Answers for investors searching for the right TIMO
Q: Why should I feel comfortable investing in timberland?
A: Although some people may have a perceived view that timberlands are at risk due to environmental factors such as hurricanes, insects, fires, etc., these risks typically are very minimal. In fact, the average annual loss for physical risk is less than 1%.1 Further, it has a low correlation with other asset classes and is a good inflation hedge. Frequently, timberland investments favorably balance portfolios, reducing risks and increasing returns. Risks of most concern right now are the economic dangers of using too much debt leverage and/or paying too much for a timberland property. However, by researching your choices, asking the right questions and knowing your TIMO, these risks can be minimized.
Q: I have special investment needs and, thus, desire investments tailored for me. Can these needs be accomplished by investing in timberlands?
A: Yes, timberland investments can be structured to your specific needs. Molpus has experience with both separate accounts and commingled funds. Again, make sure to choose the right TIMO to work with you to accomplish your investment objectives. We have the ability to customize a long-term timberland investment to fit an investor’s specific goals and objectives.
Q: What should I know to help me choose the right TIMO?
A: Below you will find a list of research items to help you choose the right TIMO:
Research stability, depth and professionalism of key employees in the timber business.
Molpus has been in business since 1905 and possesses a long, rich history in the timber industry. We are proud to staff some of the most experienced employees in the business as well. On staff, we have more than 70 foresters with many years of experience, six CPAs, five attorneys, forest biometricians, real estate professionals and other qualified personnel.
Find a TIMO where fiduciary responsibility is the top priority.
Molpus employees consider fiduciary responsibility to clients to be of the utmost importance. When tailoring investments and management criteria, time and effort are dedicated to make sure that interests are co-aligned and that Molpus’ clients see transparency in the process (including our fees and direct forestry costs).
Understand the assumptions used for modeling.
Molpus uses a sophisticated, customizable, proprietary model tailored to the needs of each client and property evaluated. The assumptions used are ever evolving based on the current timber markets and needs of the client. Strong discipline in modeling timberland properties is essential in determining how much to pay for a given property. There are times when your TIMO should be disciplined enough to recommend that you simply walk away to invest another day.
Determine if the TIMO is a long-term timber manager or short-term financial engineer.
Molpus’ legacy in the timber business is proof of a commitment to long-term timber management, to long-term timber investments and to long-term success for our company and, most importantly, our clients. Our fee structures are designed to mutually align our interests with those of our clients’ long-term objectives.
Demand a compensation structure matching the desired investment strategy.
Molpus tailors its timberland investments specifically to each client and their investment strategy. It is important to us to develop investment strategies that meet our client expectations, investment horizons and liquidity needs as opposed to forcing our clients into a one-size-fits-all approach.
Consider whether the TIMO is vertically integrated.
Molpus is a vertically integrated company managing the land in addition to the financial aspects of timberland investments. This structure allows us to exert more oversight and experience into all levels of controllable factors contributing to the success of an investment. This structure also allows us to tie an employee-incentive compensation program directly to their performance on our clients’ investments.
Know the company’s philosophy on acquisitions.
Molpus prides itself on a disciplined approach to recommending and acquiring timberlands for its clients, which has a heavy emphasis on conservative modeling to help ensure client returns. In the current economic conditions, Molpus believes you have to avoid the “buy any deal on the table” approach that can result from a lack of acquisition discipline.
Evaluate historical returns.
According to the National Council of Real Estate Investment Fiduciaries (NCREIF), timberland investments have delivered a 10-year annualized return of 4.06%2 as of March 31, 2018, while Molpus-managed timberlands have performed significantly better than the NCREIF returns over that same time period.3 We believe that our return numbers show that the Molpus team makes a difference for our clients.
1 Source: Stats of major TIMOs, REITs and Weyerhaeuser per James W. Sewell Company.
2 Source: NCREIF Timberland Index (Total) (March 31, 2018). Gross of management fees.
3 Source: Molpus Woodlands Group. Returns are audited through 12/31/2016. In considering the performance of investments referred to in these materials, prospective timberland investors should keep in mind that prior performance of Molpus investments is not indicative of future results, and there can be no assurance that Molpus will achieve comparable results in the future.