Timber REITs Offer Growth And Income

| September 15, 2008 | 0 Comments

Have you ever been to Flagstaff, Arizona?  If not, I recommend you visit some time.  Flagstaff’s a quaint little town located in the northern mountains of Arizona.  The pine trees grow like crazy and in the summers a cool breeze always blows.

It’s a nice escape from the Arizona desert . . . especially in the summer when it’s over 110 degrees.  Spend a short summer in Arizona and you’ll know exactly what I mean.

Every summer as a kid we’d head up to the woods.

My parents would drag me and my brothers, our thee dogs, and a week’s worth of supplies up to the cabin.  My grandparents still have the place just outside Flagstaff.  I’ve got great memories of summers spent exploring the woods, swimming and fishing in the lake, and just enjoying nature.

I loved it so much I’m starting to look at buying a place of my own . . .

Of course I sometimes jump in a little deep.  Don’t laugh.  But I found a really interesting piece of property just the other day.

A broker was advertising 13,000 acres of forest for sale in Pennsylvania (see I told you I think big).  The pictures of the property are beautiful. Rolling hills and wide swaths of timber.  The property even came with all the natural gas, mineral, and oil rights still intact.

The only problem was the asking price . . . a mere $32 million.

If you’re quick on the math you know the property’s selling for just over $2,400 per acre.  Is that a good deal?  I don’t know but I was determined to find out.

The broker noted the property was generating $150,000 a year in income from campground rental fees.  It sounds good till you realize that’s a return of less than 1%.  (Actually, it’s less than half of 1% per year).

Not very exciting.

However, timber can be a great investment – and very exciting (if you know how to do it).  It’s like being a farmer, with a really big crop.  Every year the trees grow larger and larger.  Every season their value increases.  Someone with good land and forestry management skills could probably create some substantial income.

The thought of buying this property is really appealing.

But I don’t know the first thing about timber management. . . Oh, and I’m just a little short of the $32 million purchase price.  I do however know of a cheaper and easier way to invest in timber.

What am I talking about?

Timber REITs of course.  These companies are set up to buy and manage large amounts of timber.  You can buy these REITs for a few dollars each on the stock market.  No complex contracts or negotiations.  Just use you normal brokerage account.

These Tree REITs give you ownership in some of the best timber property in the world.  They come with top notch management . . . who know what they’re doing.  And best of all, they pay a great dividend (some more than 4%).

So here are the ones I like.

The first REIT is Rayonier (RYN).  They own more than 2.6 million acres. Rayonier also has two other businesses, one in traditional real estate development and the other in fiber production (so it is not a pure play Tree-REIT).  Their market cap is just over $6.3 billion.  With a little quick math, you can buy the company for roughly $1,392 per acre.

The second company is Plum Creek (PCL).  They own 8 million acres of timber.  Their market cap is a whopping $8.5 billion.  But their land holdings are big.  This company’s trading at roughly $1,062 per acre.  Not bad at all.

The last company I found was Potlatch (PCH).  They only own 1.7 million acres of timber.  Their market cap is $1.9 billion.  That means every acre of property they own is worth $1,117.

I guess my dram of buying 13,000 acres of forest in Pennsylvania for $2,400 an acre isn’t such a good deal after all.  These three investments however are cheaper (per acre), and they even pay nice dividends.  If the idea of owning a forest sounds appealing take a closer look at these REITs.

Tags: , , , , , ,

Category: Real Estate

About the Author ()

The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

Leave a Reply

Your email address will not be published.