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Timber REITs Refocus

06/24/2011 | By Carisa Chappell

Timber REITs Refocus
The lag in the housing market has timber REITs tweaking their business strategies, according to sector executives who spoke with REIT.com during REITWeek 2011: NAREIT's Investor Forum at the Waldorf=Astoria in New York earlier this month.

Weyerhaeuser Co. (NYSE: WY) converted to a timber REIT in 2010 and has more than 6 million acres of timberland in the United States. The company has been impacted by the slow housing market, so it is focusing on other aspects of its operations, said Patricia Bedient, executive vice president and chief financial officer of Weyerhaeuser. These include managing longtime customer relationships, innovation and manufacturing efficiency.

"We have yet to see the recovery start up in the housing market, but what we do know is that based on long-term demographics, the pace of recovery might be uncertain, but the long-term prospects remain positive," Bedient said.

Paul Boynton, president and chief operating officer of Rayonier Inc. (NYES: RYN), which manages 2.5 million acres of timberland in the U.S. and New Zealand, said that while business has been slowed, the company is not selling low on its resources. He noted that timberlands are a natural resource that will continue to grow, even when not harvested. Consequently, Boynton said, Raynoier is "deferring the deployment" of its assets.

With the U.S. market weakened, both Rayonier and Weyerhaeuser are looking to increase revenue through opportunities in Asia.

"In light of the depressed housing market domestically in the United States, we have relied on our customer relationships in Asia, where demand for timberland and log exports is growing very rapidly," Bedient said. "We have exported off the West Coast for 25 years and we are continuing to maximize those ideas going forward," she said.

Likewise, Boynton said his company is well positioned to meet China's large demand for logs.

The timber companies also are focusing on manufacturing high-grade cellulose fibers, commonly referred to as pulp, which are used in a range of products from LCD screens to food.

"The pulp mill business has been relatively solid and strong, we are shifting more of our mix to pulp mill during these economic down times, and that has certainly helped mitigate some of the effects of the current economy," Boynton said.