NCRIEF timber index shows ‘slow, steady’ gains

Quarterly reading on 445 US timberland properties shows 0.63 percent returns from lumber sales and a slight appreciation in land values during the first three months of 2017.

Total US timberland returns of 0.76 percent in Q1 of 2017 constituted a “slow, steady” performance, the National Council of Real Estate Investment Fiduciaries (NCRIEF) said in its latest index report released Tuesday.

Those Q1 returns represent a 55 percent drop from 1.18 percent returns shown in the Q4 of 2016, but remain well above the 0.26 percent contraction the index showed in Q1 of 2016.

Measuring income from both lumber sales and land appreciation on 445 investment-grade US timber properties, NCRIEF reported that earnings from lumber sales returned 0.63 percent, down slightly from the 0.68 reported last quarter. NCRIEF wrote after remaining flat throughout 2016, there was 0.13 percent timberland appreciation during the Q1 of 2017.

(Click to enlarge)
(Source: NCRIEF. Click to enlarge)

NCRIEF director of research Sara Rutledge told Agri Investor that timberland appreciation trends follow general land values and commercial real estate markets, helping partially explain the sharp drop in Northeast timberland values experienced after the economic crisis in 2008 (see chart).

She also noted that while income growth from US lumber sales has remained steady around 0.6 to 0.7 percent for several years back to 2011, the fact that the index is currently reflecting an improvement in overall land appreciation as well is encouraging.

Average timberland values across regions remained at the $1,800 per acre level, close to where they have been since year-end 2014. Timberland in the Northwest region has made only modest gains over the past year but currently has the highest value of the four areas measured — which also includes the Northeast, South and Lake States regions — at $2,678 per acre.

Kevin Bates, vice president of timberland investment at Olympic Resource Management, told Agri Investor that while he was surprised to see NCRIEF report a slight depreciation of 0.05 percent during Q1 in the Northwest, his firm’s focus, the change was small enough as to be largely insignificant.

NCRIEF index does reflect the strengths of the Northwest region relative to the South, which accounts for over two-thirds of the 445 timberland properties and is heavily reliant on the US housing market, at $1,780 per acre value.

“That’s because of our access to the export markets,” he said, echoing a point made in timberland consultant Wilshire’s letter to the California Public Employees Retirement System last year. “We would argue that’s a very important aspect of what we bring here in the Pacific Northwest to timberland investment that is a little hard for other regions to replicate.”

The companies contributing timberland property data to the NCRIEF index are Brookfield Timberlands Management, Campbell Global, Forest Investment Associates, Global Forest Partners, Hancock Timber Resource Group, Olympic Resource Management, Pennsylvania Timber, BTG Pactual, Resource Management Service, the Molpus Woodlands Group and Timberland Investment Resources.