Strong income and appreciation gains for U.S. timberland in 2022
U.S. private timberland property investments returned 12.9% during calendar year 2022, with annual gains in both income and capital appreciation.
Timberland income in 2022 reflected robust demand for wood-based construction in the United States, placing upward pressure on timber prices for most of the year and boosting net operating income. Strong timberland capital appreciation reflected property valuations from third-party appraisals based on deep comparable sales activity as a benchmark.
U.S. timberland records performance of 12.9% in 2022
NCREIF U.S. Timberland Property Index, annual income and appreciation (%), as of December 31, 2022
The National Council of Real Estate Investment Fiduciaries (NCREIF) collects U.S. timberland property-level performance realized by institutional investments and reports the aggregated results within its Timberland Property Index (TPI).1 The 2022 calendar year total return for the TPI of 12.9% is an increase of 374 basis points (bps) from 2021, and above the average annual return level over the past 10 years (5.9%) and 20 years (7.2%).2
U.S. timberland performance in 2022 exceeds the 10-year average
In 2022, NCREIF’s TPI incorporated performance metrics from 464 distinct timberland properties with a combined area of 12.4 million acres across the United States and a combined market value of $24.5 billion. NCREIF separates total returns into two components: net operating income (EBITDDA3) and realized capital gains (or losses). In 2022, U.S. timberland performance for both net operating income and capital appreciation exceeded the 10-year average across the United States. Net operating income for private timberlands returned 3.1% during 2022 and remained above the 10-year average of 2.9%. The capital appreciation component of the TPI is based on annual third-party appraisals of timberland market values, which are required for all properties included in the TPI. In 2022, capital appreciation reached 9.6%, a 400bps increase from 2021’s capital gain of 5.6%.2
Strong timberland performance across all U.S regional markets
NCREIF timberland performance is reported in four geographic regions within the United States: Lake States, West, South, and Northeast. The TPI is heavily weighted toward the South, which represents almost 66% of the index by market value. Southern timberland properties in the TPI are predominantly pine plantations, with a smaller percentage of mixed pine/hardwood forests. Timberland properties in the West represent 25% of the U.S. index by value and the remaining 9% is split between high-value hardwood and mixed softwood/hardwood timberland in the Northeast (5.6%) and the Lake States (4.1%).
Timberland properties in the West and South comprise over 90% of the index
Regional share of the Timberland Property Index by value (as of December 31, 2022)
Source: NCREIF, Q4 2022.
Across these four major geographic regions in the United States, 2022’s annual total return ranged from nearly 10.7% (West) to 17.3% (Northeast), with performance for the South at 13.4% and at 15.8% for the Lake States.2
Southern timberland performance drives total index performance
Accounting for nearly two-thirds of the market value of the TPI, the 13.4% total return for private timberland in the U.S. South represents a gain of 636bps from 2021 performance (at 7.0%) and is 806bps above the 10-year historical average total return for the region.
Total timberland returns in the U.S. South for 2022 comprised operating income at 2.9% and capital gains at 10.3%. Operating income in 2022 exceeded the region’s 10-year average income return of 2.7% but was 11bps below 2021’s return. Capital appreciation in the U.S. South was 634bps above capital appreciation in 2021 and more than triple the average capital appreciation over the past 10 years.
Strongest operating income from western timberlands
Private timberland investments in the U.S. West recorded the strongest net operating income across NCREIF geographic regions at 3.7%. However, when combined with the lowest capital appreciation across the regions of 6.8%, this results in the lowest overall regional total return in 2022. Despite the year’s comparatively lower performance, the region’s net operating income and capital appreciation were still above their 10-year averages by a respective 3.6% and 4.1%.
Timberland performance above 10-year averages across major U.S. timber-producing regions
Annual timberland EBITDDA and appreciation returns by region in 2022 (data as of January 25, 2023)
Largest total returns in the Northeast region
U.S. Northeast timberland, although a small share of the total value of the TPI, experienced significant gains in 2022 and recorded the highest regional performance across the United States. The total return in the Northeast, at 17.3%, was 411bps above that of 2021, and well above the 10-year annual average of 3.7%. 2022’s Northeast performance was largely driven by capital gains of 14.2%, a 398bps increase over 2021. Operating income in the U.S. Northeast registered 2.8%, which is slightly above both 2021’s operating income (2.7%) and the 10-year average operating income for the region (2.5%).
U.S. Lake States timberland triple appreciation gains
Total timberland performance in the Lake States of 15.8% was 838bps above the total return in 2021 and double the region’s 10-year average total return of 6.3%. Operating income in the Lake States was 2.7%, below that of 2021 at 3.7%, yet near its historical average of 2.3% over the past decade.2 Capital appreciation in the Lake States rose 923bps to 12.9% in 2022, triple the average annual gain over the prior 10 years (3.1%).
Regional U.S. timberland calendar year performance in 2022
NCREIF TIP, Q4 2022. bps refers to basis points.
In summary, 2022 U.S. timberland performance reflects a strong year of demand from new construction, enhanced home repair and remodeling expenditures, and increased timberland property valuations based on third-party appraisals using deep comparable sales activity as a benchmark.
1 Manulife Investment Management is a participating member in the NCREIF Timberland Property Index (TIP). The index requires participating managers to report all eligible properties to the index. Usage of this data is not an offer to buy or sell properties. 2 NCREIF TIP, Q4 2022. 3 EBITDDA refers to earnings before interest, taxes, depreciation, depletion, and amortization.
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