Timberland Preemption

Maybe it's me, but this paragraph from a cover letter to Wells Timberland's annual investor update reads like it's preparing investors for some unpleasant valuation news:

In the year ahead, we'll have an opportunity to assess the market's impact on Wells Timberland REIT when we conduct an appraisal of the REIT’s assets in order to publish an estimated per-share value. We can't predict what the new estimated share value may be. However, we know that it will not necessarily represent the value you should expect to receive once the REIT goes “full cycle” and completes a future liquidity event, such as listing our shares on an exchange or selling our assets and distributing the proceeds to you, our stockholders. It will simply be a “snapshot” of the per-share estimated value at a certain time, which will help our management team make the most informed decisions on behalf of you and your fellow stockholders as we continue to move forward. The per-share estimated value will also be temporary, since we plan to estimate the per-share value again each year.

It's smart of Wells to soft-pedal its upcoming valuation.  I want to caution that I am not making any estimates as to Timberland's upcoming valuation, and based on the above, and it does not appear that Timberland has yet conducted its appraisal of its assets.

There is encouraging news related to timber prices and housing.  Here is a link (via Calculated Risk) to some optimistic news from home builders.  Here is an except:

Below is a summary of selected stats for the six publicly-traded builders who have released results for the quarter ended in March.

	Settlements			Net Orders			Backlog
	3/2012	3/2011	3/2010	3/2012	3/2011	3/2010	3/2012	3/2011	3/2010
D.R. Horton	4,240	3,516	4,260	5,899	4,943	6,438	6,189	5,281	6,314
NVR	1,924	1,634	1,919	3,157	2,403	2,940	4,909	3,685	4,552
PulteGroup	3,117	3,141	3,795	4,991	4,345	4,320	5,798	5,188	6,456
The Ryland Group	848	688	984	1,357	966	1,167	2,023	1,465	1,915
Meritage Homes	759	678	808	1,144	840	1,064	1,300	940	1,351
M/I Homes	507	439	475	764	654	765	933	747	936
Total	11,395	10,096	12,241	17,312	14,151	16,694	21,152	17,306	21,524
YOY % change	12.9%	-17.5%		22.3%	-15.2%		22.2%	-19.6%

On Tuesday the Commerce Department estimated that new SF home sales last quarter were up 16% (not seasonally adjusted) from the comparable quarter of last year. Recently, of course, there has been a pattern of upward revisions to preliminary, and historically during improving markets such revisions are commonplace (and in declining markets, downward revisions are common). I’d bet that when the April new home sales report is released, March’s sales estimate will be revised higher.

(Note that 2010 figures are skewed upward due to the one-time, new home buyer tax credit that expired in April 2010.) 

To me, it's hard to see how a 22% jump in new New Orders for homes and a 22% increase in order Backlog, along with an overall housing recovery, won't positively impact timber prices over time. 

Below is a chart of timber prices since 2007:

It looks like timber prices are up a small amount so far in 2012, but sawtimber, the wood used in home building, is still well off its 2007 high. 

Timberland's valuation will be subject to a variety of factors, many of which will be company-specific, and not directly related to the timber markets.   To me, it looks as if the macro economic outlook for timber, via a housing recovery, is the best it's been in a long time.