The World’s Best Investment... on Sale

The price of timberland in Florida rose by 80% in the last year, according to the latest Florida Land Value Survey...

Meanwhile, the share prices of companies with exposure to Florida timberland have fallen dramatically.

Is there an opportunity here? Let’s take a look...

Since mid-2005, companies with significant timber holdings have performed relatively poorly. Shares of Rayonier, for example, have inched up from $36 in mid-2005 to $39 today.

Timberland in Northeast Florida is worth $3,864 per acre, according to the University of Florida’s Food and Resource Economics Department, which issues the annual land-value survey. This number seems very high to me... but survey respondents included independent appraisers, farm lenders, real-estate brokers, county property appraisers. If anybody knows the price of timberland, they do.

Rayonier owns 1.6 million acres of timberland in the southeastern U.S. That’s conservatively worth $6 billion. Rayonier also owns roughly 400,000 acres in the Pacific Northwest, which at $2,000 an acre would be worth $800 million.

In the U.S. alone, that’s $6.8 billion worth of timberland. That ignores another half million acres in Australia and New Zealand. And it ignores Rayonier’s real-estate sales division and its “performance fibers” division, both of which generate just about as much operating income for Rayonier as timber sales.

Yet the stock market value of Rayonier is only about $3 billion.

RAYONIER’S TIMBERLANDS – LOCATION, LOCATION, LOCATION

 
*One tree represents 7,500 of Rayonier’s acres.

The stock market is valuing Rayonier at roughly $2,000 per U.S. acre, assuming all its other operations (Australia/New Zealand, real estate, and paper mills) are worthless.

There’s a reason Wall Street is valuing timberland companies, such as Rayonier, so cheaply... Here’s the logic: Housing starts are falling... lumber prices are correlated to housing starts... timber prices are correlated to lumber prices... and timberland prices are correlated to timber prices. Therefore, if housing tanks, timberland tanks. It makes some sense.

But is this stuff already priced into the market? At current prices, you earn a 5% dividend in Rayonier. And you own a fine asset that grows exponentially every year.

Rayonier, with a great portfolio of properties close to the beach in the southeastern U.S., is attractive. It gets much better...

There are ways to buy timberland through the stock market for less than $1,000 an acre (assuming all the other business operations are worthless).

It’s crazy to me that it’s cheaper to buy timberland “the easy way” (by buying stocks with large timberland holdings) than it is to buy timberland the hard way... by buying it outright yourself.

Wall Street doesn’t like timberland right now. Because of this, you’re able to buy timberland through the stock market at much cheaper prices than you could on your own.

This is an opportunity to consider. For contrarian investors, timberland stocks, such as Rayonier, are worth checking out...

Good investing,

Steve