REIT and TIMOs

1
REIT and TIMOs

• A primer

2
What is a REIT?

• Real Estate Investment Trusts are entities that
  buy, manage, and sell real estate or real estate
  related assets e.g., mortgages on behalf of
  various private investors.
• Tends to occur through restructuring by timber
  companies
• REITS own timberland

3
What is a TIMO?

• Timber Investment Management Organizations buy,
  manage, and sell forestland and timber on behalf
  of various institutional investors e.g.,
  insurance companies, pension funds, endowments,
  and foundations.
• Tends to occur through sales of timberlands
• TIMOs hold forest land for their investors they
  do not actually own it

4
Major Shift in Ownership
5
Vertically Integrated Forest Products Companies
(VIFPC) on the decline
6
Why Sell

• Relatively weak financial performance and the
  need to improve returns to stockholders.
  Stockholder returns over the 10-year period 1995
  to 2005 average 6.2 for the Forestry and Paper
  Group as compared to 12.1 for the SP 500,and
  13.1 for the Dow Jones Industrial.
• GAAP prevents appreciation in the value of the
  timberland assets of timber companies even as
  prices rise.

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Why Sell (cont)

• Mergers and consolidations created huge debts,
  need cash to pay off
• Think the open market works, extension of
  contracting out logic (wait for the roosters to
  come home)
• Tax code any profits obtained from the sale of
  timber are taxed at the corporate level (35),
  and at the stockholder level when dividends are
  disbursed (15).

8
Why Buy

• Shared risk
• Favorable returns total returns to timberland
  investments averaged 20.1 per year - 7.8 of
  this total was due to income generated, and
  12.3 was due to appreciation in value.
• Tax code
• allowed large institutional investors such as
  pension funds to hold shares in a REIT.
• REITs themselves pay no income tax, only the
  shareholders
• Avoid GAAP

9
Future Risks

• Shorter term profit seeking means less commitment
  to forests as forests
• Even flow income needs runs against the housing
  market cycle
• TIMOs prefer a benefit in 10 to 15 years
• BMPs at risk for forest practices
• Can respond faster to captrade markets

10
Future Risks (cont.)

• Decreased support for forestry issues
• Fire protection
• Research
• Green issues
• Shorter Ownership tenure and increased
  fragmentation