Additional Historic Rate of Return Information

Different timberland return models exist to measure timberland investment performance.  The National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Property Index has been published since 1994 (with data going back to 1987).  The Timberland Performance Index (TPI) is inactive and was last published by the University of Georgia Warnell School of Forest Resources.  The TPI has a 1981 - 1999 data base.  The John Hancock Timberland Index (JHTI) is published by the Hancock Timber Resource Group.  The JHTI uses historical data to extend its timberland performance time series back to 1960.

The JHTI produces regional and global results (South, Pacific Northwest, Northeast, United States, British Columbia, New Zealand, International, and Global).  This index allows for evaluation of long-term historical performance and return volatility.  The Hancock Timber Resource Group reports, for example, that from 1963 to 2002 the JHTI shows timberland returns and standard deviations (timberland return/standard deviation) for selected regions of:  Southeast 10.96/9.07; Pacific Northwest 16.52/8.35; Domestic 13.29/13.53; and Global 13.24/12.62.  JHTI found that returns and volatility vary regionally and that these returns are not necessarily correlated, meaning that combining timberland from various regions is an excellent way to reduce volatility.  That is, geographic diversification can have a positive effect on long-term returns.

The NCREIF Timberland Property Index is developed from data supplied by timberland investment managers who report quarterly on appraised value, property income and expenses, and property land transactions.  The index separates total return into income and capital appreciation components.  The index is reported by region (South, Pacific Northwest, and Northeast) and nationally.  Since its inception (fourth quarter of 1986) the index showed timberland returned just over 16 percent (as of end-of-year 2002).  Income tends to account for about 40 percent of total return and capital appreciation accounts for about 60 percent of total return. 

University studies showed the same expected rates of return.  Forest management intensities ranging from traditional management to very intensive forest management produced real rates of return ranging from 10 percent to 12 percent.