In 2012, publicly-traded timberland-owning REITs, as measured by the Forisk Timber REIT (FTR) Index, outperformed the S&P 500, private timberland investments and the universe of publicly-traded real estate investment trusts:

• S&P 500 (2012):   13.41%
• Public REITs (NAREIT, 2012):   14.98%
• Private timberlands (NCREIF, 2012):   7.75%
• Public timber REITs (FTR Index, 2012):   34.12%

 

Now, we step into our time machine to evaluate 2013 year-to-date performance of public and private timber investment vehicles relative to the S&P 500.  Imagine relaxing in a rocking chair at Cracker Barrel on December 31, 2012 with a brokerage account bursting with 2012 timber REIT returns.  Do we reallocate our funds to the S&P 500 or private timberlands, or do we stick with public timber REITs?  Based on the performance of key indices, putting $100 on public timber REITs for the first three quarters of 2013 would have earned you $5.25 (see Table), enough for a grande soy vanilla latte at Starbucks.  However, the same investment in the S&P 500 earned over three times as much at $17.91.  Overall, equity markets outperformed real estate investments, timber and otherwise, year-to-date.

How can we put the S&P outperformance in context?  As with all things timber, investment models and timeframes matter.  The year-to-date comparison is both arbitrary and informative.  When evaluating rolling fixed-period financial performance over the past ten years, we find a cyclical horse race across asset classes that vary most prominently in their relative volatility and cash generation.  This reflects, in part, the difference between investing in a high maintenance, portfolio-stabilizing hard asset and liquid, dividend-yielding, more volatile equity vehicles.

Click here to learn about and register for “Applied Forest Finance” on February 10^th 2014 in Atlanta, Georgia.  The course details necessary skills and common errors associated with the financial and risk analysis of timberland and other forestry-related investments.