TimberWest Forest Corp. (TSX:TWF.UN) will look to real estate sales to supplement its operations and help meet cash requirements for distributions in 2006, CEO Paul McElligott told analysts Thursday.
The forestry company struggled with weak commodity prices and a strong Canadian dollar in 2005, but hopes its real estate will play an important part in rebuilding TimberWest's fortunes this year.
"TimberWest has some terrific real estate on the [Vancouver] Island worth more to third parties than in a commercial timberland operation and we're in the final stages of an updated strategic review of our portfolio," McElligott said.
"Our expectation is that, going forward, real estate will become a more important part of delivering unitholder value than it has in the past."
On Wednesday, TimberWest reported a fourth-quarter profit of $30.9 million or 40 cents per unit, compared with a loss of $1.2 million or two cents per unit a year ago, but the firm said it did not generate enough cash to cover its annual distributions.
Boosting the results was a one-time recovery of future income taxes worth $31.6 million. Quarterly sales increased to $132.8 million, up from $114.9 million in the fourth quarter of 2004.
TimberWest said the fourth-quarter results brought distributable cash for the year to $67.3 million or 87 cents per stapled unit, short of the $83.1 million or $1.08 per unit it paid out.
McElligott said the company struggled with the strengthening Canadian dollar throughout the year and weak prices.
"Despite our continued focus on cost reduction, we could not cut costs fast enough to keep pace with the currency effect and a weaker sales mix. As a result our margins suffered for the quarter and for the year as a whole compared to the year 2004," McElligott said.
"There's no sign of the currency strength abating, so we're expecting more of this in the year 2006."
In a report Thursday, RBC Capital Markets analyst Mark Bishop rated the company an "underperform" with average risk and a price target of $13.50.
Though the results were slightly above his expectations, Bishop wrote that U.S. log prices are expected to continue to be supported in the near term, but strengthening in the Canadian dollar will offset any modest price gains.
"As domestic markets are likely to remain weak through 2006, the company is targeting non-Japan Asian markets to support continued growth in log sales volumes," Bishop wrote in a note to clients.Canadian Press via Times Colonist
