Wednesday, December 28, 2011

CellFor Files for Bankruptcy

CellFor, a producer of varietal loblolly pine showing impressive gains in growth, straightness and disease resistance, has filed for bankruptcy in Canada and for protection from creditors in the U.S.

The housing decline has resulted

Sunday, October 30, 2011

Some Timberland Transactions and Other Stuff

I've had several requests for an update on issues surrounding timberland investments and transactions to date for 2011 so I am posting a chart of the transactions of which I am aware. I will also make a comment or two on conservation easements and on who is

Monday, March 28, 2011

More Thoughts on Foreign Investments in Timberland

My last post generated a couple of comments that referenced FIRPTA (Foreign Investment in Real Property Tax Act) and the likely impact that the law would “keep Asian demand in U.S. timberland muted”. The law has been around since 1981 so I thought that I would take a look at what the impact of foreign investment on timberland has been to date.

At last weeks Timberland Investment Conference, Stephen Schrock with Manning, Morris & Martin, discussed the Agricultural Foreign Investment Disclosure Act which requires “Foreign investors who buy, sell or hold a direct or indirect interest in U.S. agricultural land must report their holdings and transactions…” Agricultural land includes timberland as well. Penalties for not reporting can be very severe (25% of the fair market value of the land). The USDA Farm Service Agency compiles the data and produces an annual report summarizing the data.

Two comments from the summary of the current report:

  • “Forestland accounted for 59% of all foreign held agricultural acreage…”
  • “Foreign holdings of U.S. Agricultural land were relatively steady from 1999 through 2006; between 2006 and 2007, there was a significant 3.6 million acre increase and between 2007 and 2008, there was an increase of 1.4 million acres. Between 2008 and 2009, there was an increase of 1.3 million acres.”

The total numbers can somewhat mask what has happened with timberland alone but the graph below tells the story pretty clearly.

Trends in Foreign Holdings of Agricultural Land by Type of Use For the Period 1999-2009

I have to interpret the graph as saying that FIRPTA may have an impact but that it certainly does not prevent foreign investment in U.S. timberland. You can read the entire report here.

So that’s the past. What does the future hold?

From my own personal experience, I can assure you that there remains a strong foreign interest in U.S. timberland by both European pension funds and Asian investors. I suspect that the acquisition of pulp and paper mills by the Chinese will continue and I suspect a few sawmills will get thrown into the mix too. And I can’t imagine that the option of vertical integration of pulping operations is not on the table and that timberland ownership will not be the result. Is that good or bad for us? Ask the employees of the pulp and paper mills in Woodland, Maine, Halsey, Oregon and Potsdam, New York. The Asians supply the capital and the markets and we get the jobs. It might not set well at first blush but that’s a reversal of the way things have been and that’s not such a bad thing.

And remember, as we have seen domestically during the past year, all investors are not institutional or industrial! There are some very large investments coming from the high net worth individuals and families that have changed the market. We MAY be on the edge of another significant change in the ownership of U.S. timberland and whatever implications that may bring. --Brian
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Wednesday, February 9, 2011

Will the Chinese Start Buying Timberland?

In a conversation surrounding timberland investments with Steve Wilent, editor of The Forestry Source, a couple of days ago, the subject of foreign investment in timberland came up. It's pretty well known that there are significant investments being made by the European pension funds. But what about the Chinese that are going all over the world tying up commodities. The Chinese have put a very high priority on vertical integration to assure they have the raw materials necessary to supply their industries.

It is estimated that the gap between China's domestic wood supply and total demand will reach 150 million cubic meters (roundwood equivalent) by 2015. For perspective, that is more than the entire Canadian harvest. Where will the wood come from? They have greatly expanded their domestic paper mill production but where will the pulp come from? We ship them a lot of waste paper but that is not going to do the job.

So..., will they move production to the U.S. and vertically integrate their operations (paper mill to pulp mill to timberland)? If so, when does it start? Just in case you were not watching, it already has begun! Following are extracts from three news releases. --Brian

From the Bangor Daily News, Dec. 21, 2010: 

New Woodland mill owners investing in facility’s future

WOODLAND, Maine — The new owners of Woodland Pulp LLC, formerly Domtar, are investing in new energy efficiencies at their pulp mill using state and federal funds, Gov. John Baldacci said Tuesday.
Baldacci stopped in to visit the mill Tuesday morning, and offered whatever assistance the state could provide to assist the new owners, IGIC of China and Taiwan, to ensure the mill’s security and expand.
The facility’s director, Bert Martin, said the company’s future was finally secured with the change in ownership. “Christmas actually came here on October 1,” he said, referring to the date the mill was sold.
“We now have an owner that wants this mill,” he said. “This lets our people know they will have a job next week, next month and next year. I think the mill today is in a very good position.”
Martin said 300 people now work at the mill and that up to 10 more people will be hired at the start of the new year.
“This mill was in jeopardy of closing,” Baldacci said after a private meeting with company officials. “Domtar had made it very clear the mill was not part of their core mission and had been actively pursuing other investors and new owners.”
Baldacci called the mill “the lifeblood of Washington County” and said that each mill job represents another three or four jobs in the region, such as clerks, waiters and bank employees. “The ripple effect is huge,” he said, noting the mill has an annual payroll of $20 million to $25 million.
Martin said that the mill is using 1.5 million tons of fiber annually, pulled from every region of Maine and New Brunswick. “We generate jobs all over the state,” he said.
From, Feb 4, 2010

Hong Kong corporation buys Oregon pulp mill

 A Chinese company hoping to expand into the North American forest products business has purchased Cascade Pacific Pulp, LLC, a pulp mill at Halsey in the lower Willamette Valley. 
The sale to Hong Kong-based International Grand Investment Corporation could be a first in Oregon, which has not seen many foreign owners in the wood products industry. 
The Halsey mill had been owned by one of Oregon's most storied forest products companies, Pope & Talbot, which went bankrupt in May 2008 after 160 years. 
"I'm not aware of any other mill with owners in China," said Ray Wilkeson, president of the Oregon Forest Industries Council, an industry trade group. "It would not be surprising to see more of that in the future." 
The purchase of the mill, for an undisclosed price, is also a first for the Hong Kong company. It mainly has acted as a trading company, buying pulp from all over the world to sell to customers in China, Wayne Henneck, president of Cascade Pacific Pulp, said Wednesday. 
It could signal a new shift in the industry as China's growing demand for paper products fills a void left by a shrinking market in the United States. Sales to Asia now make up about one-half to two-thirds of the Halsey mill's business, Henneck said. 
"The (Hong Kong) company is integrating vertically," said Henneck, who will remain president. "The Asian markets have been very hot. This is the first mill they'll own in North America. It may not be the last." 
International Grand Investment Corporation was just incorporated in Delaware in December 2009. 
In the past two years, the Halsey mill has gone through a roller coaster of ownership changes, creating uncertainty for its 170 workers in an area with some of the state's high unemployment. In Linn County, the jobless rate was 13.5 percent as of December 2009. 
But Henneck says he sees the sale as providing some stability for the mill, which is seeing an uptick after spells of downtime during the recession. The mill produces over 180,000 tons of bleached and unbleached pulp per year for use in various paper products and building materials. 
The mill's previous owners, a Minnesota private equity firm called Wayzata Investment Partners, won the mill for $31.2 million in an auction in June 2008. But it refused to recognize the union for months, creating workplace tensions. 
"The private equity firm always intended to buy distressed companies, get them on their feet and sell them," Henneck said. "They were not interested in pulp and paper. These are strategic owners who are interested in what we do." 
Union leaders said no workers will be affected by the ownership change because of a protective clause in their contract. Rumors had been flying for months that a new owner was on the way. 
"Everyone's feeling good," said Ernie Lamoureux, a staff representative for the United Steelworkers. "The pulp market is still pretty good. They're selling a lot of it to China." 
Wilkeson said that China's continuing growth will likely shape the forest products industry in Oregon and the United States for years to come. 
"There's no question they're going to be a big dog," Wilkeson said. "It's a competitive world, but there's another side to the coin. There's also a lot of demand."
Potsdam paper mill exporting products, technology
Tuesday, August 3, 2010 - 12:01 pm
UNIONVILLE – Potsdam’s century-old paper mill is working to develop new technology that its owner may use in paper plants in China.
Meanwhile, Potsdam Specialty Paper General Manager Ron Charette says the plant worked through a drop in sales that swept the whole industry, and is now back to pre-2008 production levels running three shifts with four crews.
Seafront Specialty Paper, which bought the mill from MeadWestvaco two years ago and dubbed it Potsdam Specialty Paper Inc., is a holding company based in the British Virgin Islands. Seafront has offices in Hong Kong, New York and Toronto, and is chaired by Kenny Chang, also a major stockholder. The Potsdam mill is on Sissonville Road along the Raquette River.
One of Seafront’s major aims is to develop products and procedures that would be put into use in paper mills it plans to acquire in China.

Friday, February 4, 2011

Weyco Earnings and Timberland Sale

Weyerhaeuser finally announced the results of the sale of the 82,000 acre block in SW Washington. The buyer is HTRG which payed about $200 million or $2,439 per acre. Weyerhaeuser says "While the land sold is high-quality, productive timberlands, it no longer fits our long-term strategic plan." Apparently the the species composition is low to Doug Fir, which is managements focus, and that is why this particular block was selected for sale. I suspect that the fact that the sale brought in $200 million with $150 million going to the bottom line was the real critical driver behind the sale. It has been a tough time for Weyco and they need to convince investors that they can pay a consistent and reliable dividend. Read the news release here.

Weyco also posted earnings this morning. Net earnings for Q4 were $171 million which illustrates just how significant the $150 million gain on the land sale is (note that the gain will not show up in the financials till Q1 of 2011). Earnings for the year were about $4.00 per share but a full 83% of that came from tax adjustments resulting from the conversion to the REIT. 

It looks as if Weyerhaeuser has turned the corner. It has been hard to analyze the numbers due to all of the asset sales, charges and REIT conversion but it does seem that they are now actually profitable. The timberland segment is slowly improving - mainly from improved stumpage prices in the Northwest. Wood products remain the major earnings drag but losses have been reduced somewhat. They have contained the bleeding from the Real Estate segment and are producing solid profits from the Cellulose Fibers group. Here are links to the earnings announcement and some supporting slides for the conference call.

Land sales will remain the ace in the hole to assure dividends but I am going to guess that Weyerhaeuser will play it sparingly. --Brian

Visit me at Timberland Strategies.

Tuesday, January 25, 2011

A Big Conference and a Big Timberland Transaction

The Conference:
Every other year the University of Georgia's Warnell School of Forestry and Natural Resources hosts, what in my opinion, is the best conference out there that deals with timberland investment. The speakers are always excellent and represent the full spectrum of views and perspectives on the future outlook for timberland investments. This year's conference will focus on global wood markets and trade and the opportunities that have been created for both international and domestic timberland investment.  Another focus will be the impact of the domestic housing market.

    Topics for this year's Timberland Investment Conference include:
  • The Affects of the Housing Market Recovery on Wood Demand
  • Global Timberland Investments & Markets
  • Back to Basics Timberland Management
  • Timberland Appraisals Issues
  • Legal Considerations for Forestland Ownership
  • Global Trade Developments
The conference dates are March 23 - 25 with an optional tour to be held on Plum Creek's land on the 22nd. If you are interested in attending, information on speakers, etc. and registration info can be found here. I hope to see you there.

The Timberland Transaction:
Maine's "Bangor Daily News" is reporting that the 900,000 acres of former I-P land that went to GMO is getting ready to change hands again. The reported buyer is BBC Land LLC which is controlled by John Malone of Englewood, Colorado. He is "chairman of Liberty Media, an Englewood-based company with diverse media interests that include the cable channel QVC, the travel website, the Atlanta Braves baseball team and Sirius XM satellite radio."

He reportedly already owns 1.2 million acres of which 68,000 acres is in Maine. The deal is expected to close on Feb.1. Read the entire story here.

Best Wishes. --Brian