March 20, 2012
Applied Forest Economics at Work
Court Washburn
Managing Director,
Chief Investment Officer
99 High Street, 26th Floor
Boston, MA 02110
(617) 747-1584
cwashburn@hnrg.com
www.hancocktimber.com
Applied Forest Economics at Work
How has economic analysis informed timberland investment during
recent decades? What are some current and future issues in need of
attention from forest economists?

Markets for timber and other forest products

Markets for timberland properties

Performance of timberland investments
2
Markets for Timber and other Forest Products
Resource scarcity is the currently popular theme
3
US Lumber Demand is Extraordinarily Low
When and how will the US housing sector rebound?
84
2,200
77
2,000
70
1,800
63
1,600
56
1,400
49
1,200
42
1,000
35
800
28
Housing Starts
Lumber Consumption
Lumber Price
600
400
200
21
14
Lumber Consumption and Price
Housing Starts
2,400
Annual US Housing Starts (1000 units), Softwood Lumber
Consumption (billion board feet), and Softwood Lumber
Price (2010US$ per hundred board feet)
7
0
0
1960
1970
1980
1990
2000
2010
Sources: Resource Information Systems Inc. and HTRG Research
4
Growth
Log
and in
Lumber
Chinese
Exports
Log and
to Lumber
China have
Demand
Surged
Are current log export volumes to China from the US Pacific Northwest
sustainable when domestic markets recover?
35
Softwood Log and Lumber Imports into China
(million cubic meters, RWE)
Russia
Australia
US Pacific Northwest
30
New Zealand
Canada
Other Importers
Logs
Lumber
25
20
15
10
5
Sources: Resource Information Systems Inc. and HTRG Research
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
20
02
0
Pacific Rim Prices Boosted by Asian Demand
Southern pine sawtimber stumpage prices at 50-year lows
$80
Regional Composite Prices for Softwood Sawtimber Stumpage
(US$ per cubic meter)
$70
$60
$50
$40
$30
US South
US PNW Domestic
US PNW Export
New Zealand Export
$20
$10
$0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Sources: Timber Mart-South, Log Lines, New Zealand MAF, and HTRG Research
6
Timber Demand from Bioenergy Producers
Substantial growth from very low base
6
US Pulpwood Consumption by Source of Demand (billion
cubic feet per year)
5
4
3
Bioenergy
2
Oriented Strandboard
Paper and Packaging
1
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Source: RISI (September 2011)
MFC Participation in Acquisition of Tristar Timberlands
7
Timberland Investment Performance
Institutional investment has allowed for further analysis of timberland
property markets
12%
Total Return
20%
8%
8.9
10%
4%
4.4
0%
0%
6.8
5.6
Total Return - South
Total Return - PNW
Cash Yield - South
Cash Yield - PNW
4.3
-10%
-4%
-20%
-8%
2002
2003
2004
2005
2006
2007
2008
Sources: NCREIF Timberland Property Index and HTRG Research
8
2009
2010
2011
Cash Yield
30%
US NCREIF Timberland Property Returns and
Operating Cash Yields (% per year)
Timberland Values have Moderated
Disconnect between timberland values and cash flows?
$2,500
$200
$2,000
$150
$1,500
$100
$1,000
Operating Cash
$50
Property Value
Operating Cash
$250
Operating Cash and Value for Prototypical All Age
US South Timberland Property (2010$ per acre)
$500
Appraised Value
$0
$0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Sources: NCRIEF and HTRG Research. Methodology detailed in “Explaining Timberland Values
in the United States,” Journal of Forestry, December 2004.
9
I.
Timberland
andofConventional
Asset Pricing Models
Characteristics
Timberland Investing
Portfolio diversification and low risk, but not consistently low required
returns
Historical $US Correlations with Timberland (1977-2011)*
*Data for timberland returns refer to John Hancock Timberland Index for 1977-1986, NCREIF Timberland Index for 1987-2011.
Past returns are not a guarantee of future results; potential for profit as well as for loss exists.
10
Timberland in Context of Broader Capital Markets
What’s relationship between required returns for timberland and other
competing investment classes?
10%
Current Cash Yields on Reported Values for US Properties
(% per year)
8%
6%
8.9
4.4
4%
6.8
2%
5.6
NCREIF
Commercial
Real Estate
4.3
NCREIF Timberland (All Age Model)
US Corporate Bonds
US 10-year Treasuries
0%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Applied Forest Economics at Work
Summary comments

The more we learn the more questions we have

Economic analysis informs decisions but rarely makes them
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