TIMOs and TREITs are two different means investors have of getting exposure to timberland for their portfolios. TIMOs are Timberland Investment Management Organizations and TREITs are Timber Real Estate Investment Trusts. TIMOs are like RIAs specifically for timber investments, and are geneally hired by institutional investors to manage their timber portfolios. TREITs are more accesible to individuals, and are publically listed securities that do not pay tax at the entity level.
Q. Well, I know what these are, but our listeners might be “stumped”, so to speak.
A. And if they were, they’ be right. Stumpage is actually a key concept for TIMOs and TREITs, which are both ways to invest in timberland. TIMOs are “Timberland Investment Management Organization” and TREITs are timber real estate investment trusts.
Q. OK, then, what’s the differnce?
A. Let’s start with TIMOs— these are a Registered Investment Advisors for timberland. They don’t own the timberland… instead, they operate separately managed accounts for large institutional investors, like pension plans. Interestingly, TIMOs have different specialties: hardwood forests, yield enhancement, different geographies, and so on. So Harvard and Yale, for example, hire TIMOs to handle their timber investments.
Q. OK, and how about a TREIT?
A. That’s a timber REIT, and it does own the land and the timber. A few are Plumb Creek, Potlatch, Rayonier, and Weyerhaeuser. Of course, like normal REITS, these don’t pay tax at the entity level and are listed securities, so are good ways for individual investors to get exposure to timber.
Q. I guess you can really grow your money with timber, eh? But what exactly are the reasons to own it?
A. Timber became recognized as an asset class maybe 30 years ago. It’s got three very appealing features. First, of course, it provides a nice constant income stream, as you harvest trees, sell them off, and plant more. So a nice source of income without the duration risk bonds have. Second, of course, timberland is an excellent inflation hedge. Third, its pretty uncorrelated to the other stuff in most portfolios.
Q. But everything has a downside. What is it with timber?
A. Of course, its got cyclical characteristics: demand for wood goes up and down (as a way to play the housing recovery, sort of interesting). And although its hard to see replacements for timber in homebuilding, of course there’s no so much newspaper being consumed these days…