Wealthy investors and institutions have committed $10 billion to timberland managed by Angela Davis. Ordinary folk have to settle for shares of timber REITs.
Invest capital and save the planet at the same time. Own a forest.
That’s the selling proposition from Angela Davis, who, as president of Campbell Global in Portland, Oregon, oversees $10 billion on behalf of institutions and wealthy individuals. So far she has acquired 1.4 million acres of trees, the majority in the U.S., with some in Australia and New Zealand.
Do not expect from timberland the kind of action you’d get from a semiconductor stock. “Forest investors are typically not looking for high risk and high return,” Davis says. What are they looking for? Four other things: a yield, an inflation hedge, a portfolio-stabilizing lack of correlation to the stock market and the environmental virtue that comes from taking carbon out of the air.
Pedro Oliveira for Forbes
The yield comes naturally. Trees grow. Douglas fir, the money tree in the Pacific Northwest, is harvested at 45 years of age. A timberland property that contains tracts evenly distributed over the age spectrum will have an average age of 22. This means the wood that can be taken annually from mature trees comes to 4.4% of the total volume of wood in the forest.
That 4.4% botanic payout is the starting point for expected return. Log prices, sensitive to homebuilding demands, are extremely volatile, but over the long pull they, and the residual value of cleared land, should keep up with inflation. Add in inflation and a 7% nominal return is within reach.
Beyond that, Davis aims to beat the averages by astute management of the land. Her trees absorbed a net two megatons of carbon dioxide last year, generating salable carbon credits. She has 75 foresters on her staff. They keep an eye on bugs and arrange for culling of compromised trees before the damage can spread. When blazes threaten, they bring in bulldozer crews for fire breaks.
An acre of Doug fir, left to grow and harvested in year 45, might yield 24,000 board feet of saw timber, worth $17,000 when it arrives at the sawmill. Sounds pretty good, given that forests in Oregon and Washington west of the Cascade Mountains can be had for $4,000 to $7,000 an acre.
But there is a long road between the standing tree and the sawmill’s check. Landowners in the Northwest lose at least half their revenue to the cost of growing and harvesting wood. Trees must be felled with dangerous and expensive equipment, dragged up muddy and steep slopes with cables, cut into lengths, loaded onto trucks and hauled. Slash (limbs and broken pieces) must be burned or chopped.
Reforestation, done right, delivers better yield than would come from natural regeneration, but it’s expensive. “You overplant, then thin, like carrots in a garden,” Davis says.
In the years between seedlings and harvest, a portion of the acres will have been lost to fires, floods, insects and disease. A fraction of the acreage—16% in a recent Campbell acquisition on the Olympic peninsula—cannot be cut because it’s near a trout stream or an owl’s nest. Bears must be bought off; they come out of hibernation so ravenous that they rip the bark off trees unless they are given food baskets.
A timber management company like Campbell (acquired in 2021 by JPMorgan Chase) has to be paid. Campbell doesn’t disclose fees beyond saying it gets, in hedge fund fashion, a percentage of assets plus a performance bonus.
What’s left for the investors? The ones who signed up for Campbell’s recent $2.3 billion funding round deserve to call themselves contrarian. Although timberland has terrific years, such as between 1991 and the financial crisis, it has done poorly of late. Campbell doesn’t release results for any of its partnerships, but you can look at publicly traded real estate investment trusts that own timberland. In the past decade they have delivered a pathetic 4% a year on average, vastly underperforming the stock market.
How To Play It
Buy timberland via shares in real estate investment trusts, handy in taxable accounts because their dividends come out as long-term capital gains. The enterprise value (common market capitalization plus debt minus cash) of Rayonier Corporation is $4.4 billion, which comes to $1,800 per acre if you assign no value to its mills. At PotlatchDeltic the corresponding number is $1,900. At both, you get a bit of Douglas fir in the Northwest, but the dominant holding is southern yellow pine, whose price is depressed because of overplanting 30 years ago. Presumably the industry will grow out of that problem. Yields are 4.9% at Rayonier and 4.7% at Potlatch.
William Baldwin is Forbes’ Investment Strategies columnist.
Davis protests that the REITs don’t have her flexibility with timing. They all are attached to mills, which they are motivated to keep running. So they cut trees even in years when prices are depressed. Her response to a dip in the log market: “Let it grow. Sell a higher volume at a higher price later.”
Davis was born in Portland 60 years ago, at a time when lumber was the region’s economic mainstay. Business is more diversified now, but, she says, “it’s hard to grow up in Portland and not have a connection to the land.” She remembers gleaning hazelnuts as a youngster on a family orchard. Her connection to forestry, though, began not with the outdoors but with spreadsheets.
After getting a degree in finance at nearby Linfield University, Davis worked as an auditor and then as an investment analyst for the Oregon state treasurer. She joined Campbell at the turn of the century and will become its chief executive in October.
Her job is to use geographic information, climate and tree volume data to predict what will come out of a harvest decades later. A big part of this, as with a vineyard, is assessing terroir—what growth rate can the soil and the rain support?
The spreadsheets go out two growth cycles. Ninety years is a long waiting time for even the most patient investors, but they don’t have to stick around. A large part of the return comes not from harvesting but from selling acres after the trees have put on some weight. Campbell’s last fund has a 12-year exit option.
Beginning in the 1980s, environmentalists engineered drastic cutbacks in harvesting from federal timberland. President Trump wants to bring back the chainsaws. Despite the potential competition with her assets, Davis is not opposed. Untended forests are more likely to burn, she says, undoing decades of carbon absorption in a flash.
“For forest health you should be doing some harvesting,” Davis says. “Take out the dead and dying debris. Put in some roads.” She may have a woodman’s ax to grind, but she has a point. If those roads reduce fire risk, they might even find favor with the owls and the bears.
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