Potlatch to sell timberland
Potlatch Corp. will cash in on the rising real estate value of its Idaho timberlands by selling off about 100,000 acres over the next decade.
The land is more valuable for recreation cabins, trophy homes and hunting spreads than for growing trees, company officials said Monday. The Spokane company also plans to ramp up sales of “non-strategic” timberland in Minnesota and Arkansas.
Potlatch owns 1.5 million acres in the three states. An acre-by-acre review of the land indicates that 18 percent to 20 percent of the company’s timber holdings would generate a higher return in other uses, Mike Covey, Potlatch’s chief executive officer, told analysts during a conference call from New York. The company will sell off that land within 10 or so years, he said. Some of the proceeds will be reinvested in additional timberland purchases.
Acreage near lakes and streams, within easy drives of population centers, is appreciating the fastest, Covey said.
In certain cases, the parcels’ development values are four times higher than their timber-growing values, he said. Baby boomers’ demand for second homes and recreation properties is driving the trend. In Minnesota, Potlatch received more than 700 bids when it put 24 tracts of land up for sale.
“We’re all aware of the baby boomer influence,” said Bill DeReu, Potlatch’s vice president of land sales and development. “Three out of five of those boomers want to retire in a rural area or a small town. That’s a sweet spot for us.”
Potlatch is the largest private landowner in both Idaho and Minnesota. Its holdings include acreage near the Boundary Waters Wilderness Area in northeastern Minnesota and 670,000 acres in north-central Idaho, an area known for its wilderness, whitewater rafting, elk hunting, steelhead and trout fishing.
Potlatch’s Idaho timberland lies east of U.S Highway 95, stretching roughly from St. Maries to Lewiston. The parcels identified for sale are scattered throughout that area.
As demand for recreational real estate increases, timber companies’ landholdings have surpassed the value of their sawmills. Plum Creek Timber Co., which organized as the nation’s first timber real estate investment trust, is an aggressive buyer and seller of land.
Potlatch is likely to follow its model. The company put its timberland into a real estate investment trust in January. The REIT structure reduced the federal taxes Potlatch pays on its timber holdings. Covey joined Potlatch in February after a long tenure with Plum Creek. He’s recruited other players from his old company, including DeReu, who said that Potlatch will “churn” more land as it spins off high value parcels and buys replacement property.
Potlatch’s stock rose slightly Monday, closing at $42.70 per share, a gain of 53 cents.
“This is really the first time that this new management team has gone to New York and Wall Street, and Wall Street is going to like what they see,” predicted Steve Chercover, a research analyst with D.A. Davidson & Co., who follows the timber industry.
Covey and DeReu pursued similar strategies at Plum Creek, capturing rising land values for shareholders, he said. “They’ve done this before with great success.”
But Plum Creek is also the company that logged large tracts in Montana and then sold the land for development, said Dr. John Osborn, a Spokane physician and environmentalist.
“They have carried out a double liquidation,” Osborn said. “The cutting of trees for profit is maximized and the remaining land is sold for real estate purposes.”
Monday’s announcement will not affect nearly 55,000 acres of company land in Idaho’s St. Joe River drainage that is protected through a conservation easement.
Potlatch agreed to give up development rights on the ground in return for $9.5 million in payments. The company will continue to harvest trees from the land, while keeping it open for public recreation such as fishing, hunting and hiking.
The Trust for Public Lands, which brokered the deal, had hoped to protect 80,000 acres in the St. Joe River area from development. That could still happen, said Nelson Mathews, the trust’s Northwest program director, if conservation groups can raise the money to buy the land outright, or work with the potential new owners on conservation easements.
The St. Joe drainage is a rich wildlife area. It’s home to black bear, moose, elk, cougar and westslope cutthroat trout, as well as non-game species, such as goshawks.
Several years ago, Potlatch considered putting the bulk of its Idaho lands into a conservation easement. That isn’t a strategy the company will pursue, Covey said. Federal dollars, which provided the seed money for the conservation easements, have dried up.
Getting the true value of the lost development rights is also difficult, said Matt Van Vleet, Potlatch spokesman. Payments for conservation easements are based on what the land was worth in the past, as opposed to how it would appreciate over time, he said.
In select cases, Potlatch will still consider conservation easements to protect wildlife habitat, Covey said. The company recently signed an agreement to give up development rights on 16,000 acres of pine forest in Arkansas, a move that will help protect endangered red-cockaded woodpeckers. Potlatch will receive $6.7 million for the conservation easement.