February 17, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

The Ontario Teachers’ Pension Plan Board (OTPPB) has completed a redemption transaction through Tamarack Timberlands LLC, an investment vehicle owned by the pension fund, with mortgage holder Resource Management Service (RMS) assuming direct ownership and full governance of approximately 870,000 acres of loblolly pine forest spread across the U.S. Southeast.

As part of the deal, MetLife Investment Management (MIM) has provided long-term, first mortgage loans for $625 million to be secured by approximately 832,000 acres of timberland and timber portfolio assets. 

This large-scale timber portfolio is third-party certified as meeting Sustainable Forestry Initiative standards, one of the top sustainable forest management standards in the world, and will continue to be managed by RMS going forward.

OTPPB has indirectly invested in these assets since 2006 via a material ownership interest in a larger timberland investment vehicle. However, the completion of this transaction will give Tamarack Timberlands greater opportunities to implement long-term value creation schemes.

“A responsible, sustainable, and long-term approach to forestry has value beyond timber production,” said Christpher Metrakos, managing director, natural resources, Ontario Teachers’. “These assets will continue to provide Ontario Teachers’ with stable and robust cash yields as well as long-term capital appreciation, while also acting as a natural climate solution to help mitigate the impacts of climate change.”

Helping to make this deal a reality, MIM’s Agricultural Strategies Group includes a team of loan officers with an average 16 years’ experience in agricultural agribusiness and timberland financing.

“This milestone transaction is the result of working closely with the borrower to align long-term operational goals with long-term financing needs,” said Robert Merck, global head of real estate and agriculture, MetLife Investment Management. “The deal highlights MetLife Investment Management’s commitment to financing borrowers who sustainably provide lumber and agricultural products.”

Tensions Between Neighbors

When examining the U.S. and Canada, each country is quite different in how it manages and harvests timber. In the U.S., timberland is largely privately held and managed, but in Canada, the bulk of timberland is publicly owned, with companies paying set fees to the provincial government to harvest from the land.

For years (going back decades…), the U.S. has alleged that this practice, in essence, is a form of subsidization, making Canadian timber unfairly cheap, forcing U.S. prices down. In response, in April 2017, the Trump administration enacted tariffs hikes on Canadian softwood lumber, making it 24 percent more expensive practically overnight.

This is a simple overview of a long-running and complicated issue that has been made even more so by a global pandemic driving up demand and disrupting supply chains. But in the end, the scenario that has emerged is that it pays for Canadian timber companies to have access to U.S. forests in order to circumvent a messy trade war and its tariffs. 

But this isn’t the whole story either, according to David Elstone, managing director, Spar Tree Group, who told The Global and Mail, “Canadian producers are getting more U.S. capacity because that’s the best place to invest, given the fiber supply and relatively low costs. They’re not going to the United States just to avoid the duties.”

No matter the external pressures, this move by OTPPB and Tamarack will give them a range of benefits including the avoidance of tariffs, access to greater supply, greater geographic diversity for its portfolio, and a wider ability to leverage timber investments as a means to meet sustainability benchmarks and carbon capturing metrics.

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– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan-stone@globalaginvesting.com.