Future of Large Forest Land Ownerships Feb. 11 Lloyd C. Irland Allegheny Section, Society of American Foresters, Dover, Delaware Feb. 19, 2004 irland allegheny saf presentation
Contents v What’s Been Happening v Why? v What’s it Mean? v Conclusions Feb. 11 irland allegheny saf presentation 2
Categories of Large Owners Forest Industry v Families, estates & trusts v Oil, mining, railroads v Utilities v Indian nations v Kingdom Buyers v New Ownership structures – TIMO’s et al. v Feb. 11 irland allegheny saf presentation 3
Summary -- 2003 v 4. 5 MM acres sold nationwide (TMS data) v 2. 1 MM in South v $3. 2 Billion v On market – Large acreages Feb. 11 irland allegheny saf presentation 4
Top 3 Industrials 1981 IP 6. 9 Wey. Co 5. 9 GP 4. 6 PCT 1. 5 2003 9. 0 7. 6 (now 3) 000 8. 1 (now 2) Sources: Clephane & Carroll, 1982; Tim-Mart South 2004. Feb. 11 irland allegheny saf presentation 5
Industrial Owners by Size 1981 More than 2 MM 9 1 -2 MM 11 500 M to 1 MM 8 Cutoff top 20 1, 040 (P&G) Feb. 11 irland allegheny saf presentation 2003 7 430 (Deltic) 6
Industry Ownership peaked in 80’s Feb. 11 irland allegheny saf presentation 7
Why is Industry Selling? v Can’t buy –No ready cash v Lower perceived need for fiber control (esp. on Wall Street) v Opportunity cost of fiber control thru ownership is rising v Now there are Buyers! Feb. 11 irland allegheny saf presentation 8
Why…. v v v Goldsmith’s Law Internal restructuring – Generally unsuccessful Company-specific factors – Cash flow outlook – Lands remote from mills v Replacements for Fee wood – Recycled – Imports, chips, pulp – Longterm contracts (wishful thinking? ? ? ) Feb. 11 irland allegheny saf presentation 9
Replacements for Fee Wood v Supply Contracts v Chip arrangements v Fiber imports – Chip imports (Cantonment) – Pulp (Mehoopany) v Recycled Feb. 11 Fiber irland allegheny saf presentation 10
Industry Conditions v Mature Industry Challenges – Overcapacity – Low profitability – below cost of capital – Imports – Aging mills/infrastructure: “Smithsonian Trap” – Maxed out timbersheds Feb. 11 irland allegheny saf presentation 11
Mature Industry v Withdraw capital (not always voluntarily) v Cut Capacity v Merge/Restructure v Merger Costs – Pay with Land v Land as piggy bank for earnings Mgt. Feb. 11 irland allegheny saf presentation 12
Regional Trends v In South, declining stumpage values v On Coast, declining export Markets v Leisure lot/kingdom markets v Many regions, regulations restrain management Feb. 11 irland allegheny saf presentation 13
Regional, cont… v Resort spinoff effects v Metro fringes – taxes v Offshore – Major sales Feb. 11 irland allegheny saf presentation 14
Families et al. Prominent in wake of cutovers v Paper cos. bought most out v Few large examples survive – Pingree, P&C, Longyear v Stresses: v – Estate taxes – Low current incomes – Fragmentation as generations pass Feb. 11 irland allegheny saf presentation 15
Families: don’t count ‘em out yet v. A few are building portfolios v Mc. Donald: RR lands in Ont; GNP lands in Maine v Mendocino (CA) v Not all turn out to be stable: Lassiter, Ebbers Feb. 11 irland allegheny saf presentation 16
Oil, Mining, etc. v 11 Cos. In Clephane 1981 list v More than 4 MM acres v Have not tracked this sector closely v Subsurface estates extensive – not well documented v Hard to find these owners Feb. 11 irland allegheny saf presentation 17
Utilities v Owned forests as sideline along with – Reservoirs – Rights of way – Other facilities – Cost was low v Electric Utilities – Massive restructuring – Sales often to public presentation sector Feb. 11 irland allegheny saf 18
Utilities, cont…. v Water utilities – special case – Changing regs, less need to control watersheds v At times dabbled in processing v These lands often of considerable local importance Feb. 11 irland allegheny saf presentation 19
Indian Nations v More prominent out West v Menominee, Maine tribes v Litigation over claims v Little major change recently v Will gaming revenues be invested in land? Feb. 11 irland allegheny saf presentation 20
Kingdom Buyers Amenity, not investment v Adirondack estates –from 90’s v Media/finance celebs v – Ted Turner ranch (MT) – John Malone (ME) v Clubs prominent at one time – Coming back as resorts? Perhaps in some areas v Can afford not to manage Feb. 11 irland allegheny saf presentation 21
New Ownership Structures v Capital is being mobilized to own timberland v TIMO’s -- Now have 9. 8 MM A. v MLP’s v Listed Companies (Timberwest et als) Feb. 11 irland allegheny saf presentation 22
TIMO’s Eoy 2003 Total: 9, 799 Hancock would be # 5 in 2003! Feb. 11 irland allegheny saf presentation 23
Conservation Buyers v NEFF Pingree easement v TNC 175, 000 A on St. John v AMC 100 mi. woods v Chesapeake/Glatfelter v Individuals -- more prominent? v Count the states where Cons. Buyers are the LARGEST Pvt owners! Feb. 11 irland allegheny saf presentation 24
Supply/Management Implications Tracts will be Smaller v HBU will change uses v Management Intensity may not Change v Ownership stability will decline v Less concentration of ownership v Less Vertical Integration…. v – Not necessarily bad! Feb. 11 irland allegheny saf presentation 25
Other impacts v Corporate Research Capacity/funding v Human capital v Employment – All above likely to shrink Feb. 11 irland allegheny saf presentation 26
Conclusions An era that favored extensive large holdings has ended v Change will be slow v New and less familiar Owners v There will be a mix of wood supply impacts, not all bad by any means v More partial ownerships - easements v Significant conservation benefits in some regions v Feb. 11 irland allegheny saf presentation 27
BACKUP CHARTS Data on industry owners, 1981 and 2003 Feb. 11 irland allegheny saf presentation 28
Top 20 – 1981 Total 51, 541 M Acres Feb. 11 irland allegheny saf presentation 29
The next 26 -- 1981 Total 11, 504 Feb. 11 irland allegheny saf presentation 30
Top 20 Owners 2003 Total: 44, 460 Feb. 11 irland allegheny saf presentation 31
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