Summary
- We view timberland exposure as a great uncorrelated asset play that most portfolios deserve.
- As the only publicly-traded pure play on timber, CatchMark is in the enviable position of holding that real timberland heritage.
- CatchMark has returned more than 65% year-to-date and the shares now yield 4.80%.
- Looking for a portfolio of ideas like this one? Members of iREIT on Alpha get exclusive access to our model portfolio. Get started today »
Our top performer in the Small Cap REIT Portfolio year-to-date is CatchMark Timber (CTT). Shares have returned over 65%. With almost 6% allocated to the name, it should be no surprise that this portfolio has returned around 30% year-to-date (surpassing the VNQ by around 250 basis points).
Source: Sharesight / iREIT
The Small Cap REIT Portfolio has 19 stocks so it’s critical that we pay very close attention to the holdings. And with CatchMark growing so rapidly, we must determine whether or not to allocate more capital to the name, trim or sell shares, or do nothing.
In case your wondering, Arbor Realty Trust (ABR) is our second-best performer in the Small Cap REIT portfolio (with just 7% exposure overall).
We have owned CatchMark in the hedge fund strategy (our portfolio is called the New Money Portfolio) in which we decided to sell shares a few weeks ago. That portfolio is more opportunistic as we seek to capture returns by taking advantage of drastic mis-pricing.
Yet, we believe that an investment in timber has a place in any portfolio, especially at lows when market sentiment is at its weakest. Back in February I explained that “we view timberland exposure as a great uncorrelated asset play that most portfolios deserve some sort of exposure to.”
I always have admired CatchMark’s differentiated platform and in this article today I will attempt to examine the competitive advantages and then take a closer look at the latest earnings results and valuation. Also, I wanted to point out that I met with the management team at REITWorld in L.A. last week and I will include commentary of interest in this article.
Source: CTT Investor Presentation
Why CatchMark?
One key difference with CatchMark and two of its closest peers - Weyerhauser (WY) and Polatch (PCH) – is that this small-cap REIT does not invest in manufacturing facilities. Keep in mind that manufacturing is not what made timber such an appealing uncorrelated asset over the long term.
As the only publicly-traded pure play on timber, CatchMark is in the enviable position of holding that real timberland heritage. As the company explains in its Investor deck:
“CatchMark acquires prime timberlands in high-demand mill markets and manages operations to generate highly-predictable and stable cash flow that comfortably covers its dividend and delivers consistent growth through the business cycle.”
Source: CTT Investor Presentation
As illustrated below, CatchMark focuses entirely on investing in and managing timberlands, and does not undertake volatile land development or manufacturing. Keep in mind, Rayonier (RYN) has substantial development in Florida that's extremely capital intensive.
...Originally Posted On Seeking Alpha
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