A $1 billion bid for TimberWest (TSX:TWF.UN) has some debating whether it’s a vote of confidence in coastal forestry or Vancouver Island real estate.
“I think it’s both,” said Paul McElligott, president and CEO of the Vancouver-based timberland outfit. “There aren’t that many baskets of 800,000 acres of fee simple land available for growing trees and developing real estate.”
A week ago, British Columbia Investment Management Corp. and the Public Sector Investment Board, two of Canada’s largest pension funds, tendered a $1.03 billion cash offer to buy TimberWest.
If the bid goes through, Canada’s soldiers, sailors, police officers and some 440,000 residents of B.C. will own the largest chunk of private forest lands in Western Canada.
That’s a key asset in a country where more than 90% of all timberlands are Crown-owned, said McElligott.
The company owns 808,000 acres of private land on Vancouver Island, where it harvests logs and sells land through its Couverdon real estate arm.
TimberWest’s assets stretch from the southern tip of the island to Campbell River, butting up against several towns along the way.
Campbell River Mayor Charlie Cornfield said the company owns some 7,000 acres of land in his city.
Campbell River is already working with Couverdon on a 65-acre development called Jubilee Heights.
That coupled with a $1.35 billion BC Hydro project to upgrade the local dam will bring significant investment into Campbell River and increase the value of nearby land, Cornfield said.
TimberWest also owns swathes of land near Courtenay, Comox, Nanaimo, Ladysmith, Duncan, Lake Cowichan and Port Renfrew.
In order for some of those municipalities to develop, they need to buy land from TimberWest.
“We virtually surround … Ladysmith,” McElligott said.
But Vancouver Island’s real estate market needs to pick up for TimberWest’s land to pay off for investors.
According to the Canadian Mortgage and Housing Corp., housing starts in the Victoria region were down 34% in March compared with the same month last year.
Data from the Vancouver Island Real Estate Board shows home sales were down 7% to 384 units in March compared with 2010.
Even TimberWest has conceded that its land is less valuable for real estate development than originally thought.
The company slashed the amount of land it believes has a high potential for development to 56,000 acres compared with the 134,000 acres it reported last year.
That means only 7% of TimberWest’s land base has a high potential for development.
And that’s why David Elstone believes the pension plans are banking on the coastal forestry sector.
“I think they’re looking at TimberWest as a timber play as opposed to a real estate play,” said Elstone, an analyst with Equity Research Associates. “Not to say there isn’t components of it [for real estate], but you’d definitely be looking at that land based on the cash generation you get from growing and harvesting timber.”
TimberWest sold $217 million worth of logs last year while real estate sales totalled $14 million.
At press time, the company’s shares were valued at $6.51.
- TimberWest has 60 days to shop for a better takeover proposal, according to its agreement with the pension funds.
- CEO Paul McElligott said the 60-day deal is 10 or 15 days longer than a normal “go shop” agreement, and also means the pension funds can’t match any superior offer that’s tendered.
- Forestry players such as Brookfield Asset Management and West Fraser Timber (TSX:WFT) refused to say if they planned to make a bid.
- Invesco Trimark, which owns 14.75% TimberWest, also refused to comment.
- McElligott said he doesn’t know if another bid is likely.
“At this point it could go either way,” he said. “We feel we’ve got a solid price, but ultimately what a business is worth to one buyer another buyer might have a different view.”