We made no changes to our modeling assumptions or earnings estimates in this report.

 

Our use of a $1,140 per acre basis for our Price Target could be challenged. It is an average of the values of premium Southern and Pacific Northwest acres and other acreage values in Montana, Maine, Wisconsin, Michigan or other northern areas where log tonnages harvested per acre are much less. However, PCL has been greatly innovative in crafting clever sales of Montana or Maine “low productivity” acres to conservancies or vacation home markets, where the “low productivity” acres have enjoyed up to tenfold returns when sold for “higher and better uses.” In this sense our projections may understate future returns as such windfalls are tough to anticipate.

 

We continue to have concerns about the decline in total corporate landholdings from a peak near 8.2 mm acres towards 6.7 mm acres by year-end and planned further future declines. Ultimately, a recovery in housing markets or the growth of wood ethanol, fuel pellets or other energy applications are necessary to fund the dividend without decapitalizing land sales. We caution against too much pessimism, however, as PCL has built several million tons of “standing inventory” of premium logs due for harvest, which could generate “extra earnings” for the first several years of a housing rebound.

Faithfully,
 

John C. Tumazos, CFA