Timberland REITs are facing some headwinds in the near term, including a slow housing market and uncertain tariff dynamics, but the long-term opportunities remain compelling. Returns in the sector rebounded in the third quarter but remain down 17.5 % year-to-date, as of Nov. 17.
The sector has seen elevated timberland valuations in recent years, and analysts point to the stability of underlying timberland values as one of the compelling features of the asset class over time. They also highlight the growing use of incremental climate-related monetization opportunities as an income source to watch in the years ahead.
Meanwhile, a high-profile merger in the sector between Rayonier (NYSE: RYN) and PotlatchDeltic (Nasdaq: PCH), set to close by the second quarter of 2026, will result in fewer timber REIT investment options going forward, analysts point out.
Michael Roxland, managing director of equity research at Truist Securities, and Kurt Yinger, senior vice president and research analyst at D.A. Davidson, discussed these issues, and more, with REIT.com.
How would you describe overall fundamentals for the timberland REIT sector amid the volatility of tariffs, high housing costs, and other factors?
Michael Roxland: Timber fundamentals are challenging in the current landscape as the slow U.S. housing market is leading to less demand for wood products, and therefore timber. Each new single-family housing start uses about 15,000 board feet of lumber and around 10,000 square feet of panels. Similarly, the log export market is somewhat difficult in the near-term due to the Chinese ban on log imports.
Despite a recently weakening Japanese consumer pressuring the Japanese housing market, log exports to Japan have slowly begun to improve as a sizable sawmill in Japan reopened after fire damage in 2023, and as European timber exports to Japan have slowed. Further, the U.S. South in aggregate is still contending with elevated sawtimber inventories (large diameter logs used in lumber, veneer, and poles) given the significant harvest deferrals taken during the Great Recession.
At the same time, there have been several paper and pulp mill and line closures, which we believe has caused certain pulpwood baskets, mainly in the U.S. South, to become less tensioned and for pulpwood prices to decline. While we acknowledge that pulpwood is less valuable relative to sawtimber, it represents about 50% to 55% of harvested volumes in the U.S. South on average and tends to assist with near-term cash flow given its shorter rotation.
Meanwhile, increased duties on Canadian lumber and the advent of Section 232 tariffs bring total tariffs and duties on Canadian lumber producers, the largest lumber exporters to the U.S., to around 45%. This could spur Canadian lumber capacity closures due to elevated costs and profitability declines and provide some lumber pricing support, with U.S. lumber producers and timber suppliers poised to benefit.
Kurt Yinger: On the one hand, fundamentals are certainly more challenged today than in recent years. However, relative to the pressures faced by many of the end consumers of logs, whether it be wood product or pulp and paper manufacturers, the timberland REITs have proven more defensive and steady.
Arguably, even more important is the fact that large-scale timberland transactions point to healthy, if not continued increases in per acre values. Overall, near-term cash flows and fundamentals have been pressured by cyclical forces, but we believe the long-term opportunity set remains compelling, with asset values more reflective of the latter than the former.
How does the Rayonier/PotlatchDeltic transaction shape the timberland REIT sector more broadly?
Yinger: Overall, the transaction will drive more scarcity in terms of opportunities for public equity investors to have direct exposure to the timber asset class. The combination of Rayonier and PotlatchDeltic will also eliminate the opportunity to invest in a pure-play timberland REIT, with now both Weyerhaeuser (NYSE: WY) and the to-be-named new entity operating wood product manufacturing businesses as well. Beyond the impacts for investors in the public timberland REITs, we do not see the deal meaningfully altering the landscape for the timber asset class.
Roxland: Consolidation affords REIT investors fewer timber REIT investment options, which is challenging as there were not a lot to begin with. In addition, investors who want to invest in a pure-play timber REIT with no manufacturing operations, which was Rayonier, now don’t have that alternative as PotlatchDeltic is one of the top 10 lumber producers in North America and also produces plywood. Further, Rayonier indicated its intention to potentially explore growth options in wood products following the closure of the transaction.
From an industry vantage point, the new entity post-close should have greater scale in timberland (which could afford it pricing power in markets where it has notable timberland concentration), expanded customer relationships, increased efficiencies in forest management including transportation, logging, and infrastructure, and enhanced higher and better use acreage, natural climate solutions (NCS) opportunities, and subsurface assets.
What issues do you see, or want to see, timberland REIT management teams prioritizing today?
Roxland: Over time, timber REITs and other timberland companies have focused on sustainability, a key component of timberland management whereby the incentive to increase timberland productivity and maximize returns can be done simultaneously with generating meaningful environmental and social impacts. Some of these impacts include the protection of natural forests and biodiversity, sustainably-sourced timber, and employment opportunities in rural communities.
In recent years, NCS has complemented sustainability by exploring ways to further protect the environment while generating returns. In the case of timberland, additional returns can be generated through large-scale carbon capture and sequestration (CCS), land restoration, carbon credits, solar, wind, and mitigation banking. Meanwhile, PotlatchDeltic has about 34,000 acres with standing solar options, Rayonier has about 154,000 acres under lease for CCS, and Weyerhaeuser has 500,000-plus acres with suitable subsurface characteristics.
Yinger: A clear focus around addressing what we see as a wide public versus private valuation disconnect is what we believe should be front and center for management teams today. While over the last 10-plus years we have seen the timber REITs trade at narrow discounts relative to perceived net asset value, or even at times above, it has become clear the single most important variable dictating that widening or narrowing gap has been commodity wood product prices, as opposed to fluctuations in underlying timberland values.
One of the compelling attributes of the asset class over time has been the stability of underlying timberland values, something that at least of late, public timber REIT investors haven’t been able to enjoy. How best to address that valuation disconnect is a challenging question, with certain limitations; however, we think it’s very important as we think about the attractiveness of the space for public equity investors through the cycle.
Are alternative sources of income, such as solar power generation, playing a more important role for timberland REITs?
Yinger: NCS, or from our perspective, incremental monetization opportunities like solar leases, forest carbon, and CCS, among others, are playing a more important role for the timber REITs than seen previously. Still, it’s early days, with the next three to five years expected to prove more informative as it relates to how impactful many of these alternative sources can be.
Roxland: NCS has become a more prominent focus area for timber REITs, which is not only positive for the environment, but also affords them another revenue stream. While many of these NCS projects are in their infancy, timber REITs expect them to have a more meaningful impact in the next few years.
Amazon recently opened a mass timber warehouse in Indiana. How significant is this for the future of mass timber adoption?
Yinger: It feels like every week we read about another new non-residential structure built utilizing mass timber. In isolation, we don’t get the sense that any single one of those projects will necessarily serve as the catalyst to make mass timber an overnight success story, but there does appear to be good momentum behind adoption.
What do you see as the strongest areas of growth for timberland REITs in the short to medium term?
Roxland: In the short to medium term, we think a rebound in single-family housing demand presents the greatest opportunity to drive increased wood products and timber demand for timber REITs. There is the possibility for the U.S. housing market to recover, particularly if the Federal Reserve continues on the rate easing cycle path, which in conjunction with buydowns, potentially lower home prices, and other incentives from homebuilders, could accelerate single-family home construction.
There also continues to be robust demand for rural land, which tends to command notable premiums over traditional timberland values, and strong demand for NCS.
Are you seeing any shifts in investment focus in the sector, and if so, what’s driving that?
Roxland: Over the last several years, many of the timber REITs have become net sellers of timberland given elevated timberland valuations and have only opportunistically purchased timberland. With the proceeds they have generated from asset sales, these companies have in turn pursued increased capital allocation to shareholders through rising dividends and greater share repurchases.
What other themes or trends are you watching in the timberland REIT space as you look ahead?
Yinger: The shifting geographic makeup of North American lumber production and substitutability of Southern Pine remains topical considering elevated antidumping/ countervailing duties and tariffs impacting Canadian producers. Efforts to expand the amount of timber harvested from national forests bears watching, particularly in the Pacific Northwest.
Finally, the maturation, commercialization, and proliferation of solar, forest carbon, CCS, and other alternative monetization opportunities remain top of mind as we think about go-forward timberland pricing.
Roxland: We’re closely monitoring U.S. government policy regarding incentives for NCS projects. In that regard, the One Big Beautiful Bill contained provisions limiting incentives on renewables (e.g., solar) with projects required to get off the ground by July 2026 to receive federal funding. At the same time, the section 45Q tax credit was preserved in that bill, which is important for CCS as it is more dependent on government incentives versus solar, given relative economics.