Timber REITs Have Had A Good Pandemic: 10 Things To Know
Timber REITs are a relatively little-known niche in the REIT world, accounting for about 3% of the Hoya Capital Housing 100 Index, which tracks the companies that make up the U.S. housing industry.
Yet the niche isn’t quite as obscure as it once was, riding demand for its products and higher wood prices to new prosperity. The coronavirus pandemic, in short, has been good for the sector.
Here are 10 things to know about timber REITs.
The Players
There are four major REITs in the business of owning timberland. They are Weyerhaeuser Co., Rayonier, PotlatchDeltic Corp. and CatchMark Timber Trust. The four collectively own nearly 30 million acres of U.S. timberland. At about 46,800 square miles, that is about the size of the state of Mississippi.
Most of the forest land that the companies own is in the Pacific Northwest and the South, though there are large pockets of harvested forest in the Upper Midwest and Northeast.
Weyerhaeuser Is The King
Weyerhaeuser is by far the largest of the four, with a market cap of $21.6B. The market cap of the other three combined is about $7B.
Seattle-based Weyerhaeuser owns about 11 million acres of U.S. timberland, or roughly 17,200 square miles, which is about the size of Vermont and New Hampshire put together. In Canada, Weyerhaeuser owns about 14 million acres.
The company also has 35 manufacturing facilities nationwide, including lumber mills, board mills, engineered lumber mills and plywood mills, plus 18 distribution facilities.
The Others Aren’t Too Shabby, Either
The other three timber REITs have smaller but still substantial land holdings. Rayonier, based in metro Jacksonville, Florida, owns about 2.7 million acres, mostly in the South, but with land in the Northwest and New Zealand.
Spokane, Washington-based PotlatchDeltic owns about 1.8 million acres of timberland in the South, Midwest and Northwest, as well as seven manufacturing facilities that produce lumber and plywood. CatchMark Timber, based in Atlanta, owns about 1.5 million acres of timberland, mostly in Texas and the Southeast.
Timber REITs Had A Good Pandemic
As the demand for wood products for housing and other uses has mushroomed and as wood prices have climbed, timber REITs have benefited. A year ago, after emerging from the pandemic slump most companies went through, Weyerhaeuser traded for about $21.50 per share; now it trades for about $34.25 per share.
Rayonier has risen from about $24 per share to $34; PotlatchDeltic from $38 per share to $52; and CatchMark Timber from $8.50 to nearly $12 per share.
The Housing Market Has Been Especially Good For Them
The housing market, which has been strong since midway through the pandemic, is driving a lot of demand for wood products.
“With these encouraging tailwinds, our housing market outlook is very favorable and further supported by macroeconomic fundamentals that will continue to drive strong U.S. housing activity,” Weyerhaeuser CEO Devin Stockfish said during the company’s most recent earnings call in April.
These strong fundamentals include a record-low supply of new and existing houses for sale, strong homebuilder sentiment, favorable demographic trends, flexible work arrangements, higher savings rates, and continued post-pandemic improvements in GDP and unemployment, Stockfish said.
New Housing Uses Wood, But Remodeling Uses Even More
For a typical single-family home, wood products account for roughly a third of total construction materials cost inputs, Seeking Alpha reports. Altogether, an average-sized home needs between 150 and 300 trees to construct.
New residential, while taking up about a third of the lumber supply (29%), isn’t the sector generating the highest demand for the product. Some 40% of lumber is used for structural repairs and remodeling, Weyerhaeuser reports. Nonresidential construction uses about 6% of the supply.
Timber REITs Have An Eye On Conservation
Timber REITs practice forest conservation efforts since their business model depends on regenerating the forests that they harvest. All four REITs specializing in timberland have had all of their land certified as sustainable either by the Sustainable Forestry Initiative or the Forest Stewardship Council.
To count as sustainable, a forest must be managed in a way that preserves biological diversity but also benefits the lives of local people and workers, according to the FSC.
“CatchMark has always been focused on sustainable management of our prime timberlands to provide durable returns for our shareholders,” CatchMark CEO Brian Davis told Bisnow in an email. “The future must focus on meeting the increasing demand for a renewable resource like timber for both residential and commercial construction applications and managing the carbon footprint.”
Timber REITs Aren’t Diverse
The management of timber REITs is no more diverse than the rest of real estate. The Weyerhaeuser board of directors has nine members, four of whom are women and one of whom is a woman of color. Its senior management team doesn't include a person of color.
Rayonier has seven senior executives, all of whom are White and one of whom is a woman. CatchMark’s leadership totals eight executives, two of whom are women and none of whom is a person of color.
The Scale Of U.S. Forests
The United States has the fourth-largest area of forested land in the world, including about 8% of the world’s forests, outpaced only by Russia, Canada and Brazil. There are about 751 million acres of forest land covering a third of the U.S., meaning that the four REITs control about 4% of American forests. About 56% of forest lands are in private ownership.
U.S. forest variety is vast, including Alaskan boreal forests, deciduous forests on the Eastern Seaboard, pine in the South, coniferous forests and temperate rainforests in the West, and tropical rainforests in Puerto Rico and Hawaii. Builders typically use timber from softwood trees such as spruce, fir and pine.
Climate Change Poses Challenges For Timber
In the early 20th century, when conservation efforts had just gotten underway, deforestation was the critical issue facing U.S. forests. Reforestation since then essentially stopped deforestation. There are now more trees than there were 100 years ago, World Conservation Congress Chief Tom Tidwell said in 2016, though only about two-thirds as many as when Europeans first came to North America.
“Many [current] challenges are associated with drought, wildfire, invasive species, and outbreaks of insects and disease — all made worse by climate change,” Tidwell said. “Warming temperatures mean more energy in the atmosphere, which is consistent with severe weather events, such as floods, tornadoes, blizzards, ice storms and hurricanes.”
