One of the advisers in my office was considering using REITs as a small percentage of portfolios for larger accounts. One of the ones he suggested was a Timberland REIT. Considering the current status of the economy, I couldn’t really see how a Timberland REIT could be a great investment (unless one assumes we’ve reached a bottom…) I don’t much about REITs or this one in general, but it seems to me the biggest “customers” of the REIT would be home builders and home improvement supply shops, such as home depot. With the housing market in a slump, I can’t imagine there are houses being built like there was a few years ago. Even if the timberland is used for paper/cardboard products…people aren’t ordering as much goods as they used to and I would assume less is being shipped. Any other thoughts on this?? Thanks.
Timberlands can be a great opportunity. The price of LUMBER has decreased considerably, but the price of TIMBER has not. Something here has to give, yes. If you are looking for a short-term play, than this may not be the way to go. Looking longer term: Depending on leverage and other factors, many of these companies can delay harvesting. Finding normalized cash flows is crucial when looking at this. Another way to value these companies is based on an asset play. Try to find what the market is pricing the timber land for. Timber land varies quite a bit depending on location, but typically sells in the $1,000 to $1,500 range for plain vanilla timber land. One more bonus about these timber REITs is that their dividends are typically taxed as capital gains. While this may not matter in the current tax environment, an Obama or Clinton presidency may change this. Just because a company is cyclical and we are in a downturn that may get worse does not mean that you should throw the stock out the window. You may be able to find a good deal on a REIT like this that has been beaten up.
There are a number of different advantages with purchasing a small percentage of timberland REITs for portfolios, though I wouldn’t concentrate too much on the timberland portion of it. I agree with you - timber isn’t exactly a high priority right now, but it’s a stable asset that only grows bigger and more valuable by waiting out a tough current market. At the very least, you’re also (typically, with timberland REITs and other large timber companies) purchasing large inventories of land that will at least remain stable in value, if not increase slightly year over year. Plum Creek Timber, for example, currently owns 8.2 million acres of land in the interior west. That’s tough for anyone to value. Other advantages that come to mind are a historically low correlation to fixed income, traditional real estate and most other asset classes, and decent inflation protection. My thinking is that timberland REITs are another asset class that may provide a zig when the market zags. It probably won’t give the historically incredible returns on an annual basis that emerging markets or tech stocks may, but its stable and probably a decent investment in small doses.
Seattle Wrote: ------------------------------------------------------- It probably won’t give the historically > incredible returns on an annual basis that > emerging markets or tech stocks may, but its > stable and probably a decent investment in small > doses. Maybe not emerging markets, but there have been studies that show that timber outperforms stocks.