M c C a s l i n ~ B a r r o w ~ H e n d e r s o n

Investment Overview

Introduction

Timberlands across the United States provide the raw materials for wood, paper and packaging  products. There are a variety of different trees that include pines, oaks, maples, etc. Geographically, timberlands are located in every state with a concentration of fertile lands in the South, Southeast and Northwest. Once harvested, timber is transported to sawmills for wood products and paper mills for paper products. The business is now international with heavy demand from China, Asian emerging markets and South America.

In the United States, one of the primary drivers of demand is the housing market. With housing starts improving, lumber prices have begun to improve as well. The “do-it yourself” and remodeling markets, from companies such as Home Depot and Lowes, have continued to create demand. These markets combined with global demand from China, Asia and South America, have caused an increase in demand for wood and paper products that has begun to affect  timber prices.

Products for Two Industries

Wood products include: lumber, plywood, studs, paneling, fiberboard
Paper products include: paper (fine paper and newsprint), packaging, corrugated products, tissue, cartons, liquid packaging, pulp

Timberland Management

McB manages its forests for a sustainable harvest, today and into the future. Planting, protecting, thinning and harvesting are practices that must be done profitably with care and concern for the future. Our dedicated team of foresters works to determine the optimal time to harvest each tree. Rather than selling at unattractive values, we have the flexibility to defer the harvest, allowing the trees to grow in size and value.

McB foresters focus their efforts on making sure that each log harvested is efficiently merchandised, sorted and sold to the customer who values it the most. This means getting our trees to the right market at the right time.

We practice sustainable forestry and good stewardship on all of our timberlands. This commitment to practicing sustainable forestry incorporates the perpetual growing and harvesting of trees with the protection of wildlife, plants, soil and water quality. It also confirms the diligence of our foresters who work every day to meet this commitment.

Forms of Timber Investment

There are several ways to invest in timber. For individual investors, Real Estate Investment Trusts (REITs), such as Plum Creek and Potlatch, have provided solid returns. It is worth noting that Plum Creek is the largest land owner in the United States with approximately 6.8 million acres. In addition, other public companies, such as Weyerhaeuser  and International Paper, are publicly listed companies on the New York Stock Exchange.

Another way for large investors to own timberlands is through Timber Investment Management Organizations (TIMOs). These companies manage the acquisition of timberland and timber harvesting for large endowments, pension funds, financial companies and insurance companies. Some financial and wealth management companies make these timber investments available in small units to their clients.

Timber investments are not correlated to the stock and bond markets and other asset classes. For this reason, timber investments have been used to diversify both individual and institutional portfolios.

Direct Investment in Timberland

Unlike investing in public companies or owning units through a large institution, McB invests directly in timberland acreage. Our strategy is to aggressively manage and market timber through timely harvesting, while being opportunistic land sellers.

Investment Characteristics for Timberland

Timberland value benefits from natural, biological growth. The bigger the tree, the more it’s worth. Therefore, through careful management, harvesting and conservation, timberland can provide an annual yield similar to bond returns. In addition to reliable cash flow, other investment benefits include:

  • Real estate appreciation
  • Income streams from recreational leases, such as hunting clubs
  • Low risk investing – timber can be stored on the stump during down cycles
  • Preferential tax treatment – income from harvesting decreases the tax base; capital gains apply after 12 months to a small percentage of the timber sales
  • No correlation to the stock market, bond market and other asset classes
  • Hedge against inflation – as trees grow, so does their value

About McB

McB partners have been in the timberland business over 20 years. Through this tenure, the company has established relationships with the public companies, private companies and industry leaders  who actively buy and sell timberlands as well as the brokerage community. The company principals have been involved in transactions that total 250,000 acres throughout the United States.