Timber investments and REITs: what are investors asking?

Summary

The article summarizes the historical attractiveness of owning timberlands as a long-term investment.  However, the questions raised by investors regarding the asset in the current environment have changed.  In addition, the strategy of using timber REITs as a pure-play proxy for direct timberland investments remains questionable. 

Analysis

The article summarizes the historical attractiveness of owning timberlands as a long-term investment.  However, the questions raised by investors regarding the asset in the current environment have changed.  In addition, the strategy of using timber REITs as a pure-play proxy for direct timberland investments remains questionable.
Current institutional investors in timberlands, while steadfast in their current ownerships, are asking two specific types of questions regarding next phase capital allocations.  One relates to "what are our cash positions and needs?"  Two, "what are expected returns from other alternative asset class investments?"  The answers to both questions are leading US-based institutions to reduce near-term future allocations to timberlands. 
In addition, research into timber REITs has established they are a poor proxy for timberlands.  One reason is that timber REIT revenues rely heavily on non-timber sources.  Even including internal transfers, both PCH and RYN derive less than 23% of revenues from timber.  Only PCL derives a majority (54%).  Another reason: as publicly-traded equities, they are super-liquid relative to hard timberland assets.