This post includes themes from the (virtual) Applied Forest Finance course on April 3^rd, 2025. Early registration ends March 20^th!

The investable universe for institutional timberland in the U.S. is modest compared to markets for stocks, bonds, currencies, or real estate. While Forisk estimates the investable U.S. timberland universe at 80 to 90 million acres, which supports total values of $100 to $200 billion, the S&P 500 has a market capitalization exceeding $50 trillion. The value of the U.S. residential housing market also approaches $50 trillion. The market cap of the 196 public REITs in the FTSE NAREIT Index alone exceeds $1.4 trillion.

Timberland? We Ain’t That Big

The lack of depth in the timberland sector exposes it to oversubscription, where demand exceeds supply, and the potential for excessive asset valuations. Consider the market values for the private institutional timberlands tracked by NCREIF over the past few years. Since 2022, the per acre values of over 12 million acres increased nearly 26%.

However, the case for “overvaluation” is not clear or straightforward for two reasons. One, timberland owners and managers actively developed incremental opportunities associated with real estate, solar leases, carbon, and wind. In cases, firms are generating material income and value. Per acre net operation income (NOI) has nearly doubled over the past ten to twelve years according to NCREIF.

Two, timberlands remain uniquely able to deliver risk mitigating diversification to portfolios. As The Economist recently noted (“Why your portfolio is less diversified than you might think,” January 30, 2025), investment assets have become increasingly correlated, raising the value of assets and strategies that truly diversify risk (e.g. timberland).

Public Timber REIT Strategies

The public timber REITs also reflect the ideas that (1) opportunities exist (options) to develop supplementary cash flows and (2) timberlands are highly valued in the current market. Q4 and full-year 2024 earnings calls for Weyerhaeuser, Rayonier, and PotlatchDeltic detailed efforts to grow rural land sales and income from natural climate solutions (NCS). In addition, all three firms are actively buying back shares and, in cases, selling timberlands.

Rayonier, in November, highlighted the valuations received from four transactions comprising 91,000 acres in Oklahoma and 109,000 acres in Washington state. In December, Rayonier announced a new $300 million authorization to grow its existing share repurchase plan. In 2024, PotlatchDeltic repurchased $35 million in shares and Weyerhaeuser repurchased $153 million of outstanding shares. These activities communicate both confidence in their assets and the implied disconnect between private timberland values and the prices of public timber REIT shares (which fell 19.1% in 2024 per the Forisk Timber REIT (FTR) Index).