Timber REITs are primarily involved in the harvest and sale of timber. They own and manage a variety of timberland properties in the U.S., Canada, New Zealand and other locations. Timberland is a somewhat specialized asset class that large institutional investors often use for portfolio diversification. Retail investors turn to timber REITs to gain exposure to this sector. Timber REITs returned an average of 8.28 percent in 2016. Four REITs compose the timber sector of the FTSE NAREIT All REITs Index, with a total equity market capitalization of $31,870.6M, representing 2.86 percent of the index as of September 30, 2017. Other industry averages are a YTD return of 17.34 percent, debt ratio of 27.8 percent, dividend yield of 3.58 percent, and a FFO/share of $1.50.
Timber REITs and Economic Conditions
Timber REIT performance is tied to the housing market and thus to a strengthening economy. As economic conditions and employment improve, housing starts rise and increase the demand for lumber. The current administration is unlikely to saddle the industry with any new regulations, another positive. On the minus side, the demand for paper is subject to decrease in the Internet age, and a strong U.S. dollar favors the import of logs from foreign sources, particularly Russia. Because trees grow at a rate of about 5 percent a year, timber REITs can afford to postpone harvest when the economy turns down. In addition, they can diversify their operations and use their land for other purposes.
Timber REITs are substantially more volatile than the S&P 500, and had higher absolute and risk-adjusted returns during the current bull cycle. The price of timberland is only 11 percent correlated to the S&P 500, and over the last five years, timber REITs have shown only moderate price correlation to the stock markets. That’s positive for those seeking to diversify their portfolios.
Three Largest Timber REITs
- Weyerhaeuser (WY): Owning or controlling more than 13 million acres of timberland makes WY the big daddy in this REIT sector, with a market cap of $25,588.3M. Its timberland holdings are concentrated in one of the most productive North American tree-producing areas, the Pacific Coast region. In February 2016, WY merged with Plum Creek Timber Company, Inc. WY also operates related business areas that include cellulose fiber and wood products. WY receives 30 percent of revenue from international sales. It operates in a dozen countries worldwide.
Characteristic | WY |
FFO/Share | $1.06 |
Price/FFO | 32.10 |
FFO Growth | 10.85% |
FFO Payout (Q2 2017) | – |
Total Return YTD | 16.27% |
Total Return 1-Year | 10.66% |
Dividend Yield | 3.64% |
Debt Ratio | 22.0% |
Long-Term Rating | BBB |
Update March 2019: Weyerhaeuser was the focus of a company article on this website.
- Rayonier (RYN): The second largest timber REIT has a market cap of $3,721.8M. RYN owns 2.7 million acres of timberland in 11 states and in New Zealand. It owns research facilities and nurseries that strive to improve tree health and yield. RYN also operates businesses in property services, hunting and recreation.
Characteristic | RYN |
FFO/Share | – |
Price/FFO | – |
FFO Growth | – |
FFO Payout (Q2 2017) | – |
Total Return YTD | 11.48% |
Total Return 1-Year | 12.77% |
Dividend Yield | 3.46% |
Debt Ratio | 22.3% |
Long-Term Rating | BBB- |
- Potlatch Corporation (PCH): This is the third largest timber REIT with 1.4M acres of timberland and a market cap of $2,071.1M. PCH manages its land to third-party certified sustainability standards. The REIT produces logs, wood fiber, lumber and panels. It also has operations in real estate and recreation. PCH is currently merging with Deltic Timber Corp, and will pass its REIT tax status to the combined company, PotlactchDeltic, which will have a market cap above $3B and 2M timberland acres. The conversion of Deltic to REIT status should create a $250M distribution to shareholders of the new company.
Characteristic | PCH |
FFO/Share | $2.85 |
Price/FFO | 17.89 |
FFO Growth | 5.26% |
FFO Payout (Q2 2017) | – |
Total Return YTD | 25.49% |
Total Return 1-Year | 35.56% |
Dividend Yield | 2.94% |
Debt Ratio | 23.8% |
Long-Term Rating | BB+ |