Genetics in Timberland Investment

Valuation Issues & Opportunities

  • Genetics beginning to be reflected in Pre Merchantable timber valuation and appraisals
  • Companies now marketing their technology investments in timberland sales
  • WY and RYN are making big genetics investments and will seek max value in dispositions
  • Some TIMO’s are actively positioning their genetic and silviculture investments

Analysts Are Watching Genetics

investors should acknowledge the significant productivity gains through silviculture (gains in growth, form and disease/pest resistance through genetics and controlled selection) over the last decade.

Approximately 1/3 of RYN planted seedlings come from controlled pollination (CP) stock, where the female flowers from the best trees are mated with the best male pollen. This is a material change from a decade ago where less than 10% was CP stock.

— RBC Paul Quinn on Rayonier, Nov. 2016

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Got questions? Need more data?

Summary Growth & Value Metrics by Genotype

MCP & Varietals: Yield more total tons and higher proportions of Grade Products

Genotype MAI* Rotation Age Total Yield BLV** Total Genetics
tons/acre/yr years  GWob tons/acre $/acre IRR*** (%) IRR (%)****
2nd Gen 8.1 13 – 22 178 $747 11.0%
OP-A 8.5 13 – 22 188 $843 11.4% 23.7%
OP-S 8.9 13 – 22 195 $902 11.6% 19.6%
OP-E 9.2 13 – 22 202 $961 11.8% 18.0%
MCP-A 9.6 14 – 23 222 $1,109 11.8% 14.1%
MCP-S 10.1 13 – 22 221 $1,206 12.2% 14.3%
MCP-E 10.8 13 – 22 237 $1,348 12.5% 14.3%
VAR 1 11.4 15 – 23 262 $1,494 12.1% 12.8%

* Mean Annual Increment (MAI) i.e., growth rate at harvest age
** Bare Land Value (BLV) is a perpetuity Net Present Value
*** Internal Rate of Return (IRR) on all costs and revenues for a plantation forest
**** Marginal IRR is the return on the additional money invested on the product vs 2nd Gen

 

SUMMARY

RETURNS

Under current log pricing, Elite MCP and Varietal genetics substantially improve biologic component of timberland returns

  • Increased Total Yields by 35% and CNS/ST by 55%
  • Increases in BLV 85-102%
  • Increased total IRR by 120 BPS and Marginal IRR @14%

RISK

Planting Elite genetics greatly increases the probability of achieving target BLVs, thus reducing risk

  • BLV $800: MCP and Varietals produce Pr 87-99% vs OP Pr of 41-70%
  • BLV $1200: MCP and Varietals yield Pr 41-76% vs OP Pr of 4-22%