Pope Resources' Loss is Rayoneir's Gain

Pope Resources’ (POPE) loss is Rayonier’s (RYN) gain.  David Nunes is moving from the Washington-based POPE timber REIT to the Jacksonville-based RYN REIT.  RYN has announced it will split its timber assets from the performance fiber business in an attempt to unlock the valuations of its timber holdings. 

From the press release: “David Nunes brings three decades of timber and real estate industry leadership to his new role, including more than 15 years as a senior executive. He joins Rayonier Inc. from Pope Resources where he has served as president and CEO since 2002. Appointed president and CEO in 2002, Nunes launched the company’s private equity timber fund business, which now manages timberlands in three funds. Pope Resources also manages development acreage in the Seattle metropolitan area. In his tenure as CEO, Nunes has consistently delivered value to Popes unit holders.

Rayonier is a leading international forest products company with three core businesses: Forest Resources, Real Estate and Performance Fibers. The company owns, leases or manages 2.6 million acres of timber and land in the United States and New Zealand. The company's holdings include approximately 200,000 acres with residential and commercial development potential along the Interstate 95 corridor between Savannah, Ga., and Daytona Beach, Fla. Its Performance Fibers business is one of the world's leading producers of high-value specialty cellulose fibers, which are used in products such as filters, pharmaceuticals and LCD screens. Approximately 50 percent of the company's sales are outside the U.S. to customers in approximately 20 countries. Rayonier is structured as a real estate investment trust.”

Nunes has been a driving force in expanding POPE’s timber assets through the development of private equity funds.  POPE invests alongside outside investors, providing a cost effective platform for expanding its Northwest asset base.  Over the past few years, POPE has been trading timberland closer to Seattle/Tacoma for assets in Southern Washington/Northern Oregon. 

While POPE is fully valued at its current price, the breakup of RYN may provide some interesting gains.  The combination of the performance fibers with the timber business gave shareholders two distinct exposures – specialty fibers and commodity timber.  RYN has substantial land holdings along the I-95 corridor in the Southeast that has the potential of offering a steady stream of higher and better use sales revenues.   

As timber is a very cyclical commodity, buying into these timber REITs needs to be timed very carefully.  There are a few strong outside forces that will benefit the long-term pricing model of NW timber, such as the mountain pine beetle and growing exports to China.  However, housing has the biggest impact on the long-term pricing of timber.  With housing on the rebound, timber REITs are no longer the bargains they were a few years ago and investors should tread lightly.   The exception could be RYN, especially with the appointment of David Nunes.

Disclosure: I am long POPE, RYN.  POPE and RYN are followed by Guiding Mast Investments monthly newsletter

I appreciate your time and interest in Guiding Mast Investments, George Fisher