That strategic buyer, Weyerhaeuser Company (NYSE:WY), is picking up assets in a coastal location which provides easier access to Asian markets. That really is the key to this deal and why those acres are worth a lot more than timberlands located elsewhere in the U.S. As you can see in the following charts, China has rapidly increased its imports of North American lumber:
Source: Plum Creek Timber Co. Inc. (NYSE:PCL) Investor Presentation (link opens a PDF)
While Canada is the clear leader in terms of supply, it’s facing a major threat from the mountain pine beetle. In the slide that follows you can see just how devastating this is to Canadian timberlands:
Source: Plum Creek Investor Presentation
What that spells is an opportunity for timberland owners in the Pacific Northwest. That’s why the strategic location of these assets is important as its boosts Weyerhaeuser Company (NYSE:WY)’s position in the region by 33% to a total of 2.6 million acres. Not only that but these are highly complementary and contiguous with the company’s existing acres.
For perspective, Weyerhaeuser Company (NYSE:WY) owns almost as many total acres in the Pacific Northwest as Rayonier Inc. (NYSE:RYN) has in its entire portfolio, and well above the nearly 390,000 acres it has in the Pacific Northwest. Weyerhaeuser is also well above No. 2 timberland owner Plum Creek Timber Co. Inc. (NYSE:PCL) which holds just 471,000 acres in the Pacific Northwest. These newly acquired acres really puts Weyerhaeuser Company (NYSE:WY) in a league of its own when it comes to having assets in the strategic Pacific Northwest.
So, just how important is China to the overall North American lumber supply market? According to estimates from Plum Creek Timber Co. Inc. (NYSE:PCL), Chinese demand is about 5%-7% of the North American lumber market. That equates to about 200,000 housing starts, which is why owning timberland assets with access to export markets is so important to Rayonier Inc. (NYSE:RYN), Weyerhaeuser Company (NYSE:WY), and Plum Creek.
While Weyerhaeuser is paying a pretty penny for that access, it should pay off over the long term as China imports more lumber even as Canadian supply remains constrained. That supply and demand dynamic is clearly in favor of Pacific Northwest timberland owners. Even better for investors is that while they wait for that long-term trend to play out they also get a nice short-term boost because the deal is immediately accretive to cash flow, enabling the company to boost the dividend to $0.22 per share. Overall, this is a very solid deal for Weyerhaeuser.
The article This Natural Resources Deal Has China Written All Over It originally appeared on Fool.com.
Fool contributor Matt DiLallo owns shares of Brookfield Asset Management. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool owns shares of Brookfield Infrastructure Partners.
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