Plum Creek Completes Montana Sale - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., has recently completed the third and final phase of the Montana forestland sale to ‘The Nature Conservancy and The Trust for Public Land'. The company has received $89 million in cash for approximately 70,000 acres of forestland.

Earlier in 2008, Plum Creek had entered into an agreement with the conservation organization to sell 312,000 acres of western Montana forestlands for $510 million. The deal was an effort to maintain the ecological balance of the region by keeping the forests under productive timber management and protecting the area's clean water, fish and wildlife habitat, while promoting continued public access to these lands for fishing, hiking, hunting and other recreational pursuits.

The agreement also provided for timber harvesting on some of the selected forestlands to continue raw material supply to Plum Creek for about 15 years. The harvesting was certified by third-parties as sustainable forestry initiatives and contributed to the stability and productivity of the forestlands.

The property was purchased in three phases, with Phase I completed in December 2008 and Phase II in February 2009. The acquisition was funded through Qualified Forestry Conservation Bonds, a public financing mechanism created in the 2008 Farm Bill, which enabled ‘The Nature Conservancy and The Trust for Public Land' to purchase forestlands either through the issuance of tax credit bonds or through direct federal grants.

Based in Seattle, Washington, Plum Creek owns one of the largest and most geographically diversified private timberland in the U.S. The company produces lumber, plywood and medium density fiberboard in its wood products manufacturing facilities. Plum Creek also operates a real estate development business as a taxable REIT subsidiary. In addition, the company has natural resource businesses that focus on opportunities such as mineral extraction, natural gas production, and communication and transportation.

Plum Creek's business is affected by the cyclical nature of the forest products industry. In addition, prices of logs and manufactured wood products remain highly volatile. As such, factors beyond the direct control of the company undermine its long-term growth potential. We maintain our ‘Underperform' recommendation on Plum Creek, which presently has a Zacks #5 Rank indicating a short-term ‘Strong Sell' rating. However, we currently have a ‘Neutral' recommendation and a Zacks #3 Rank (‘Hold' rating) for Weyerhaeuser Co. (WY), one of the competitors of Plum Creek.

 
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