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CHICAGO — After two years of contraction, the NCREIF Timberland Index rebounded modestly in 2011 with a total return of 1.57 percent for the year. It’s too soon, however, to say the property sector is out of the woods.

“Until the economy grows at a faster pace and the housing market improves, timber returns will have difficulty showing strong positive results,” wrote Jeff Havsy, director of research for the National Council of Real Estate Investment Fiduciaries based in Chicago (NCREIF), in a release highlighting the fourth-quarter results.

Still, 2011 was a “nice contrast” to 2010 and 2009 when total returns for the NCREIF Timberland Index fell 0.15 percent and 4.75 percent, respectively, according to Havsy.

The index finished 2011 on a positive note. The fourth-quarter total return of 0.51 percent included a 0.56 percent rise in income and a 0.05 percent drop in capital appreciation over the third quarter. The fourth quarter marked the fifth time in the last six quarters that capital appreciation, or the change in value, was negative.

“On the bright side, this was the smallest drop in value since the first quarter of 2011 and the third best quarterly appreciation return in the past three years,” said Havsy. “AnHaAnAnAn increase in multifamily construction is helping the market, and single-family starts are up slightly. Both those factors should help returns eventually,” he added.

Regional perspective

The Pacific Northwest was the best performing region for the second consecutive quarter with a fourth-quarter total return of 8.29 percent, of which 7.25 percent was the result of appreciation (see chart).

Timberland Index Total Returns By Region


Source: NCREIF

The Pacific Northwest was also the best performing region on an annual basis with a 12.78 percent total return. The Asian export market drove returns in this region. The demand for logs was strong, pushing up prices and property values.

Once again, the South was the worst performing region with low prices for paper and pulp and housing weighing heavily on property values. The total return in the fourth quarter for the South fell slightly more than 2 percent.

“Until the housing market recovers, the South and the Northeast will have limited upside since the timber from those regions is more domestically focused, especially for housing,” said Havsy.

The NCREIF Timberland Index consists of 393 investment-grade timber properties worth over $23 billion. This includes 296 properties in the South, 63 in the Pacific Northwest and 19 in the Northeast.

NCREIF will hold a webinar at 2 p.m. EST on Tuesday, Feb. 7 to discuss the Farmland and Timberland indices, the NCREIF Property Index (NPI) and the NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE). The conference call will be webcast live.

Separately, the National Association of Real Estate Investment Trusts reported that total returns for the timber sector rose 7.65 percent for all of 2011, up from 4.31 percent in 2010. There are four REITs that comprise the timber sector.

— Matt Valley

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