by “Timber Investment Management Organizations” (TIMOs).2 TIMOs buy, manage, and sell forestland and timber on behalf of various institutional investors – e.g., insurance companies, pension funds, endowments, and foundations. (01) Where restructuring occurred, the land and timber is now held by “Real Estate Investment Trusts” (REITs). REITs are entities that buy, manage, and sell real estate or real estate related assets – e.g., mortgages – on behalf of various private investors.3 (18) The magnitude of the ownership shift has been substantial. As shown in figure (1), as recently as 1985 the total investment in forestland and timber by TIMOs and REITs was less than $1 billion, but by 2005 it had grown to exceed $25 billion – with approximately $15.0 billion having been invested by TIMOs, and $10.2 billion by publicly traded REITs. (03, 10) As shown in figure (2), in acreage terms, while the VIFPCs held 58 million acres of forestland in the US in 1980, by 2005 their holdings had dropped to 21 million acres – a roughly 60% reduction.4 (03) In contrast, over this same period of time the holdings of the TIMOs and REITs grew from nothing to over 25 million acres – with the proportion of land being held by each being roughly equivalent to their relative investment levels.5 (03, 10) The holdings of the TIMOs and REITs are spread across all commercial forest regions of the US, but the biggest concentrations occur as pine plantations in the Southeast, conifer plantations in the Pacific Northwest (west of the Cascades), and mixed softwood and hardwood stands in the Northeast. (01)
- For various reasons these ownership shifts have been of concern to many within the forestry, conservation, and environmental communities. Questions being asked include the following: (04, 14).
- How will the new owners manage their forestlands, and what will be the implications for the flow of goods and services that can be expected in the future?
Will the new owners hold forestland and timber for a long time, or will they contribute to increased fragmentation and development across forested landscapes?
What roles will the new owners play in the broad community of interests concerned with forestry issues – e.g., will they actively support forestry research and public policies conducive to the forestry sector?
Objectives of Paper:
The objectives of this paper are to look briefly at: 1) the primary reasons for the shift in forestland ownership patterns – including the impact of tax and other public policies; 2) how the management objectives, practices, and behaviors of the new owners compare to those of the prior owners; 3) the outlook for further ownership changes; and 4) the actions the Forest Service should take in response to this situation.
Reasons for Changing Ownership Pattern:
The reasons for the changes in private forestland ownership that have occurred in the US may be viewed from at least three different perspectives: 1) that of the former VIFPCs that elected to sell-off all or part of their forestland holdings,6 2) that of the TIMOs and the institutional investors they represent, and 3) that of the former VIFPCs that elected to restructure and create timber REITs.
Key motives and factors influencing the VIFPCs that elected to sell-off some or all of their forestlands included the following:7
Relatively weak financial performance and the need to improve returns to stockholders. – Stockholder returns over the 10-year period 1995 to 2005 averaged +6.2% for the “Forestry and Paper Group” as compared to +12.1% for the S&P 500, and +13.1% for the Dow Jones Industrial. (04) To ensure continued flow of investment capital into the industry, it was essential that stockholder returns be increased – and the sale of timber holdings was seen as a way to achieve this end.
Generally Accepted Accounting Principles (GAAP): – Related to the preceding factor, GAAP for “Sub-Chapter C Corporations” precludes such entities, when it comes to computing their return on investment, from recognizing any appreciation in the value of the timberland assets they hold – only profit realized from the harvesting and processing of trees may be considered. This treatment contrasts with the conventions that apply to “Sub-Chapter S” and “Limited Liability” corporations, to TIMOs, and to REITs. (01, 12)
Rising Forestland Values: - Related to both of the preceding factors, throughout much of the US forestland values have been rising in response to what has been characterized as “the grand tidal wave of sprawl now sweeping over the nation.” (09) As forestland values rose, so did the value of what was arguably the primary asset held by the VIFPCs. Although GAAP prevented these companies from recognizing this appreciation in value in their formal accounting, it didn’t stop them from “cashing in” through the sale of some of their lands – especially tracts with good access, proximity to urban areas, water frontage, scenic value, or outdoor recreation potential.
- Consolidations made to enhance international competitiveness also increased debt burdens. – Over the last 10 to 15 years, the VIFPCs in the US have faced increasing competitive pressure from low cost timber suppliers and forest products manufacturers in other parts of the world. In response, the domestic industry went through a period of substantial consolidation. Oftentimes significant debt was incurred to finance these consolidations. The sale of timber holdings was seen as a way to get this debt off corporate balance sheets. (01)
Rethinking of the long held belief that ownership of timberlands was essential to ensure future availability of an essential raw material at reasonable cost. – Historically, as previously noted, a major rationale for the acquisition of timberlands by the VIFPCs was to gain some degree of control over the conditions of availability of an essential raw material. During the last 10 to 15 years, however, many firms came to believe they could confidently rely on open market sources of timber – both domestic and international.8 (01, 04)
Federal income tax policies. – While no doubt unintentional, federal income tax policies also appear to have encouraged many US forest products companies to divest themselves of their timber holdings. Of greatest importance is the fact that the traditional VIFPCs are classified as “Sub-Chapter C Corporations” for income tax purposes. For this type of entity, any profits obtained from the sale of timber are taxed twice – once at the corporate level (35%), and once at the stockholder level when dividends are disbursed (15%). The practical effect of this tax policy is that investors who own both manufacturing plants and forestland often recoup as little as 50 cents out of every dollar of profit made from cutting trees whereas investors who own just forestland can normally pocket at least 85 cents out of every dollar.9 (01, 04, 07, 14)
Key motives and factors influencing the TIMOs and their institutional supporters to increase their forestland investments included the following:10
Passage of the Employee Retirement Income Security Act (ERISA) of 1974. – This federal law, and similar pieces of state legislation, encouraged institutional investors – e.g., pension fund managers – to seek increased returns by diversifying their investment portfolios to include more than just fixed-income securities like government and corporate bonds. Collectively these statutes opened-the-door for institutional investment in timberlands. (01)
Increased recognition within the financial community of the advantages of timberland investments. – Experience suggests that investments in timberland offer the following advantages for the patient investor – i.e., for the investor not interested in quick returns:
Favorable returns – Overtime, investments in timberland – considering both income generated and appreciation in value – have compared favorably to other investment options. To illustrate, over the period 1987 to 1999 when much of the shift in timberland ownership was occurring, total returns to timberland investments averaged +20.1% per year - +7.8% of this total was due to income generated, and +12.3% was due to appreciation in value. (01, 12)
Lower risks – While foresters tend to think of timberland investments as being fairly risky because of hazards like wildfire, insects, and disease – to financial managers, who view them as one part of a diversified investment portfolio, they are generally seen as a way to reduce risk because experience suggests that returns to timberland investments tend to run counter to the returns provided by many other types of investments. (01, 12)
Inflation protection – Experience indicates that timberland investment returns are highly correlated with the rate of inflation, which makes such investments a good hedge against inflation. (12)
Key motives and factors influencing those forest products firms that restructured to form timber REITs included the following:
Passage of the Real Estate Investment Trust Simplification Act (REITSA) of 1997: - This legislation removed a provision of prior law known as the “Thirty Percent Gross Income Test” that had effectively precluded the VIFPCs from forming timber REITs. Basically this test would have required the VIFPCs that desired to be recognized as a REIT to forgo any timber harvesting for 4 years. Another favorable provision in the REITSA was that it allowed large institutional investors such as pension funds to hold shares in a REIT. This statutory change had the effect of increasing the liquidity of timberland investments for those REITs that are open to public trading.11 (11)
More favorable tax treatment and enhanced after-tax investment returns. – This factor was discussed above when looking at the reasons why many VIFPCs have chosen to restructure themselves to separate ownership and control of their timber holdings from ownership and control of their mills. REITs are single tax entities – i.e., the REITs themselves pay no income tax, only the shareholders – and this tax is normally computed at a rate of not more than 15% as compared to the 35% rate applicable to any income realized by Sub-Chapter C Corporations.12 (13, 20, 21)
Desire to ensure timberlands were fairly valued in financial markets – i.e., to “monetize” timberlands. – When a VIFPC restructures to form a timber REIT, two changes occur that help to ensure its timberlands will henceforth be fairly valued in financial markets. First, GAAP no longer precludes recognizing appreciation in value as part of return on investment. Secondly, as noted above, if public trading is allowed liquidity is enhanced because a wide array of investors can now participate directly in “pure” timberland investments. (11, 12)
Management Objectives of Different Ownership Groups:
While the specific organizational entities that make up the three ownership groups of interest in this paper – i.e., VIFPCs, TIMOs, and timber REITs – are all different and have somewhat unique management objectives and reasons for holding forestland and timber – different authorities have nonetheless offered some generalizations that seem relevant to this discussion. These include the following:
VIFPCs own both forestland and related manufacturing facilities, and as a result have certain strategic supply objectives that influence their decisions about when to cut timber and how long to hold on to forestland. TIMOs, and to a lesser degree timber REITs, have no such strategic objectives – when market conditions are favorable timber is generally cut and sold to the highest bidder in open-market auctions. When market conditions are unfavorable, timber need not be harvested but can be left to appreciate in value.13 (01)
TIMOs and timber REITs apply modern portfolio theory to their decisions about when and where to buy, hold, and sell forestland. They are interested in diversifying their holdings among regions, timber types, and age classes. In contrast, the VIFPCs frequently make such decisions based on the locations of their existing manufacturing facilities and forestland holdings. (01)
Capital availability oftentimes constrains the management options open to the VIFPCs but is typically not a limiting factor for the TIMOs because the funding sources that they can potentially tap into are extremely large. 14 Capital availability can be more of a problem for the timber REITs, especially if they are not publicly traded.
TIMOs invest funds on behalf of their clients (e.g., pension funds, endowments, and foundations) for a specified period of time – quite commonly 10 to 15 years. Unless the specific investment vehicle provides an option to extend, the assets will be sold at the end of this time period. Additionally TIMOs, especially when they are engaged in investing pension funds, have an implicit fiduciary responsibility to manage the investment so as to yield the best possible return – i.e., to maximize profits. (01)
Taxes are a major decision-making factor for the VIFPCs. TIMOs and timber REITs are less concerned about taxes because they are only taxed once, they are taxed at a lower rate, or they are tax exempt. (01)
Management Practices and Behaviors of Different Ownership Groups:
As noted earlier, as TIMOs and REITs have gained control over more forestland in the US – many within the forestry, conservation, and environmental communities have grown concerned about the implications of the ownership shifts. These groups wonder what the changes will mean in terms of such things as: how forestlands will be managed, the flow of goods and services that forestlands will provide, the pace of forestland fragmentation and development, and levels of support for forestry research as well as other important forestry-related activities. After years of working with the VIFPCs these groups had learned what to expect from this class of forest owners – but the shift in historic ownership patterns has created much less predictability as concerns the future of US forests.
Because the changes in forestland ownership are for the most part relatively recent, very little empirical evidence exists that can be used to answer the questions being posed by the forestry community. Even in the few cases where relevant studies have been conducted, the results must be interpreted with caution. Some studies have elicited information on planned management activities, but plans aren’t always carried-out. Other studies have looked at the management practices actually being applied, but either the interval of years represented has been very narrow or the geographic coverage has been spotty. For the most part analysts have been forced to draw inferences based on the presumed management objectives of the various ownership classes. Recognizing these realities, the following impressions are offered:
Type of forest management practiced. – At present there is little evidence to suggest that the management practices employed by a TIMO or REIT on a given piece of land should be expected to differ markedly from those that would have been applied by a VIFPC. The new owners, like the old, generally have an incentive to leave their land in as good or better shape than it was when they acquired it – and as noted earlier, they typically don’t suffer from the same limitations on capital availability as often plagued the VIFPCs. There is some evidence to indicate that TIMOs show a preference for silvicultural treatments that will produce a benefit in 10 to 15 years, and that they tend to concentrate their investments early in a given investment period; but when longer-term investments are needed to maintain or enhance property values – e.g., investments in site preparation and planting – it appears these investments will be made as long as they can be economically justified. As previously noted, some authorities have argued that because they don’t have mills to support, TIMOs and REITs are under less pressure to cut – especially when markets are weak; however, as has been pointed out elsewhere, the validity of this argument is questionable – especially as it applies to the timber REITs. In a somewhat different vein, it should be noted that the TIMOs and REITs are subject to the same forest practice regulations and mandatory environmental restrictions as apply to other forest owners. Whether or not the new owners will be as willing to comply with voluntary BMPs as were the VIFPCs is unclear, however, especially when the BMPs will result in cost increases that are not inconsequential. The VIFPCs were often willing to accept such cost increases in order to enhance their corporate image and maintain their “social license” to practice forestry. Finally, yet another point worth noting is that some TIMOs and REITs have elected to participate in independent programs designed to “certify” the sustainability of their forestry practices. 15 On this score, however, it should be pointed out that in most of these cases the lands were previously enrolled in a certification program and thus the decision was to continue, not initiate, certification. (01, 02, 04, 13)
Type of goods and services (including environmental amenities) produced. – It seems clear that at present the forest product of greatest interest to TIMOs and REITs, as it was for the VIFPCs, is timber – and that other non-market goods and services that can be provided without significantly compromising the flow of timber products will continue to be “jointly produced” in the future as they were in the past – e.g., wildlife habitat and watershed protection. Where the different types of owners may take different stances is when it comes to producing those forest-related goods and services that potentially have a market value – e.g., different types of recreational pursuits such as hunting. While the VIFPCs sometimes sold hunting leases when this was an accepted practice in a given area, oftentimes they provided free public access to their lands for this pursuit as well as others – but it is presently unclear whether TIMOs and REITs will continue to honor this tradition.16 Additionally, it’s interesting to speculate about what would happen if a national cap were to be imposed on carbon emissions and an active market for carbon sequestration credits were to emerge. Given less of an obligation to supply dependent mills, TIMOs and REITs would be comparatively free to adjust their management strategies to take full advantage of the relative values of timber versus a unit of carbon sequestered. (01, 07, 12)
Ownership tenure and fragmentation: – This has been raised as an issue mainly as concerns ownership by TIMOs, which as previously noted – typically operate within a 10 to 15 year timeframe. This situation contrasts sharply with the VIFPCs, many of whom – at least until recently – held forestland for periods of 50 years or more. The main concern is that more frequent ownership turnovers will lead to increased fragmentation. The limited evidence that is available to date suggests these fears may have merit. In instances where TIMOs have sold timberlands, it appears they have frequently disposed of their holdings in smaller sizes than when they were acquired – and some observers suggest this is being deliberately done in order to capture the higher prices obtainable in the “retail” as opposed to “wholesale” land markets. While TIMOs occasionally sell to other TIMOs, sometimes sales are made to smaller regional buyers such as sawmills. This has led to a secondary concern that many of these purchases are being financed with borrowed capital – and that the purchasers may subsequently be required to cut their lands heavily to payoff the debt they’ve incurred. Overall it appears that although TIMOs may be long-term holders of forestland in the aggregate, they can be expected to periodically turnover specific areas – and this will likely contribute to increased fragmentation. (12, 18)
Willingness to convert forestland to other uses. – There is some evidence to suggest that TIMOs and REITs, because they don’t have the same level of responsibility to supply dependent mills as did the VIFPCs, are more willing to convert forestlands to other uses. Indeed, it’s not uncommon for TIMOs and REITs to have a staff, or subsidiary, that is specifically tasked with handling the sale of lands that have been determined to have some “higher and better use” than continued timber production. That said, there is also some evidence which suggests that TIMOs and REITs, in selecting what forestlands to invest in, make a conscious effort to avoid lands that have development potential or are environmentally sensitive because purchasing such lands is inconsistent with their basic goal of realizing the returns obtainable from timberland investments.17 Additionally, some observers have noted that TIMOs, and to some degree REITs, seem relatively willing to enter into conservation easements with environmental organizations, land trusts, and/or governmental agencies. 18 The easements that have been negotiated typically ensure that sensitive forestlands will be remain in their current use but also permit continued timber harvesting under stipulated conditions. (06, 07, 09, 18) For the TIMOs and REITs, the rationale for entering into such easements is multifaceted; they can be a way to: 1) reduce up-front land acquisition costs and maximize overall investment returns, 19 and 2) side-step the potential controversy associated with trying to practice forestry on lands deemed “sensitive.” 20 While the acreage of land protected by conservation easements has been increasing over time, a persistent problem for the conservation and environmental communities has been finding adequate funding to consummate desired easements.21
Support for forestry research. – There is some evidence to suggest that TIMOs and REITs are less supportive of forestry research than were the VIFPCs – many of which had their own forestry research organizations. One indicator is that as timberland ownership by the VIFPCs has declined, so has participation in various university-affiliated forestry research cooperatives. In the case of the TIMOs, this phenomenon has been attributed to the fact that they operate under relatively short investment horizons (10 to 15 years) whereas the payoffs from most forestry research activities are realized over long periods of time; however, this logic only holds-up if you assume the TIMOs don’t expect to be in existence beyond the duration of their initial investment offerings – and this doesn’t seem rational. In the case of the REITs, the phenomenon has been attributed to the fact that they are required to annually distribute 90% of their income to their shareholders – and that consequently their capacity to support forestry research is diminished. Some observers have suggested that the problem may not be that TIMOs and REITs are unwilling to support forestry research, but that they simply haven’t been in existence long enough to find a suitable mechanism for allocating these costs to their investors. (01, 04)
Support for forestry in general. – There is some evidence to suggest that TIMOs and REITs will be somewhat less active within the broad forestry community than were the VIFPCs – i.e., that they will not participate as extensively in different forestry organizations at the national and state levels, and not be as aggressive in supporting federal and state legislative initiatives of concern to the forestry sector. Indicative is the fact that membership in the American Forest & Paper Association (AF&PA) as well as many state forestry associations has been declining. In a somewhat different vein, in the South there is some evidence to suggest that the TIMOs are not as supportive of cooperative fire fighting efforts as were the VIFPCs. During the last 15 years private fire fighting capability in the South has been declining, at least in part because the TIMOs seem more willing to defer the responsibility for providing fire protection to the states. Again, it may be somewhat premature to form any final conclusions – perhaps the new owners simply need more time to assess the benefits of participating in such cooperative ventures. (01, 04)
Conclusions and Possible Responses:
Only one conclusion will be offered based on the results of this analysis, and this is that the movement of forestland ownership within the US from the VIFPCs to TIMOs and REITs is likely to continue in the future – although the pace of change may very well slow.22 The main reason why this shift in ownership classes is likely to continue is that the pressure to move ownership of forestlands to a more tax-efficient structure is very strong – i.e., those VIFPCs that do not embrace more tax efficient structures will find themselves in a constant struggle to remain competitive.23 Reasons why the trend may slow include the following: a lot of industry land has already moved into other ownership classes, suitable timberland investment opportunities are becoming more difficult to find, and rates of return on US timberland investments have moderated somewhat – perhaps due to increased international competition and the fact that domestic markets have now adjusted to the decline in national forest timber sales in the Pacific Northwest.24
The lack of hard data showing, beyond a reasonable doubt, that serious economic, environmental, or social problems are occurring as a result of the shift of substantial acreages of forestland from ownership by the VIFPCs to ownership by TIMOs and REITs suggests that the Forest Service should be cautious and prudent as regards the actions it takes, or advocates that others take, in response to this matter. At the same time, the evidence now at hand very definitely suggests that a number of potentially undesirable trends may be emerging – and that existing federal tax policy may well have contributed to the situation. Under these circumstances the Agency would be remiss to do nothing, and so the following possible responses are suggested:
That the Agency commit to monitoring and periodically making available, perhaps through the FIA program, data on: 1) changes in forestland ownership, including ownership by TIMOs and REITs; 2) shifts in land use by ownership class; 3) the types of management practices being applied by different types of forest owners; and 4) changing resource conditions on the forestlands held by different types of forest owners.
That the Agency, to the extent allowed by other priorities, commit to conducting or supporting additional research that will provide better information about the true economic, environmental, and social consequences of the shifts in forestland ownership that have occurred in the US.
That the Agency, consistent with the spirit of its “Cooperating Across Boundaries” initiative, expand its outreach efforts to the TIMOs, REITs, land-trusts, and other key partners in order to find collaborative solutions that will help keep America’s forests and grasslands “healthy across the landscape” – perhaps through the more effective use of working forest conservation easements. (08)
That Agency leaders, on appropriate occasions, use their “bully pulpit” to describe how federal income tax policy appears to have influenced the ownership of private forestlands in the US – and to discuss the apparent conservation implications of these changes. 25
01) Block, Nadine E. and Sample, V. Alaric. 2001. Industrial Timberland Divestitures and Investments: Opportunities and Challenges in Forestland Conservation. Pinchot Institute for Conservation. Washington, DC. 50p.
02) Binkley, Clark S.; Raper, Charles F.; and Washburn, Cortland L. 1996. “Institutional Ownership of US Timberland.” Journal of Forestry. 94(9). pp. 21-28.
03) Boyd, Gary P. 2006. “Corporate Forest land Divestiture: Issues & Opportunities for Companies and Communities.” Powerpoint presentation developed on behalf of International Paper. Contact: firstname.lastname@example.org .
04) Clutter, Mike; Mendell, Brooks; Newman, David; Wear, David, and Greis, John. Strategic Factors Driving Timberland Ownership Changes in the US South.
05) Ellefson, Paul V. 1992. Forest Resources Policy: Process, Participants, and Programs. McGraw-Hill, Inc.; New York, NY; 504p.
06) Fernholz, Kathryn; Howe, Jeff; and Bowyer, Jim L. 2006. “Conservation Easements to Protect Working Forests.” Dovetail Partners, Inc. 11p.
07) Hagan, John M.; Irland, Lloyd C.; and Whitman, Andrew A. 2005. Changing Timberland Ownership in the Northern Forest and Implications for Biodiversity. Forest Conservation Program, Manomet Center for Conservation Studies. Report No. MCCS-FCP-2005-1. Brunswick, ME. 25p.
08) Harper, Clair and Crow, Tom. 2006. Cooperating Across Boundaries: Partnerships to Conserve Open Space in Rural America. USDA Forest Service. Publ. No. FS-861. 49p.
09) Irland, Lloyd C. 2005. “US Forest Ownership: Historic and Global Perspective.” Maine Policy Review. Winter Issue. pp. 16-22.
10) Mendell, Brooks. 2006. “US Timberland Investment Markets.” Powerpoint presentation made at the 2006 SAF National Convention. Contact: email@example.com .
11) Mooney, Scott. 1998. “Understanding Timber MLPs and REITs.” Timber Mart South Newsletter, 2nd Quarter. 2p.
12) Ravenel, Ramsey; Tyrrell, Mary; and Mendelsohn, Robert (eds.). 2002. Institutional Timberland Investment. A Yale Forest Forum Publication. Vol. 5. No. 3. New Haven, CT. 52p.
13) Rogers, W. Rhett and Munn, Ian A. “Annual Management Activities of TIMOs and Industrial Landowners in Mississippi During 1998-1999.” Forest and Wildlife Research Center, Mississippi State University. Publ. No. FO176. pp. 140-145.
14) Siegel, William C. 2004. “Tax Considerations Associated With Different Types of Forest Ownership.” National Woodlands. April Issue. pp. 22-24.
15) Smith, W.B.; Miles, P.D.; Vissage, J.S.; Pugh, S.A. 2004. Forest Resources of the US, 2002. USDA Forest Service, GTR NC-241. 137p.
16) Wallinger, R. Scott. 2006. “Timberland Investing and the Public Good: Issues that Matter to Investors.” Proceedings of the World Forestry Center’s 3rd Symposium on Who Will Own the Forest. Portland, OR. pp. 118-126.
17) Stern, J. David. 2004. “Investing in Timber,” Fund Evaluation Group, LLC. Cincinnati, OH. 13p.
18) Zinkhan, F. Christian. 1993. “Timber Investment Management Organizations and Other Participants in Forest Asset Markets: A Survey.” Southern Journal of Applied Forestry. 17(1): 32-38.
1 Paper prepared by Cliff Hickman, Forester, R&D, Policy Analysis Staff.
2 Other buyers have included government agencies, privately held (i.e., family owned) forest products companies, and various conservation organizations like the Nature Conservancy and the Conservation Fund. Of the roughly 27 million acres of forestland that was sold-off in the US by the VIFPCs; an estimated 15 million acres was acquired by TIMOs, 2 million acres by privately held forest products companies, and the remaining 10 million acres by different conservation groups, other private owners, and government agencies. (03)
3 Various distinctions between TIMOs and REITs will be brought to light during the course of this paper, but one difference worth noting at the outset is that TIMOs don’t actually own forestland whereas REITs do. In the case of TIMOs, the forestland is actually owned by the individual investors the TIMOs represent.
4 It is perhaps worth noting that despite the recent shifts in forestland ownership that have occurred within the US, in the overall scheme of things the TIMOs and REITs are still not all that significant. The most recent national statistics published by the Forest Service’s FIA program show that in 2002 the US had 504 million acres of “timberland” – i.e., land capable of growing over 20 ft.3/acre/year and not legally withdrawn from timber harvesting. (15) Figures compiled from different sources used to prepare this report suggest that in 2006 the TIMOs and REITs jointly held about 27.3 million acres of timberland, which would represent about 5% of the total. This figure generally agrees with similar figures reported within the financial community that show timberland ownership in value as opposed to acreage terms. To illustrate, one website set the value of all timberland in the US at $450 billion, and indicated that “institutional investors” held 4%. (22) Another website put the value of privately held timberlands in the US at $230 billion, and indicated that “institutional investors” owned 5%. The main point is that at present TIMOs and REITs hold only a fairly small fraction of all the timberland in the US. (23)
5 In 2006 both Potlatch and Longview Fibre, with combined forestland holdings of just over 2.0 million acres, converted to the REIT structure.
6 Before looking at the reasons why some VIFPCs elected to sell forestland, it may be worthwhile to briefly reflect on why they originally acquired such land. Unquestionably the key rationale was their desire to gain control over the conditions of availability – e.g., timing, delivered cost, species, volumes, and log sizes – of an input required by their manufacturing facilities. Other rationales included: 1) the investment returns realizable through timber management and appreciation in land values, and 2) the ability to enhance their corporate images by demonstrating that they were responsible land stewards. (05)
7 While the factors listed here are felt to have been the most important, other factors no doubt also played a role. One additional factor was the increased availability of relatively attractive forestland investment opportunities overseas where biological productivity rates were often higher and environmental restrictions less stringent. (01) Another factor was the apparent decline in the domestic demand for stumpage needed to produce some forest products such as paper and paperboard, where the use of recycled fiber has grown over time and is expected to exceed 40% in a few years. (01) Finally, yet another factor was the emergence of tax strategies – e.g., installment sales – that made it possible to better manage the capital gains tax implications of making timberland divestitures.
8 It is perhaps worth noting that where forestlands that were previously owned by a VIFPC are now under the control of a TIMO, it’s not uncommon for the TIMO to be operating under a “supply agreement” that obligates it to provide a certain amount of timber to the company that previously owned the land. Similarly, where a VIFPC has restructured to form a timber REIT – typically some of the firm’s manufacturing facilities have been retained and placed into a fully taxable REIT subsidiary that the timber REIT is obligated to supply.
9 Prior to the Tax Reform Act of 1986 the effect of the double tax on Sub-Chapter C Corporations was greatly moderated by the fact that such entities paid a significantly lower tax rate on “capital gains” income – which ordinarily included any income received from the harvesting of timber. The elimination of this rate differential in combination with the double tax applicable to their income has created a heavy burden for the Sub-Chapter C Corporations to bear. To date, efforts to get a rate differential for capital gains income restored have proven unsuccessful.
10 Ownership of timberland by institutional investors can take many forms. It is usually not direct fee simple ownership, but rather an interest or share in a fund, limited liability partnership, master limited partnership, limited liability corporation, or insurance company group annuity contract.
11 There are presently four publicly traded timber REITS: Plum Creek Timber Company, Inc.; Rayonier Inc.; Longview Fibre Company; and Potlatch Corporation.
12 REITs didn’t always enjoy single tax status; this benefit was authorized with passage of the Real Estate Investment Trust Act of 1960. The goal was to encourage creation of special purpose companies that would make it possible for average Americans to invest in real estate, an option that had previously only been open to wealthy individuals and corporations. To qualify as a “pass-through” tax entity, REITs must satisfy a number of requirements. Some of the more important of these are:
They must be jointly owned by 100 or more persons/entities for at least 335 days each year.
They must derive at least 75% of their gross income from real property sources – e.g., rents, mortgage interest, and proceeds from the sale of real property including timber.
They must pay annual dividends of at least 90% of their income.
They must have no more than 50% of their shares held by 5 or fewer people during the last half of each taxable year.
They must have no more than 20% of their assets consist of stocks in taxable REIT subsidiaries. (20)
13 The reality is almost certainly more complex than this observation suggests. It’s not uncommon for TIMOs to have “supply agreements” with manufacturing facilities located in the vicinity of their timberland holdings, and these agreements can limit their flexibility to postpone harvest. Similarly, where VIFPCs have restructured to form timber REITs, in most cases at least some of the parent company’s manufacturing facilities were retained and placed in a “taxable” REIT subsidiary – and the need to keep these subsidiaries supplied can constrain their flexibility to delay harvest. Additionally, timber REITs are obligated to annually pay an agreed upon distribution per share which may be either a dollar amount or a percentage – and this requirement may also create pressure to harvest annually. (01)
14 To illustrate, even as long ago as March of 2000 – US pension fund assets were estimated to be on the order of $10 trillion. (01)
15 An example would be the Anderson-Tully Company, a timber REIT whose hardwood management activities are certified by the Forest Stewardship Council (FSC).
16 Illustrative is the fact that on February 23, 2007 Potlatch Corporation – a publicly traded timber REIT – announced that starting April 1, 2007 it would be requiring users to purchase a permit to recreate on its forestlands in Idaho. Additional information can be obtained by going to http://www.potlatchcorp.com/ .
17 Lands with recognizable development potential would be more expensive to acquire, and sensitive lands would be more costly to manage; in either case the returns realizable from practicing forestry would be compromised.
18 Conservation easements may be donated or sold, but when a TIMO or REIT is involved typically an easement will be sold. This situation is consistent with their emphasis on maximizing investment returns and the fact that taxes are generally less important to these owners.
19 A case can be made that the existence of an easement will influence a property’s eventual resale value. For some landowners this possibility may not be important, but for a TIMO or REIT it likely will be – and thus it seems reasonable to assume this possibility will be taken into account when negotiating a sales price.
20 There can also be important income, estate, and property tax benefits associated with entering into conservation easements – but typically these advantages are not as important to TIMOs and REITs as they are to other types of private landowners.
21 Within the US, the area of land protected by conservation easements grew from 1.4 to over 5.0 million acres between 1998 and 2003. (06) This figure includes all types of undeveloped rural land, not just forestland.
22 A case can be made that to the extent there is further growth in the amount of US timberland held by TIMOs and REITs, this growth will occur mainly within the REIT sector. There are still a few VIFPCs that hold significant amounts of timberland – e.g., Weyerhaeuser, Mead-Westvaco, and Temple-Inland. For these firms restructuring as a timber REIT would produce significant tax benefits while not requiring a complete severing of any connection to their manufacturing facilities since the latter could, within limits, be placed in a taxable REIT subsidiary. It may also be worth noting that timber REITs enjoy certain advantages over many other types of REITs, a key one being that most of their income will qualify to be recognized as a capital gain. Once timber REITs are better known within the financial community, these advantages could lead to an increase in the amount of investment capital available to such entities.
23 Relevant to this point, at the time this paper was being written, the press and various industry newsletters were reporting that: 1) Weyerhaeuser had recently appointed a REIT expert to its corporate board, and 2) Temple-Inland had announced plans to sell-off its forestland holdings. If these companies divest themselves of their timberland holdings, while there will still be some family-owned forest products corporations that own significant acreages of forestland – Mead-Westvaco would become the last VIFPC to still own forestland.
24 It is perhaps worth noting that two institutional investors – i.e., the California Public Employees Retirement System (CalPers) and Harvard University – have recently terminated their North American timberland investments, purportedly because of declining returns.
25 Considerable care should be exercised in acting on this suggestion. The Agency must avoid putting itself in the position where it could be perceived as advocating a “tax break” for wealthy corporations – especially given current levels of public concern over the national debt and growing annual budget deficits. Agency leaders should strive to be factual and stress that their dominant concern is to encourage adoption of tax policies that are conducive to responsible forest management and conservation.
Friday, May 4, 2007
Weyerhaeuser Considers Strategic Alternatives for Containerboard, Packaging and Recycling Business
FEDERAL WAY, Wash., May 4 /PRNewswire-FirstCall/ -- Weyerhaeuser Company (NYSE: WY) today announced that its board of directors has authorized a process to consider a broad range of strategic alternatives for its Containerboard, Packaging and Recycling business. Alternatives range from continuing to hold and operate the assets to a possible sale or combination. Read the entire news release.
Analysts have been pushing WEYCO to convert to a REIT in order to gain a more favorable tax rate for its timberland operations. WEYCO has resisted because of laws prohibiting such a move for companies with large manufacturing bases such as Weyerhaeuser. Removing the above mentioned business units from the timberlands operation will pave the way for conversion to a REIT. If this should happen, it will clearly be in the best short term interest of shareholders. It also means the end of the most successfully integrated "from forest to end profuct" company in history - MAYBE not a good thing for long-term WEYCO investors. But change happens and my feeling is that nobody, not even Weyerhaeuser, can stop the tide.
Weyerhaeuser has great people, great forest management, great timberland and will make a great REIT!