Timberland Investment

TimberlandTimberland is a unique asset class which has gained popularity over the last two decades. It adds diversification to investment portfolios, providing an excellent complement to traditional asset classes. Timberland has superior risk-adjusted returns with low volatility. It is highly correlated with inflation which makes it an excellent investment for preserving capital.

At Branch Timberlands, we focus on high net worth individuals and family offices and manage over 100 million USD in timberland assets. We provide personalized attention with the ability to cater to the specific needs of each individual client. We are able to provide efficient, in-house timber and property management or overall asset management. Our extensive knowledge of the local markets for timberland and timber not only helps us in purchasing timberland for our clients, it also allows us to strategically plan timber harvests.

Characteristics of Timberland Investments ~ Value Components ~ Biological Growth ~ Inflation Hedge
Current State of Timber and Timberland ~ Emerging Revenue Generators ~ Why Invest in the U.S.

 

Income vs. Capital Appreciation
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Characteristics of Timberland Investments

  • Real asset
  • Inflation hedge
  • Provides diversification
  • Low correlation with other asset classes
  • Excellent returns at relatively low risk

Since the 1970’s unlevered 10 year rolling returns have averaged 14%
Source: Forest Landowner Nov/Dec 2009

 

Correlation of Selected Asset Class Indices
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Value Components

  • Timber harvests
  • Recreational leases
  • Minerals
  • Conservation easement tax incentives
  • Conversion to higher value use

Biological Growth

Timber investors have the advantage of waiting until markets are favorable to harvest timber. While timber is being “stored on the stump” the timber continues to grow in size. This unique characteristic of biological growth provides for growth of 5-7% increase in volume annually which is independent of economic conditions. In addition there are price increases, which arise when trees grow into sizes from which more valuable products are made. This is an “in-growth” of product classes where there is more value per unit of volume.

Inflation Hedge

Investments with values tied to real assets such as timberland, are less susceptible to inflationary risk. In periods of high inflation timberland returns have historically remained high. Timberland returns have a high correlation to inflation. For example, in the period from 1973 to 1981 timberland returns were 21.8% when CPI was 9.2%.

Source: Forest Landowner Nov/Dec 2009

Current State of Timber and Timberland

Timberland Ctu
  • Demand for wood is down at mills primarily due to the housing slump which peaked at 2.3 million starts in 2006 and is currently at approximately 600,000.
  • Real prices for timber are at multi-decade lows which is causing many landowners to delay harvest at this time.
  • Housing starts are not expected to exceed 1.5 million until late 2012.
  • With the U.S. population expected to be at 438 million, up from 296 million in 2005, demographics will housing will recover based solely on demographics.

Source: Bloomberg

Emerging Revenue Generators

Carbon Credit exchange has several obstacles which could prevent an active carbon credit market in the US including the complexity of accounting, lack of cooperation world-wide and the uncertainty of a comprehensive Cap and Trade Policy in the US.

 

Biomass presents a likely growth sector for timberland with modest income potential for the timberland investor and offers an additional market for timber products. We expect biomass fuels to have impacts on stumpage rates and timberland values. Several large pellet plants are going into the southeast Georgia area which will help drive up the price for pulpwood in southeast Georgia and northern Florida and increase demand on surrounding wood baskets.

Conservation Easements provide tax incentives which can be used personally or though monetizing the Federal tax deductions and Georgia state tax credits.

Why Invest in the U.S.

  • The U.S. is a world leader in producing and consuming wood which creates robust markets for timber from timberland investments. In addition the U.S. has among the most acreage in forestland, private forestland, and plantations.
  • Political and currency risks emerge when dealing with developing countries.
  • Timberland in Europe is more expensive with lower growth rates when compared with the U.S.
  • The southern U.S. is unique due to its highly developed forest products industry and intensive forest management.

Future demands for timber are projected to increase due to population growth and an improvement in living standards worldwide. Supply for timberland is finite which prevents over capacity. A reduction in timberland prices during the recent economic slowdown is providing excellent opportunities for investors.