Replies to post #7874 on The Rising Influence of Rising Affluence

[mouton29]

Re PCL -- minor quibble with the Barron's article.

The author states "like all REITs, Plum Creek pays out 90% of earnings via dividends." REITs are required to pay out 90% of their taxable income other than capital gains as dividends, not 90% of earnings, though the two are generally close, on pain of losing REIT status. But virtually all REITs pay out 100% of their ordinary taxable income as dividends, because if they fail to do so, they are subject to corporate tax on the difference. Many REITs pay out more, this leads to dividends having a return of capital component, i.e., not being subject to tax to shareholders to that extent. Timber REITs are somewhat special, as Dew has noted, gains from the sale of timber are treated as capital gains, and, accordingly, dividends paid by PCL are generally taxed at capital gain rates. In theory REITs, including Plum Creek can retain their net capital gains and pay tax thereon, and can elect (like mutual funds) to pass along a credit to their shareholders for the tax paid, but it is extremely rare for a REIT to do that.

It used to be said that the market did not give REITs any credit for extra depreciation or a return of capital component, and for that reason, REITs did not try very hard to get a "basis step up" in structuring acquisitions. That ceased to be true some years ago, it is now common place to structure REIT M&A transactions in a manner that creates a basis step up. I've seen deals where this is done even where the acquisition was purely for stock, e.g., the Public Storage acquisition of Shurgard.

[DewDiligence]

PCL -3% on Barron’s article, which is not surprising. (Barron’s has a lot of influence.)

Today is a good buying opportunity, IMO, for anyone who is seeking to establish a position in PCL.

[The Jolly Roger]

It would seem Barron's projections are off a bit this stock price should be right around $10. As for the Chinese I'm quite sure they want nothing from U.S. wood products. This plum creek company doesn't pay a fair wage to the work force or unable to . I think by June of 2014 we will see flood water then by mid August forest fires do from crap land management . My conclusion by Mid October 2014 you and I will see a shake out . Under stand just my opinion

[DewDiligence]

(PCL)—[US] young adults are finally amassing the economic wherewithal to move out of their parents' homes—good news for homebuilders and home-improvement retailers…[and PCL].

…How many new [US] homes should we expect at this stage in our recovery? Before the recession, 1.35 million net new households were formed each year, as young Americans started families, existing families broke up, and with immigration. Annual household formation plummeted to about 550,000 between 2007 and 2011, ushering in a grim era of roommates and exasperated parents, before recently repairing to about a million. New-home construction is keeping pace: Housing starts rose to an annual rate of 1.11 million units in November, the best in more than five years.

…Assuming we need 1.4 million new homes a year, and 100,000 are torn down each year, annual construction should approach 1.5 million units, says Charles Lieberman, chief investment officer at Advisors Capital Management. "Pent-up demand will probably carry new construction to 1.7 million or 1.8 million units at the next peak."

http://online.barrons.com/article/SB50001424053111904681004579320590571468308.html

The 1.5M annual figure is consistent with what PCL’s CEO, Rick Holley has been saying (#msg-95575182). In other words, there’s still plenty of headroom for increasing new-home starts from the current annual rate of 1.0-1.1M.

[DewDiligence]

PCL reports 4Q13 results and 2014 outlook:

http://finance.yahoo.com/news/plum-creek-reports-results-fourth-210300015.html

Adjusted EBITDA, a non-GAAP measure of operating performance, for 2013 was $502 million and was $530 million for 2012. As planned, lower real estate activity accounted for the decline in adjusted EBITDA.

…During 2013, Western log prices recovered to pre-recession levels and Southern log prices ended the year approximately 12 percent higher than they were at the end of 2012. We believe the improvements in the South represent the early stages of recovery in the region.

…In the Real Estate segment, the company reported revenue of $286 million in 2013, a planned reduction from $352 million in 2012. Segment operating income was $169 million during 2013 compared with $187 million during 2012. Per acre values of the various land types sold were consistent with those realized for the past five years.

The outlook for 2014 is generally positive. GAAP EPS (which has almost no relevance for investing purposes—see #msg-95575182) is expected to be $1.30-1.50 for the full year 2014 and $0.12-0.17 for 1Q14 (due to real-estate sales being havilty weighted toward the second half of the year).

[DewDiligence]

Some PCL weakness might be attributable to yesterday’s WSJ piece on Representative David Camp’s tax proposal, which bars REIT status for timber firms:

http://online.wsj.com/news/articles/SB10001424052702304020104579433380799074254

However, I think it’s highly unlikely that such a change in the tax code—if enacted—would be imposed retroactively on existing timber REITs such as PCL.