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Similaire à Western Timberland Market Value Drivers and Trends
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Western Timberland Market Value Drivers and Trends
- 1. Western Timberland Market Value Drivers and Trends Roger Lord Mason, Bruce & Girard www.MasonBruce.com Presented at 2011 Timberland Investment Conference University of Georgia, Center for Forest Business March 24, 2011
- 2. Western Timberland Ownership Private timberland in the Northwest1 33 million acres of private timberland 3.1 million acres managed by TIMOs 5.4 million acres owned by Timber REITs 5.5 million acres other private (>100,000 ac.) 1Washington, Oregon, Idaho, western Montana & northern California
- 4. Drivers of Western Timberland Value Property characteristics Species mix, age class distribution, stocking Site productivity and terrain Merchantable timber volume and log quality Distance to markets Local log market competitiveness Domestic demand driven by sawmills, veneer Access to export markets Economics Discount rate Future log price assumptions Alternative land uses, not so much
- 5. Western Log Markets Primarily lumber and plywood focused Logs sold on board foot volume delivered Mills geared to smaller log diameters since 1990 Pulpwood is a by-product Western pulp mills rely on mill residuals No OSB capacity Leads to longer rotation lengths: 40 – 45 yrs.
- 6. Oregon Sawmills Westside Eastside 6
- 7. Washington Sawmills Westside Eastside 7
- 8. The Depth of the ‘Hurt’ Assuming 2007 was a ‘normal’ year… Cumulative reduction in Oregon & Washington harvest 2008-2010 has been 4.9 Billion Bd.Ft. Equals 70% of the 7.0 Bbf harvest in 2007 Lost value of $4.6 Billion (delivered basis) $2.5 Billion due to reduced volume harvested $2.1 Billion due to lower log prices
- 9. Log Market Drivers, 2010 Log exports to China up 600% Lumber production showing signs of life Western lumber production up 9.2% in 2010, compared to 3.9% in the South Spurred by export demand Lesson of 2010 is that western timberland owners benefit from access to export markets Downside is more misery for domestic mills
- 10. China: Market Driver of 2010 Total export volume from OR & WA of 1.1 Bbf with 500 MMbf to China Primarily domestic grade whitewoods More recently pushing up Doug-fir prices Lumber exports from U.S. finally ramping up
- 13. Coos Bay
- 15. Douglas-fir Prices Spike in 2010 caused by inventory imbalance Current prices driven by export demand Jan-11: Avg DF #2 Sawlog $562
- 16. Other Trends Short-term reduction in logging & haul costs Logging costs down 15-20% since 2008 Haul costs down 5-10% Losing logging capacity Loss of 30% of logging force since 2006 Deferred equipment maintenance / replacement Cost reductions not sustainable
- 17. Western Timberland Appraisals Tend to rely on Income Approach (DCF) more than Sales Comparison Approach More sources of variability between properties makes comparisons challenging Fewer transactions to compare Alternative land uses less of a valuation issue Timber production fundamentals drive values
- 18. Key Factors Affecting DCF Valuations Log price projections Discount rate Near-term timber yields Production costs
- 19. Key Factors Affecting DCF Valuations At current discount rates, cash flows in the first 5 years represent 15-30% of the NPV Effect of short-term log market fluctuations are muted by long-term nature of DCF valuation Especially because deferred harvest volume can be stored on stump and will continue to grow This explains why timberland has held value so well over the past 3 years
- 20. Key Factors Affecting DCF Valuations Discount rates and log price projections are linked High rates coupled with aggressive price scenarios Low rates suggest more conservative pricing Makes it difficult to reliably extract discount rates from transactions
- 21. MB&G Fall 2010 Market Survey Log Price Expectations Housing starts not above 1 MM until 2012 or ’13 Expect flat log prices in 2011, recovery in late ’12 “Return to trend” prices 4-5 yrs out Upside Potential Exports bigger than anticipated Interior BC Mountain Pine Beetle Housing comes back sooner
- 22. MB&G Fall 2010 Market Survey Capital Availability Better than a year ago More demand than deals Discount Rate Most common response: 6.0 – 6.5% Some higher, none lower Up 50-100 bps over 2009 “Bid-ask gap” persists
- 23. Westside Sales - the Trend Is Clear
- 24. Umm… the trend is clear…
- 25. Or Is It?
- 26. Income vs. Growth Properties Properties with little merch timber inventory often sell for as much or more than those with higher volumes. The trade-off is asset value growth versus higher current income.
- 27. About Mason, Bruce & Girard Full service natural resource consulting firm Forestry Services Forest management responsibility on 300,000 acres Inventory & Biometrics Planning & Economics Appraisal & Valuation Services Environmental Services Geospatial Services Appraisal & Valuation Over the last five years, MB&G has appraised 5.0 million acres of timberland valued at nearly $15 billion Other valuation services include: Acquisition/Divestiture Due diligence Conservation easements Litigation Support & Expert Witness www.MasonBruce.com
- 28. About Mason, Bruce & Girard MB&G began as a forestry consulting business in 1921 under David Mason. Mason began his first forestry consulting firm soon after the 1920 publication of his research on the timber industry and lumber production in the Pacific Northwest. As a result of his efforts to move the timber industry toward a more professional and sustainable approach to forestry, he became widely known as one of the nation’s first leading advocates of sustained yield forest management. In 1936, Mason created a partnership with Donald Bruce — Mason & Bruce. Not long thereafter, James Girard joined the group, and in 1948 the firm adopted its present name — Mason, Bruce & Girard. By the middle of the 20th Century, David Mason’s and MB&G’s influence on the forestry industry was second to none. In fact, in 1952 F.K. Weyerhaeuser said of David Mason: “No single person has been more influential in promoting sound forest management on private forest lands than he.” Over the years, MB&G has expanded its range of services, and today has diversified into a full-service natural resources consulting firm, with expertise in environmental services, forestry and geographic information systems (GIS). David Mason
Notes de l'éditeur
- GREETINGS FROM THE UPPER LEFT-HAND CORNER OF THE COUNTRYI WANT TO JUMP RIGHT IN WITH A BRIEF OVERVIEW OF THE REGION TO ORIENT EVERYONETHE LARGER NORTHWEST INCLUDES ALL OF OREGON, WASHINGTON, IDAHO, WESTERN MONTANA, AND NORTHERN CALIFORNIATHERE IS ABOUT 33 MM ACRES OF PRIVATE TIMBERLAND… AT LEAST 3.1 MM ACRES ARE MANAGED BY TIMOS 5.4 MM ACRES ARE OWNED BY REITS – AND THIS IS INCLUDING WEYCOLESS WELL-KNOWN IS THAT THERE IS EASILY 5-6 MM ACRES OF TIMBERLAND OWNED BY OTHER LARGE PRIVATE LANDOWNERS – DEFINED AS THOSE OWNING AT LEAST 100,000 ACRESREGIONAL MANUFACTURERS – SIERRA PACIFIC, ROSEBURG, HAMPTON AND OTHERSPURE TIMBER PLAYS SUCH AS GREEN DIAMOND, PORT BLAKELY, AND OTHERS
- FOCUSING IN ON OREGON AND WASHINGTON…19 MM ACRES OF PRIVATE TIMBERLAND - 45% OF TOTALMOST OF THE INVESTMENT GRADE TIMBERLAND IS ON THE WEST SIDE OF THE CASCADESTHIS TOTALS ALMOST 12 MM ACRES
- WHAT DRIVES WESTERN TIMBERLAND VALUES?ASIDE FROM THE MACROECONOMIC FORCES WE ALL FACE, THE DRIVERS AREPROPERTY CHARACTERISTICS SUCH AS SPECIES MIX, SITE PRODUCTIVITY, TERRAIN… I THINK ITS FAIR TO SAY THAT IN THE WEST THERE ARE MORE PROPERTY VARIABLES TO CONSIDER THAN IN MANY OTHER REGIONSFOR EXAMPLE, WE HAVE MORE OF A MIX OF CONIFER SPECIES THAN THE SOUTH AND THESE HAVE VERY DIFFERENT VALUESFOR INSTANCE HEMLOCK HAS HISTORICALLY BEEN WORTH ONLY 50-60% OF DFTERRAIN IS ALSO MORE VARIABLE, RANGING FROM FLATTER SHOVEL GROUND TO CABLE AND SOMETIMES HELICOPTER LOGGINGHAVE YOU ALL BEEN WATCHING AX MEN? IF SO, YOU KNOW WHAT I MEANLOCAL LOG MARKET COMPETITIVENESS VARIES FROM AREA TO AREA – WE’LL LOOK AT THAT IN A MINUTEALTERNATIVE LAND USES ARE PROBABLY NOT AS MUCH OF A FACTOR THAN IN OTHER REGIONS SUCH AS THE SOUTH. FEWER ALTERNATIVE USESESPECIALLY TRUE IN OREGON WITH STRICT LAND USE REGULATIONS
- OUR LOG MARKETS ARE DRIVEN BY LUMBER AND PLYWOOD MARKETSPULPWOOD IS LARGELY A BY-PRODUCTPARTLY AS A RESULT OF THIS, OUR ROTATION LENGTHS TEND TO BE LONGER – GENERALLY IN THE 40-45 YR RANGESOMETIMES AS LOW AS 35, SOMETIMES 50+ YRSLOG QUALITY (SIZE) IS STILL IMPORTANT ALTHOUGH LESS SO THAN IN THE PASTMILLS ARE GEARED TO SMALLER LOG DIAMETERS
- HERE YOU CAN SEE THE SPLIT BETWEEN THE WEST-SIDE – OR WET-SIDE - FORESTS WEST OF THE CASCADES AND THE DRY SIDE FORESTS EAST OF THE CASCADESDOUGLAS-FIR IS THE PREDOMINANT SPECIES, HEMLOCK FOUND PRIMARILY ALONG THE COAST.IN THE EAST, YOU HAVE PONDEROSA PINE AS WELL AS DOUG-FIR, GRAND FIR AND OTHER SPECIESIN OREGON, SAWMILL CAPACITY HAS BEEN CONCENTRATED IN THE SOUTHERN WILLAMETTE VALLEY AROUND ROSEBURG AND EUGENE AND THIS AREA HAS HAD SIGNIFICANTLY HIGHER LOG PRICESMARKETS IN NW OREGON AND ALONG THE COAST ESPECIALLY WERE A BIT WEAKERMORE RECENTLY, THE MID-COLUMBIA MARKET REGION ON BOTH SIDES OF THE COLUMBIA RIVER HAS BECOME MUCH STRONGER
- WASHINGTON IS MORE OF A MIX OF HEMLOCK AND DOUG-FIRHISTORICALLY, MARKETS IN WASHINGTON WERE WEAKER AND A LOT OF LOG VOLUME FLOWED SOUTH INTO OREGON, BUT THAT’S CHANGED AS WELL.THERE’S BEEN SIGNIFICANT INVESTMENT IN NEW CAPACITY, ESPECIALLY IN THE SOUTH PUGET SOUND AND SOUTHWEST WASHINGTON ALONG THE I-5 CORRIDOR, SO THAT LOG MARKETS ARE MUCH MORE COMPETITIVE NOW.MARKETS ARE STILL WEAKER ON THE OLYMPIC PENINSULA AND THE AREA NORTH OF SEATTLE
- THE RECESSION HAS BEEN QUITE SEVEREIF YOU ASSUME 2007 WAS A NORMAL YEAR, THE CUMULATIVE REDUCTION IN HARVEST IN OREGON AND WASHINGTON HAS BEEN ALMOST 5 BILLION BD FT.THIS EQUALS 70% OF THE 2007 HARVESTTHE CUMULATIVE VALUE LOST IS ON THE ORDER OF 4.6 BILLION $$ COUNTING BOTH THE REDUCTION IN VOLUME HARVESTED AND THE EFFECT OF LOWER PRICES ON WHAT WAS HARVESTED.*** YOU MIGHT THINK THAT THIS WOULD HAVE RESULTED IN LOWER TIMBERLAND VALUES – AND THEY HAVE DECLINED – BUT NOT AS MUCH AS SOME EXPECTED.WE’LL COME BACK TO THIS ISSUE LATER, BUT FIRST…The $2.5 Billion in reduced volume is 4.9 Bbf x weighted delivered value of $510/MbfThe other $2.1 Billion is from reduced delivered value of the volume that was harvested during these years.
- … I WANT TO SHIFT GEARS AND TALK ABOUT MORE RECENT TRENDSTHE BIGGEST DRIVER OF LOG MARKETS IN 2010 WASCHINA, WITH LOG EXPORTS TO THAT COUNTRY UP 600%WE’VE ALSO SEEN A RECOVERY IN LUMBER PRODUCTION THAT HAS ALSO BEEN SPURRED BY EXPORT DEMAND, ALSO LARGELY TO CHINATHE LESSON OF 2010 HAS BEEN A REDISCOVERY OF THE BENEFITS OF ACCESS TO EXPORT MARKETS – FOR LANDOWNERS, IT HAS BEEN A TREMENDOUS BOON…THE DOWNSIDE IS THAT IT HAS INFLICTED EVEN MORE MISERY ON DOMESTIC MILLS, UNLESS THEY’VE BEEN ABLE TO RE-FOCUS PRODUCTION ON EXPORT MARKETS… AND MANY HAVEU.S. lumber output finishes 2010 up 6.4% U.S. lumber production totaled 24.909 billion board feet in 2010, up 6.4% from the 2009 total, according to the Western Wood Products Association. Production in the West jumped 9.2% from the 2009 total, while southern production was up 3.9%. Nationwide, production in December totaled 1.981 billion feet, up 17.4% compared to the December 2009 total. – Random Lengths, 3/2/2011
- EXPORTS TO CHINA ONLY STARTED TAKING OFF IN THE SECOND QUARTER OF LAST YEAR AND REALLY TOOK OFF IN THE THIRD AND FOURTH QUARTERSWITH 500 MMBF WAS SHIPPED TO CHINA IN 2010, OUT OF TOTAL OF 1.1 BBF OF LOG EXPORTSTHE INITIAL DEMAND WAS FOR LOWER QUALITY HEMLOCK LOGS BUT THAT SPREAD TO INCLUDE DOUGLAS-FIR LATERUNLIKE JAPAN, QUALITY IS NOT AN ISSUE FOR CHINA – THEY WILL HAPPILY TAKE DOMESTIC 3SAW GRADE LOGS – MOST OF THE USE IS FOR CONCRETE FORMSSO FAR THIS YEAR, IT APPEARS THE RATE OF EXPORTS IS HOLDINGTHERE WERE AT LEAST 21 SHIPS SCHEDULED TO BE LOADED FROM MID-FEBRUARY THROUGH MARCH AT US PORTS IN THE PACIFIC NORTHWESTWE’RE ALSO SEEING NW LUMBER EXPORTS START TO RAMP UP, AGAIN MOSTLY DESTINED FOR CHINA
- AS A RESULT OF THIS SURGE IN DEMAND, THERE HAVE BEEN 5 NEW EXPORT FACILITIES OPENED – OR I SHOULD SAY RE-OPENED AFTER AT LEAST A DECADE OF NO ACTIVITYTHIS HAS EXTENDED THE REACH OF EXPORTERS INTO ESSENTIALLY ALL OF THE WEST-SIDE OF WASHINGTON FOR SURE AND MUCH OF WESTERN OREGONWE ALSO SEE EXPORT DEMAND REACHING EAST ALONG THE COLUMBIA WITH INTERMEDIATE EXPORT COLLECTION SITES THAT MOVE THE LOGS ON TO LONGVIEWTHERE HAS BEEN A RIPPLE EFFECT THROUGHOUT THE REGION AS DOMESTIC MILLS ADJUST THEIR WOOD PROCUREMENT AREAS TO AVOID AREAS WHERE EXPORT DEMAND HAS DRIVEN UP PRICES
- (HALF WAY POINT !!!)THIS GRAPH DEPICTS PRICES FOR HEMLOCK AN WHITEWOOD #2 SAWLOGS – BASICALLY 12”+ LOGS – FOR THREE MARKET REGIONSNOTICE HOW PRICES ACROSS THE 3 REGIONS HAVE CONVERGEDPRICES AS OF JANUARY WERE ACTUALLY ABOVE THE TREND PRICE OF ABOUT $425 TO $450 – WHICH IS QUITE REMARKABLE COMPARED TO WHERE WE WERE IN 2009.THESE PRICES ARE LOG LINES DOMESTIC PRICES. EXPORT PRICES ARE HIGHER.FOREST2MARKET HAD HEMLOCK EXPORT PRICES ABOVE THE $550 LEVEL, A 30% INCREASE IN 12 MONTHS
- DOUG-FIR IS NOT QUITE BACK TO ITS TREND PRICE OF ABOUT $600 BUT ITS WITHIN SPITTING DISTANCEAFTER SINKING TO $350 IN EARLY 2009, THAT’S ALSO QUITE WELCOMEIT REMAINS TO BE SEEN WHETHER THIS IS A SHORT-TERM SPIKE LIKE WE SAW EARLY LAST YEAR OR SOMETHING MORE LONG-LASTINGAS WE’LL SEE LATER, PRICES ARE QUITE A BIT ABOVE WHERE FOLKS THOUGHT THEY’D BE LAST FALLWE MAY SEE SOME DECLINES IN THE SPRING AS WEATHER GETS BETTER BUT IF PRICES HOLD UP WE’RE ALL GOING TO HAVE TO RE-THINK FUTURE PRICE EXPECTATIONS
- THERE ARE SOME OTHER TRENDS – NOT SO POSITIVE – ARE ALSO WORTH NOTING BECAUSE THEY WILL HAVE SOME EFFECT ON TIMBERLAND VALUES.OVER THE PAST 3 YEARS, WE’VE EXPERIENCED A REDUCTION IN LOGGING AND HAULING COSTS OF 5-20% AS LAND MANAGERS PUT PRESSURE ON OPERATORS TO CUT COSTS TO THE BONE – AND SOME WOULD SAY BEYONDIN OREGON, AND PROBABLY WASHINGTON TOO – WE’VE LOST SOME 30% OF OUR LOGGING FORCE SINCE 2006EQUIPMENT REPLACEMENT HAS BEEN DEFERREDTHESE COST REDUCTIONS HAVE BEEN REFLECTED IN OUR APPRAISAL ANALYSES AND HAVE HELPED SUPPORT VALUES, BUTTHEY ARE NOT LIKELY TO BE SUSTAINABLE AND WE EXPECT TO SEE COSTS BEGIN TO RISE AGAIN ONCE HARVEST LEVELS RETURN TO NORMAL – ESPECIALLY GIVEN RISING FUEL COSTSCOSTS MAY EVEN HAVE TO RISE ABOVE OLD LEVELS TO ATTRACT NEW CAPITAL AND WORKERS BACK INTO THE LOGGING INDUSTRY
- I WANT TO SHIFT GEARS AGAIN, NOW TO WESTERN TIMBERLAND APPRAISALS AND MAKE SOME COMMENTS ABOUT THE KEY FACTORS AFFECTING THEM…FIRST, I THINK ITS FAIR TO SAY THAT IN THE WEST WE APPRAISERS TEND TO PUT MORE RELIANCE ON THE INCOME APPROACH THAN THE SALES COMPARISON APPROACH.THERE ARE SEVERAL REASONS FOR THIS:FIRST, THERE ARE MORE SOURCES OF VARIABILITY BETWEEN PROPERTIES – SPECIES MIX, SITE QUALITY, TERRAIN, AND OTHER FACTORS – THAT MAKE COMPARISONS MORE CHALLENGINGSECOND, THERE ARE FEWER TRANSACTIONS TO COMPARE – ESPECIALLY RECENTLYALSO, IN MANY CASES THERE ARE FEWER ALTERNATIVE LAND USES TO CONSIDER SO THEY ARE LESS OF A VALUATION ISSUETIMBER PRODUCTION FUNDAMENTALS DRIVE VALUE AND THEY’RE BEST ANALYZED BY PROJECTING FUTURE CASH FLOWS
- WE RECENTLY DID SOME SENSITIVITY ANALYSIS ON OUR DISCOUNTED CASH FLOW MODELS TO SEE HOW SENSITIVE THE NET PRESENT VALUE IS TO KEY ASSUMPTIONSTHIS GRAPH SHOWS THE RELATIVE SENSITIVITY OF THE NET PRESENT VALUE TO 5% CHANGES – UP AND DOWN – OF SOME KEY VARIABLESTHE ANSWER WAS MOST SENSITIVE TO LOG PRICE ASSUMPTIONS: A 5% CHANGE IN LOG PRICES IN EITHER DIRECTION RESULTED IN AN 8.9% CHANGE IN THE NPVA 5% CHANGE IN DISCOUNT RATE (MOVING FROM 6.5% TO 6.825% OR 6.175%) RESULTED IN ABOUT A 5% CHANGE IN THE NPV BY COMPARISON, THE RESULT WAS ALMOST AS SENSITIVE TO NEAR TERM YIELDS. INCREASING OR DECREASING THE TIMBER YIELDS ON ALL STANDS AGE 15 AND OLDER AFFECTED THE NPV BY BETWEEN 4.5 AND 4.8%VARYING PRODUCTION COSTS – LOGGING AN HAULING – BY 5% HAD A 3 TO 4% IMPACT ON NPVAND VARYING THE TIMBER YIELDS ON THE REPRODUCTION (AGE < 15) AND FUTURE STANDS ONLY IMPACTED THE NPV BY ONLY ABOUT 1%THE POINT OF THIS IS THAT WE OFTEN SEEM TO OBSESS ABOUT DISCOUNT RATE BUT THERE ARE OTHER FACTORS AND ASSUMPTIONS THAT ARE AT LEAST AS IMPORTANT TO GET RIGHT
- GETTING BACK TO THE QUESTION OF WHY TIMBERLAND VALUES HAVE NOT DECLINED AS DRAMATICALLY AS SOME THINK “THEY SHOULD HAVE,” CONSIDER THIS…AT CURRENT DISCOUNT RATES – 6 TO 6.5 PERCENT – THE FIRST 5 YEARS OF CASH FLOWS REPRESENT ONLY 15 – 30% OF THE NPVSO THE EFFECT OF SHORT-TERM MARKET FLUCTUATIONS – EVEN THE LARGE ONE’S WE’VE SEEN RECENTLY – ARE MUTED BY THE LONG-TERM NATURE OF DCF VALUATIONTHIS IS ESPECIALLY TRUE BECAUSE DEFERRED HARVEST VOLUME CAN BE STORED ON THE STUMP AND WILL CONTINUE TO GROWWE’VE SEEN THAT MANAGERS HAVE DEFERRED HARVEST OVER THE LAST 3 YEARS… AND WE HAVE REFLECTED THAT IN OUR VALUATION WORKWHEN YOU’RE RENTING OFFICE SPACE OR AN APARTMENT, WHEN THE UNIT IS VACANT, THAT INCOME IS LOST FOREVER – ITS GONE. YOU CAN’T SELL THAT MONTH’S WORTH OF SPACE LATER. AND SO WE’VE SEEN LARGE DECLINES IN OTHER TYPES OF COMMERCIAL PROPERTY VALUES.NOT SO WITH TIMBER – “LOST” INCOME IS ONLY DEFERRED INCOME.WHEN YOUR TIMBER IS GROWING AT A RATE CLOSE TO THE DISCOUNT RATE, YOU CAN SEE VERY LITTLE REDUCTION IN NET PRESENT VALUENOTE: contribution to NPV depends on the shape of future cash flows – even, increasing, decreasing, etc.
- BACK TO DISCOUNT RATES FOR A MOMENT…DISCOUNT RATE AND LOG PRICE EXPECTATIONS ARE LINKED. A HIGH RATE COUPLED WITH AN AGGRESSIVE PRICE SCENARIO CAN YIELD THE SAME PROPERTY VALUE AS A LOW DISCOUNT RATE WITH MORE CONSERVATIVE PRICING.THIS MAKES IT DIFFICULT FOR APPRAISERS TO RELIABLY EXTRACT DISCOUNT RATES FROM TRANSACTION DATA.SO WE OFTEN END UP RELYING ON MARKET SURVEYS AS A PRIMARY SOURCE OF DISCOUNT RATE INFORMATION.AT MB&G OUR MOST RECENT MARKET SURVEY WAS CONDUCTED IN OCTOBER AND NOVEMBER.
- WHAT MARKET PARTICIPANTS SAID THEN WAS RELATIVELY PESSIMISTICTHE CONCENSUS WAS A LONG SLOW RECOVERY WITH PRICES RETURNING TO TREND 4-5 YEARS OUT, AND PRETTY FLAT FOR 2011THE UPSIDE POTENTIAL INCLUDED EXPORTS BEING A BIGGER FACTOR THAN ANTICIPATED, AND SO FAR THAT’S BEEN THE CASE
- CAPITAL AVAILABILITY WAS REPORTED TO BE BETTER THAN IN LATE 2009 AND THERE WAS MORE DEMAND FOR DEALS THAN THERE WERE DEALS TO MAKE.ON THE DISCOUNT RATE QUESTION, RESPONDENTS REPORTED RATES BETWEEN 6 AND 7% WITH MOST BEING IN THE 6 TO 6.5% RANGETHIS WAS UP 50 TO 100 BASIS POINTS OVER THE SAME TIME THE PREVIOUS YEAROUR ANALYSIS OF THE TRANSACTIONS THAT OCCURRED WAS CONSISTENT WITH THE REPORTED DISCOUNT RATES SOME SALES IN THE 6.25% RANGE WITH SOME OTHERS IN THE 6.7 TO 6.8 RANGEOF COURSE THE VOLUME AND SIZE OF RECENT SALES HAS BEEN PRETTY SMALL.
- I’LL FINISH UP WITH A FEW SLIDES VIEWING TRANSACTION DATA IN DIFFERENT WAYS…IF YOU JUST PLOT AN ACRE-WEIGHTED AVERAGE PRICE OF TRANSACTIONS YOU’LL GET THIS LINE, WHICH SHOWS A PEAK IN TIMBERLAND PRICES IN 2007 AND THEN A DECLINE OF ABOUT 25% OFF THAT PEAK.I DON’T LIKE THIS OVER-SIMPLIFICATION – I THINK IT MASKS THE TRUE PICTURE, WHICH IS MORE LIKE THIS…
- YOU SEE MUCH MORE VARIABILITY BETWEEN INDIVIDUAL SALES THAN YOU DO FROM YEAR TO YEAR. ITS NOT QUITE A SIMPLE TREND LINE…
- I PREFER THIS VIEW – YOU’VE HEARD OF THE TIMBERLAND BUBBLE, WELL THIS IS THE TIMBERLAND BUBBLE CHART.TIME IS ALONG THE BOTTOM, PRICE PER ACRE IS ON THE VERTICAL AXIS. THE SIZE OF EACH CIRCLE REPRESENTS THE ACRES IN THE SALE. THERE DOES SEEM TO BE A DECLINE IN PRICES FROM 2007 THRU 2010 BUT A COUPLE OF POINTS:SOME OF THOSE LARGE SALES IN 2007 AND 2008 WERE VERY NICE, ABOVE AVERAGE QUALITY PROPERTIES – LONGVIEW AND MENASHA FOR EXAMPLETHE FEW SALES WE’VE HAD SINCE THEN HAVE BEEN VERY SMALL AND HAVE TENDED TO BE HEMLOCK PROPERTIES MORE THAN DOUG-FIRTHERE WAS AN 18 MONTH GAP BETWEEN AUGUST 2009 AND FEBRUARY 2011 WHERE THERE WERE NO SALES LARGER THAN 20,000 ACRES AND THE AVERAGE SALE DURING THAT TIME WAS ONLY 10,000 ACRES. THAT TIME PERIOD WAS BOOKENDED BY 2 SALES OF WEYERHAEUSER HEMLOCK LANDS ON THE SW WASHINGTON COAST. I’M NOT SAYING THAT THEY WERE BAD SALES OR POOR PROPERTIES OR ANYTHING LIKE THAT – BUT THEY WERE HEMLOCK PROPERTIES IN THE RELATIVELY WEAKER COASTAL MARKET AREA COMPARED TO SOME OF THE EARLIER SALES.
- ONE MORE GRAPH –IN THIS ONE, I SEGREGATED SALES SINCE 2007 INTO THOSE WITH MORE THAN 5 THOUSAND BD FT PER GROSS ACRE (SHOWN IN GREEN) VERSUS THOSE WITH LESS VOLUME PER ACRE (SHOWN IN RED).*** THIS TIME THE BUBBLE SIZE REPRESENTS AVERAGE MERCH VOLUME PER ACRETHE INTERESTING THING HERE IS THAT PROPERTIES WITH LITTLE MERCH TIMBER OFTEN SELL FOR AS MUCH OR MORE THAN THOSE WITH HIGHER VOLUME.YOU MIGHT VIEW THE RED PROPERTIES AS ‘GROWTH’ PROPERTIES, WITH VALUE DRIVEN BY ASSET APPRECIATION – BIOLOGICAL GROWTHAND THE GREEN AS ‘INCOME’ PROPERTIES BECAUSE THEIR VALUE IS DRIVEN BY NEAR-TERM INCOME.ALL THIS TO DEMONSTRATE THAT THE VALUE RELATIONSHIPS IN WESTERN TIMBERLAND ARE COMPLEX AND CAN’T BE REDUCED DOWN TO A PER ACRE AVERAGE.
- WITH THAT, I WILL TURN IT BACK TO YOU, DAVID