Timberland

Who buys the trees grown by timberland-owning REITs?

Timber REITs, End Markets for Wood, and Regional Timberland Ownership

Timber REIT returns depend on strong demand from end-use markets for forest products such as lumber, plywood, pulp and OSB. This explains the dependence that timber REITs have on  housing markets. Low demand for new construction equates to low demand for wood-based building products. As the man said on School House Rock, “the knee bone is connected to the shin bone…”

From the point of view of an individual forestland owner, wood demand is also a function of the proximity of wood-using mills relative to the timberland property. From an economic standpoint, the value of the trees grown depends wholly on the ability of nearby mills to pay for and convert these trees into higher valued products. Timber REITs, which own timberlands in multiple markets throughout the US and across states, are simply aggregations of multiple local markets, rolled up into a portfolio of timberland ownerships. As seen in the figure below, timber REIT forest assets vary across and within regions with respect to forest characteristics, end market opportunities, and current and future timber prices.

The figure highlights data in thousands of acres:

Timber REITs, End Markets for Wood, and Regional Timberland Ownership

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About the author

Brooks Mendell, Ph.D.

Brooks Mendell, Ph.D. is President and Founder of Forisk Consulting, a forest industry, timber REIT, bioenergy and timber market research firm. Dr. Mendell has over fifteen years of operating, research, and consulting experience in forest business and finance. Mendell has published over sixty articles and two books on topics related to timber and timberland REITs and markets, forest business management and operations, and communication skills.

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