With lumber selling for less in recent quarters than the cost of producing it, the few Canadian companies with a forest ownership stake have begun searching out other ways to make money in the woods.
 
For TimberWest Forest Corp. (TWTUF.PK), the answer has been clear: real estate. As it turns out, some of those woodlands make awfully nice places to live – so nice, in fact, that RBC Capital Markets analyst Paul Quinn estimates it is likely worth more than C$800-million, over C$150-million higher than previously estimated.
 
In a recent research note, in which he boosted his unit target from C$13 to C$14.50, he wrote:

TimberWest has some outstanding Vancouver Island properties. We are confident the real estate development portfolio represents over $10 per unit.

There are risks to this estimate, most notably the company’s ability to get that cash on its books in a timely manner: “timing on the resulting cash flow remains unclear,” Mr. Quinn wrote.
 
Still, it’s clear that the company is at a “cross roads in its evolution,” as it currently straddles both a lumber and a real estate business. The fact that the real estate side shows such lucrative potential – and that timberlands continue to grow in prices even as wood processing bleeds money – “raises the interesting question of the best interest of unitholders: sell the company in the near-term, or pursue the real estate development angle?” Mr. Quinn wrote.
 
His conclusion: the growing value of the company’s real estate assets “has increased” that possibility, and TimberWest is worth C$19.50 per unit. Even if a sale does not happen, however, the company's prospects look rosy, even counting in risks from high labor costs, a slowing Japanese market and the high Canadian dollar.

He wrote:

Overall, we remain very confident that the company will continue to deliver its $1.08 per unit distribution into the foreseeable future.

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