Imagine you are relaxing in a rocking chair at Cracker Barrel on December 31, 2012 with a copy of the statement from your brokerage account. In late 2011, you made a decision to invest heavily in publicly-traded timberland owning real estate investment trusts (timber REITs) including Plum Creek (PCL), Potlatch (PCH), Rayonier (RYN) and Weyerhaeuser (WY). What was the result of your investment decision? Your statement at the end of 2012 reflected an account bursting with 2012 timber REIT returns.
Timber REIT Investment Performance
In 2012, publicly-traded timberland-owning REITs, as measured by the Forisk Timber REIT (FTR) Index, outperformed the S&P 500, private timberland investments and the universe of publicly-traded real estate investment trusts:
- S&P 500 (2012): 13.41%
- Public REITs (NAREIT, 2012): 14.98%
- Private timberlands (NCREIF, 2012): 7.75%
- Public timber REITs (FTR Index, 2012): 34.12%
Now, it’s three-quarters through 2013 and time to evaluate year-to-date performance of public and private timber investment vehicles relative to the S&P 500. Based on the performance of key indices, putting $100 in public timber REITs for the first three quarters of 2013 would have earned you $5.25 (see Table), enough for a grande soy vanilla latte at Starbucks. However, the same investment in the S&P 500 earned over three times as much at $17.91. Overall, equity markets outperformed real estate investments, timber and otherwise, year-to-date.
Conclusions and Context
How can we put the S&P outperformance in context? As with all things timber, investment models and timeframes matter. The year-to-date comparison is both arbitrary and informative. When evaluating rolling fixed-period financial performance over the past ten years, we find a cyclical horse race across asset classes that vary most prominently in their relative volatility and cash generation. This reflects, in part, the difference between investing in a high maintenance, portfolio-stabilizing hard asset and liquid, dividend-yielding, more volatile equity vehicles.
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