TimberWest Sold to PSPIB and bcIMC

Via Pension Pulse.

Gordon Hamilton of the Vancouver Sun reports, TimberWest unitholders approve $1 billion sale to pension funds:

Unitholders
of TimberWest Forest, the largest landowner in B.C., approved the sale
of the company Tuesday to two public pension funds, a move that
president Paul McElligott said should result in better decision-making
on the company’s Vancouver Island lands.

“We look forward to a
new future as a private company,” McElligott said after unitholders
voted 98 per cent in favour of the $1 billion deal.

In an
interview, he said TimberWest’s structure as a publicly-traded company
worked well until the U.S. housing downturn led to a collapse in lumber
demand. TimberWest had thrived on selling logs into modern sawmilling
sector that has developed in the U.S. Pacific Northwest.

“The
U.S. economic downturn had a very punishing effect on this sector, and I
think private ownership is more patient capital; it’s a longer-term
view. You are not under the same kind of pressures to shore up
short-term income and profits because there’s a quarterly analyst’s
report being produced in a few weeks,” he said.

“I expect it will result in better decision-making,” he said of the new ownership structure.

TimberWest owns 327,000 hectares of land, mostly along the eastern spine of southern Vancouver Island.

The forest company’s new owners, the British Columbia Investment Management Corporation (bcIMC) and the federal Public Sector Pension Investment Board (PSPIB),
plan no management changes, Gordon Fyfe, president of the Public
Sector Investment Board said in an interview. The two pension plans are
buying the company for $1.03 billion in cash, including assumed debt,
which will return $6.16 a stapled unit to unitholders.

Fyfe
said he can speak only for his own pension board, but described
TimberWest as an ideal match for the board’s liabilities — making
pension payments for the federal employees whose money they are
investing.

Timberlands have 50 to 55-year harvest cycles, are not
very liquid and are subject to market fluctuations, attributes that
make them more attractive as a long-term investment, he said.

“If markets aren’t great, you don’t have to cut trees,” he said.

The
transaction still requires approval under the Competition Act and by
the B.C. Supreme Court. The sale is expected to be finalized before the
end of June.

While Timberland is not correlated with stocks, institutional investors need to understand that there are risks in timberland investments:

Despite
their appeal, timberland investments can present considerable risks to
institutional investors. The primary risks of timberland investing are
market uncertainty (fluctuation of timber and timberland prices
associated with macroeconomic conditions such as the health of the
housing market), relative illiquidity compared to stocks and bonds (the
absence of an organised timber exchange can make it difficult to find a
buyer), and environmental risks, which are the focus of this report.

Add
to this forest fires, insects, regulations and tariffs. Moreover, with so much money
flowing into this asset class, future returns will not be as strong as
past ones. But Timberland does have unique characteristics that can help
hedge a pension portfolio during downturns.

Comments

[OutLookingIn]

Long term - yes. Like buying a gold mine. The asset is in the ground as profit potential. No demand? No problem, the trees continue to grow and are not going anywhere!

Major "what ifs" are everywhere. Japan and China will be a major market consumer of wood products. The new owners being quasi governmental based pension funds, gives them a better chance of successfully dealing with a myriad of regulations, including environmental issues.

All in all, a good deal all around.

[wpw]

Leo, there are more specific risks related to this investment.  Each timber jurisdiction carries its own long-term political risks - and these are supposed to be long-term investments - which need to be watched.  

http://www.cbc.ca/news/canada/british-columbia/story/2011/06/10/bc-timberwest-amnest-international.html

[mirac]

They are going to lose big time on this investment.  Vancouver real estate will implode, while the US continues to implode and China probably swoons too.  Who the hell wants to buy lumber then?

[pirea]

The value of these forests is in their natural status, not lumber. The more agroforestry you have at global level and less natural forest, the best price you can get, is to have some real natural forest, close to a large urban area like Vancouver. Smart move for these funds.

[oddjob]

I think Timberlands are being bought for future carbon dioxide offset credits, not lumber.

[oddjob]

Could you tell us which insects are you referring too?...Coastal forest lands are not threatened by the pine beetle.

http://www.timberwest.com/timberland-operations/operations-map.aspx