Profit margin: 23.15%
EPS 5yr growth: 8.11%
ROE 5yr growth: 21.01%
Plum Creek Timber (PCL)
Profit margin: 17.77%
EPS 5yr growth: -4.76%
ROE 5yr growth: 14.74%
Potlatch Corp. (PCH)
Profit margin: 11.83%
EPS 5yr growth: -11.09%
ROE 5yr growth: 24.49%
Comparing RYN to its two competitors gives me one interesting implication. The other two have increased their annualized ROE while their EPS have declined. I don't get that at all. The inverse of such a relationship (EPS up, ROE down) holds if a company changes to a more conservative capital structure with less debt. The long-term debt holdings of those PCL and PCH appear to be constant, so they don't seem to be levering up just to increase ROE. I wonder whether they've increased their shares outstanding in recent years, as that would account for a larger denominator in the EPS calculation.
A further inspection at the balance sheets of PCL and PCH show increasingly negative retained earnings for several years. RYN's balance sheet shows retained earnings to be large, positive, and increasing annually. That result, along with the positive EPS growth for RYN and negative EPS growth for the others, give me enough reason to favor RYN over its two competitors.
Rayonier has a couple of other things going for itself. Its free cash flow has been positive for three years. Its long term debt is far above the 2X net income I usually prefer in operating companies, but I'm bending that rule for two reasons. One, this is a REIT, where high debt is common. Two, I need a hyperinflation hedge, and hyperinflation reduces debt mountains to molehills. Oh yeah, one more thing. Rayonier's P/E ratio is a lot more fairly priced relative to the S&P 500's historic average of 14, so it's somewhat affordable.
Let's find out just how affordable Rayonier should be for me to buy it. I plugged its dividends into my Alfidi Capital REIT ETF valuation template, using the same assumptions I made for the self-storage REIT. I get an intrinsic valuation of $17.16/share, so applying a 10% discount means I won't pay a penny more than $15.44/share for RYN. It hasn't been that cheap since mid-2009 and it currently trades at $56.29. I'll wait for the market crash first.
I'll also mention timber REIT ETFs, specifically Guggenheim Timber (CUT) and iShares S&P Global Timber & Forestry ETF (WOOD). My objection to these ETFs is that their holdings are much broader than just timber harvesters. These ETFs hold operating companies that are in some ways only marginal users of timber products. Their expense ratios are also extremely high. That's why I'm ruling them out as candidates for my hard asset strategy.
I've found my pure play timber REIT candidate. I will wait to buy into Rayonier when the price is right.
Full disclosure: No position in any of the securities mentioned above at this time.