Q4 2019 Earnings Call
Welcome and thank you for joining the Rayoniers fourth quarter 2019 teleconference call.
It's time all participants are in listen only mode. During the question and answer session. Please press star.
Our one when you're Touchtone phone today's conference is being recorded if you have any objections you may disconnect at this time.
Now I will turn the call over to your coverage host Mr., Mark MCU Senior Vice President and CFO, Sir you may begin.
Thank you and good morning, welcome to Rayoniers investors.
Teleconference, covering fourth quarter earnings our earnings statements and financial supplement released yesterday afternoon and are available on our web site at Rainier Dot com.
I'd like to remind you that in these presentations. We include forward looking statements made pursuant to the safe Harbor provisions of Federal Securities laws, Our earnings release and form 10-K filed with the FCC.
We listen to some of the factors that may cause actual results to differ materially from the forward looking statements. We may make their also referenced on page two of our financial supplement throughout these presentations. We will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measure in our earnings release and supplemental materials.
That lets start teleconference with opening.
Comments from Dave Nunez, President and CEO Dave.
Thanks, Mark and good morning, everyone.
First I'll make some high level comments before turning it back over to Mark to review our consolidated financial results. Then we'll ask Doug long, our senior Vice President of Forest resources to comment on our U.S. and New Zealand timber results and following the review.
Our timber results Mark will discuss our real estate results as well as our outlook for 2020.
In the fourth quarter, we generated adjusted EBITDA of $65 million and earnings per share of 12 cents.
Our first quarter results were generally in line with our.
Occasions, and consistent with the guidance provided on our third quarter earnings call as modestly stronger than expected results in our timber segments offset weaker than expected results and our real estate segment.
Which was driven by the timing of closings.
Overall, our team did a great job navigating very difficult.
Market conditions to deliver a relatively strong fourth quarter with adjusted EBITDA exceeding the prior year quarter by approximately 30%.
For the full year, we generated adjusted EBITDA of $248 million and earnings per share a 46 cents full.
Our adjusted EBITDA declined 27% versus the prior year, driven primarily by a much lower contribution from our real estate segment. Following an extraordinarily strong 2018.
In our southern timber segment, we achieved full year, adjusted EBITDA of $120 million, which.
An increase of 16% over the prior year.
Notably this result represents a record level of EBITDA for southern timber segment, driven primarily by increased volume due to productivity enhancements and acquisitions.
As well as an all time high contribution from our non timber income business.
Thus, while our total consolidated adjusted EBITDA declined relative to 2018. It was certainly encouraging to see significant year over year EBITDA growth in our southern timber segment.
Which represents the largest component of our asset value.
And our Pacific Northwest timber segment, we generated full.
Our adjusted EBITDA up of $17 million. This result represents a significant decline from the prior year as log export volumes and log prices declined dramatically following the implementation of tariffs by China in late 2018.
Export market headwinds, we're further exacerbated.
Sure abated during 2019 by the significant increase in European spruce salvage volume flowing into the China market.
Despite a challenging year in the Pacific Northwest, we were pleased to finish on a high note as fourth quarter adjusted EBITDA exceeded the prior three quarters combined given driven by significant.
Currently improved volume and stronger net stumpage realizations.
And our New Zealand timber segment full year, adjusted EBITDA declined 17% to $76 million.
The year over year decline in adjusted EBITDA was driven primarily by decreases in both export.
Domestic sawtimber prices as competition from European spruce salvage volume put significant downward pressure on export log prices, which in turn led to domestic price declines.
Despite significant export market headwinds, particularly in the second half the year, the New Zealand timber segment still managed to generate its third.
I asked EBITDAR result, since we began consolidating results of this business in 2013.
Lastly, in our real estate segment, we generated full year adjusted EBITDA of $60 million, which is roughly half. The prior year result, this year over year decline was driven entirely by a significant.
Secondly, lower number of acres sold in 2019, following an extraordinary level of real estate volume in 2018, including two large transactions in Louisiana and New Zealand.
Notably our average price per acre of over $4300 on real estate sales in 2000.
I think team was the highest level that we have achieved since 2007.
As we have often stated in the past this business is all about premium so despite the lower volume of acres sold in 2019, we feel very good about the NPV accretion that we generated through our real estate segment during the year.
With that.
Let me turn it back over to Mark for more detailed review of our fourth quarter financial results.
Thanks, Dave let's start on page five with our financial highlights sales for the quarter totaled $179 million, while operating income was $26 million and net income attributable to rayonier was $16 million or 12 cents per share.
Fourth quarter, adjusted EBITDA of $65 million was above the prior year quarter, primarily due to higher results in our southern timber Pacific northwest timber and real estate segments, partially offset by a lower contribution from our New Zealand timber segment.
On the bottom of page five we provide an overview of our capital resources and liquidity at year end.
As well as a comparison to the prior year, our cash available for distribution or see a D for the year was $149 million compared to $240 million in the prior year period, primarily due to lower adjusted EBITDA and higher capital expenditures.
A reconciliation of see 80 to cash provided by operating activities and other.
GAAP measures is provided on page eight of the financial supplement.
We closed the year was $69 million of cash in roughly $1.1 billion of debt debt increased modestly in the fourth quarter as we close on acquisitions totaling $60 million during the period, our net debt of $988 million represented 19% or enterprise value.
Based on our closing stock price at year end.
I'll now turn the call over to Doug to provide a more detailed review of our timber results.
Thanks, Mark good morning.
Let's start on page nine with our southern timber segment.
Adjusted EBITDA in the fourth quarter of $28 million was $6 million and $7 million.
Trouble compare to the prior quarter and the prior year quarter, respectively.
Fourth quarter harvest volume, approximately 1.6 million tons was 23% and 19% higher compared to the prior quarter and the prior year quarter respectively.
Although full year harvest volumes and up modestly below our initial guidance for the year.
Overall production was 350000 tons higher than the prior year.
We expect to recapture some of the volume deferred in 2019 in 2000 2020.
Which is reflected in our second guidance.
The average pine pulpwood, so much price of $14.82 per tonne was 5% unfavorable compared to prior.
Quarter and flat compared to the prior year quarter.
The reduction in price compared the prior quarter was due to an increase in sales volume in our weakest public market, where we tend to see increased sales activity in the fourth quarter.
The average pine sawtimber, so much price of $23.25 per tonne was flat compared the prior quarter.
And 3% unfavorable compared to the prior year quarter.
Decline in price compared to the prior quarter was driven primarily by geographic mix.
Our non timber income team ended the year with another strong quarter, delivering revenue of $8 million, which was flat compared to prior quarter and 51% higher than the prior year quarter.
Full year non timber revenue of $35 million was 34% higher than prior year and reflects a record contribution from an onto our income business.
Overall, our southern timber segment delivered full year, adjusted EBITDA of $120 million, which was 16% higher than the prior year on the back of a 6% increasing volume.
A slight increase in our weighted average net stumpage prices and an additional $9 million of non number revenue.
Now moving to Pacific Northwest timber segment on page 10.
Adjusted EBITDA of $9 million was $6 million and suddenly dollars favorable compared to prior quarter and the prior year quarter respectively.
First quarter harvest volume of 417000 tonnes was 60% and 72% higher compared the prior quarter the prior year quarter, respectively.
Full year harvest volume of 1.2 million tons was in line with our previous guidance as we took advantage of improved demand and favorable stumps opportunities in the fourth quarter.
The average.
If it's awesome or price of $78, a 51 cents per tonne was flat compared to prior quarter and 3% unfavorable compared to the prior year quarter.
Prices remain flat during the course of the year as a result, the continue tariffs on log exports to China and competition from European salvage timber.
However, due to favorable pricing on stumpage sales in the fourth quarter, coupled with lower.
Our average cutting all rates, we actually realize a 12% increase in average net stumpage prices versus the prior year quarter.
The average delivered pulpwood price of $39.24 was 4% favorable compared to prior quarter, but 17% unfavorable compared to prior year quarter.
We continue to see excess pulpwood and chips.
On the market due to reduced exports, although we believe that the decline and demand for export chips and the vote of sawmill residuals chips has generally stabilized.
The favorable variance and pulpwood prices compared to prior quarter was due to geographic mix.
Overall, our Pacific Northwest timber segment delivered full year, adjusted EBITDA of $17 million.
Yes, which was $24 million or 59% unfavorable compared to prior year.
Volume was down 7% year over year, but the biggest factor contributing to decline was lower log prices as average delivered southern prices were down 19%.
Driven by the U.S. trying to trade dispute as well as competition in European salvage timber.
Page 11.
Seven shows results and key operating metrics for our New Zealand timber segment.
Adjusted EBITDA in the fourth quarter of $16 million.
Was $2 million and $3 million unfavorable compared to prior year quarter than the prior year quarter, respectively.
Fourth quarter harvest volume of 680000 tonnes was 9%.
Lower than the prior quarter and 5% higher than the prior year quarter.
Fourth quarter volumes during tend to be lower than third quarter volumes through the year end holiday schedule.
The increase over the prior year quarter was due to export vessel timing.
Full year volume of 2.79 tons was aligned with our previous guidance was 2% higher.
In the prior year.
The fourth quarter average delivered export sawtimber price of $102.69 per tonne was 8% favorable compared to prior quarter, an 11% unfavorable compared the prior year quarter.
Price improvement over the prior quarter was due to increased demand as rate at pine was able to gain.
Share relative to other species.
The decline versus the prior year quarter was driven by increased competition from European spruce salvage volume.
Which has been the primary driver of export market volatility over the past year.
The average domestic sawtimber price of $69.13 per ton and U.S. dollar terms.
Was 8% and 13% unfavorable compared to the prior quarter and prior year quarter, respectively.
Mostly due to the fall in the New Zealand U.S. exchange rate, but also due to the impact of declining export prices.
Note that domestic pricing tends to lag behind export pricing as log supply is to put it back is the domestic markets when export prices become.
Competitive.
Excluding the impact of foreign exchange rates domestic pricing and in that dollar terms was 5% and 9% unfavorable compared to prior quarter and the prior year quarter respectively.
The average domestic pulpwood price of $34.91 per tonne was 9% and.
3% unfavorable compared to prior year quarter in the prior year quarter, respectively.
As lower export prices have been attributed to additional pulp log supply in the domestic market.
Overall, our New Zealand timber segment delivered full year, adjusted EBITDA of $76 million, which was 17% lower than the prior year.
Volume was up 2% <unk> export and domestic saw some pricing were down, 10% and 7%, respectively, which drove the year over year decline.
And our trading segment, we generated adjusted EBITDA of negative $300000, which was $300000 and $600000 unfavorable compared the prior quarter and the prior year quarter respectively.
For the full year are trading segment, adjusted EBITDA was breakeven, which was $1 million unfavorable compared to prior year.
I'll now turn it back over to Mark to cover our real estate results are outlet for the year Mark.
Thanks, Doug as highlighted on page 12 fourth quarter real estate segment sales totaled $22 million on roughly 6900.
Acres sold an average price of $3200 per acre adjusted EBITDA for the fourth quarter was $18 million sales in the improved development category consisted of a 21 acre parcel and our Belfast Commerce Park for roughly $900000 for $42000 per acre as a reminder, that Belfast Commerce Park is part of our.
Until mixed use development project South of Savannah, Georgia, a new interchange on Interstate 95 within the project footprint is under construction and scheduled for completion by year end, which has generated an increased level of interest in activity in this area.
Matt momentum at Wildlight, our other mixed use development project North of Jacksonville, Florida also.
I used to be strong most of the major infrastructure is now in place and our next phase of 122 residential lots is scheduled to be substantially completed by the end of Q1.
In the unimproved development category, we closed on a roughly 400 acreage 400 acre transaction in Nassau County, Florida for $4 million per $10000 per.
Weaker.
This cap softer year in which our unimproved development category had a stronger this ever results with sales of $20 million and roughly 1200 acres sold or $16000 per acre.
In the rural category sales totaled $7 million on roughly 1500 acres sold at an average price of $4400 per acre.
Rural sales consisted of 19 transactions across our southern footprint.
Lastly sales in the non strategic in timberlands category totaled $11 million, consisting of 5000 acres at an average price of $2100 per acre.
Now moving onto our guidance for the year page 14 shows our financial guidance by segment for 2020.
And scheduled GE of our earnings release provides a reconciliation of our adjusted EBITDA guidance to net income attributable to Rainier S. Please note that our full year 2020 guidance does not include the impact of our anticipated acquisition of Pope resources, We expect to close this transaction around mid year at which point, we plan to update our full year.
Guidance to incorporate the anticipated contribution from Pope for the balance of the year.
I'd also like to know that some of the current analyst estimates for Rainier included in <unk> I assume contribution from poke in 2020, which is not consistent with how we present presented our guidance you're in.
For full year 2020, excluding the Pope resources acquisition.
We expect total adjusted EBITDA of $245 million to $270 million net net income attributable to rayonier $47 million to $57 million and EPS of 36 to 44 cents.
We expect that our total timber segments adjusted EBITDA will be modestly lower versus 2019 with anticipated gains in our Pacific.
Terrific northwest timber segment more than offset by lower expected contribution from our New Zealand timber segment.
In our southern timber segment, we expect to achieve full year harvest volumes of 6.3 to 6.5 million tons. While we expect that overall pricing will be slightly below 2019 average pricing due to geographic mix we further.
Back to lower contribution from our non timber income business following a record year in 2019.
Overall, we expect that our southern timber segment will contribute 2020, adjusted EBITDA of $115 million to $120 million.
And our Pacific Northwest timber segment, we expect to achieve full year harvest volumes of 1.4 to 1.5 million tons.
We further expect relatively stable pricing as markets of adjusted to lower log export volumes, resulting from China tariffs and competition from European salvage volume.
Overall, we expect 2020 adjusted EBITDA in the Pacific Northwest timber segment of 21% to $25 million.
In our New Zealand timber segment, we expect harvest volumes of two.
0.6 to 2.7 million tons, and lower average export and domestic pricing due to challenging export market conditions, resulting from competition from European salvage volume as well as the near term impacts of the Corona virus outbreak.
We further expect to 2020 results will be impacted by increased shipping costs due to the implementation of low sulfur fuel.
Overall, we expect 2020 adjusted EBITDA in the New Zealand timber segment of 53% to $59 million.
[noise] across all of our timber segments, China log exports remain a key driver of the overall supply demand balance in 2019, we experienced significant export headwinds in the U.S. driven by tariffs on log exports out of both the.
South and Pacific Northwest this situation with was further exacerbated by the significant increase in both log and lumber supply from storm and beetle damage timber in Europe, which quickly captured significant market share in China, putting pressure on export log prices out of New Zealand as well more recently the Corona virus outbreak has significantly curtailed manufacturing.
And construction activity in the region overall, we remain confident in the long term potential the China export market and we're cautiously optimistic that the U.S., China phase one trade deal will lead to a gradual improvement and market conditions. However, we are anticipating near term challenges as the market Digest European salvage volume and as the Corona virus outbreak.
Limits log consumption.
In our real estate segment, we continue to focus on unlocking the long term value of our HBU development and rural property portfolio and we currently have a strong pipeline of identified opportunities in 2020, we expect that our real estate segment will contribute adjusted EBITDA of $80 million to $90 million, Although we expect the real.
Good activity will be heavily weighted to the second half of the year and that the first quarter in particular will be relatively light.
As we've communicated in the past results in this segment tend to be lumpy from period to period as they are significantly impacted by the timing of larger transactions.
Details on other elements of our financial guidance, including Capex DDNA.
Non cash basis of land sold interest expense taxes and minority interests are provided on page 14 of the financial supplement and scheduled Jeep of the earnings release I'll now turn the call back today for closing comments.
Thanks Mark.
As I look back on 2019, and proud of the accomplishments of our people and working together to deliver.
Were solid operational performance.
For the year and as importantly, remaining focused on executing against our strategic priorities and achieving our mission of generating industry, leading returns and building long term value per share.
When times are good and timber prices are trending upward, it's much easier to generate strong.
Financial results, but when market conditions are challenging as they were in 2019. It takes much more dedication coordination and operational flexibility to manage near term performance, while also maximizing long term value.
This past year, our team worked harder smarter and in a more coordinated.
Good fashion to generate the results that we achieved for the year, while at the same time differing nearly 300000 tons of planned harvest volume to help build long term value.
We enjoyed record adjusted EBITDA in our southern timber segment bolstered by our strongest performance to date in non timber.
Hum.
While we faced considerable market headwinds in our New Zealand and Pacific Northwest timber segments. Our teams, we're nimble and capturing opportunities and laying the groundwork for improved performance in the future.
Further while our real estate segment results were considerably lower than the record results.
We achieved in 2018, we remain focused on selling properties, where we can achieve meaningful premiums to timberland hold values and continue to enjoy the strongest HBU values relative to our peers.
At Rainier, we live by the adage have never being satisfied with our portfolio.
And bring a relentless focus on improving our portfolio either through addition or subtraction.
We have a bias towards acquiring high quality timberlands, which we believe provides for greater long term optionality in both good and challenging market conditions.
To this and we were excited to announce on January 15.
Team that we had entered into a definitive merger agreement with Pope resources under which Rainier will acquire all of the outstanding limited partnership units of Pope resources for consideration consisting of a mix of equity and cash.
We're also offering Pope resources unit holders the option.
Of electing to to receive partnership units in Rainier operating partnership LP, which would allow them to defer capital gains tax from their sale of their units.
We take pride in being the first timber REIT to employ this upreit structure and feel it has great potential to be used.
Used and other timberland transactions in the future.
The addition of these high quality Pacific Northwest Timberlands will bring our ownership in the region to 504000 acres increase our Pacific northwest sustainable yield by 32% and increase our proportion of Douglas for.
Merchantable timber inventory from 60% to 68%.
With a higher proportion of ground based logging we will also enjoy improved cash flow per ton and greater operational flexibility.
As part of this transaction, we will also grow and diversify our portfolio of.
Hi value HBU properties and real estate development projects. In addition, Pope resources owns an attractive third party private equity timber fund business with a 141000 acres under management and total assets under management of $545 million based on the most recent.
Yes.
We look forward to blending our two organizations together following closing and believe that we can leverage the strengths of both organizations to create a stronger platform in the Pacific northwest.
We expect that the transaction over the next five years will increase annual adjusted EBITDA and cash.
Cash available for distribution by approximately 38 million and $25 million respectively.
Including estimated annual cost synergies of approximately $5 million.
We're currently working through regulatory approvals and other customary closing conditions.
And are on track to close in mid 2020.
Staying on the theme of improving our portfolio, we executed on a number of smaller bolt on transactions in 2019 across all three of our timber segments.
Adding approximately 68000 acres valued at $142 million.
Overall it was one of the busiest years, we've had from a portfolio management perspective.
As we look to 2020, we will continue to pursue opportunities that either upgrade our portfolio through acquisitions or to redeploy land sale proceeds into other capital allocation opportunities that will enhance our.
Long term value per share.
We also remain firmly committed to enhancing our disclosure and providing best in class transparency to our investors with respect to both our owned portfolio and the broader timberland sector. For example, we were the only we are the only company among our peers that.
Closes our long term sustainable yield by region. We also expect to continue to host investor tours and teach ins sessions similar to what was done this past September where we exposed investors to other members of our team showcased portions of our southern timberland portfolio and provided greater insight into.
Current market conditions, and rayoniers differentiated strategies to create value.
In summary, we are pleased with not only our financial results in 2019 amidst a challenging market backdrop, but also the continued focus on our employees.
On building the long term value of our company.
We continue to actively seek out ways to improve both our operations and our portfolio.
As we've stated in the past our capital allocation strategy and operational philosophy are both intended to be nimble flexible and opportunistic.
We are looking forward to continuing to put these principles to work.
Toward building long term value for our unit holders.
This concludes the prepared remarks, and we'll now turn the call back over to the operator for questions.
We will now begin our formal question and answer session. If you would like to ask your question. Please press star one on your Touchtone phone. The first question is.
From Collin Mings Raymond James Your line is open.
Thank you good morning, Dave Mark and Doug.
Good morning continent.
I want to start on the export markets first on the current of Iris you called out a couple of times in the press release and obviously recognizing the situation is very fluid can you just maybe expand on your.
Comments, there have you seen any slowdown yet attributable to that how do you anticipate that outbreak impacting demand as well as the flow of logs into China.
Sure, calling us as Doug I'll take that to begin with yeah. As you mentioned the situation is very fluid.
So flipped personally met change plane flights yesterday regarding the the situation. So it's a.
Something that we're keeping abreast of as best we can on a on a daily basis and what I will say is that we've built in our best estimate in the guidance and to what we've thought about how it's going to impact is for the year.
And as you're probably aware, we've seen extension of the Chinese lunar new year by one or two weeks depending on the region. So that's obviously going to decrease the demand for logs in those areas.
And probably something that's just as important is that during that lunar new year.
The labor tends to go back home to other regions of China, and so they're they're now in some cases under travel restrictions and can we get back to the mills and the ports. So we're definitely seeing.
Something shaping up that could last you know one two months, we're not sure, but something thats out there that could.
But where we're going to have decreased demand because people can't get back to the mills to work and also slowdowns at the ports because there is not opportunities to get those labors ended the ports to unload and trucks. So were even think about us a lot.
And as we think about it.
No it's going to have an impact on how we think about our harvesting.
Going forward and what we do and our sales processes Avenue Zealand.
Though some of them unit risks, we see is that log buying sales are going to be slower. This year, obviously with people nothing will get to the ports.
And due to that we're looking at basically stepping back some of our export program and minimizing the volume that we send to.
Over the next few months.
So we're looking at pulling back our harvesting or we can.
Under our contracts and considering taking back 10% to 20% of our volume that listening to the market and attempt to slow down the impacts that are going to be building up there as well as look to maximize our volume into other markets about two thirds of our export from.
Zealand historically goes to China, and other third goes to Korea, Taiwan, India, and some other countries and we're looking at those opportunities to move that volume additional volume into those markets. During this time.
So it's very much kind of a wait and see as we go but weve developed good plans, we feel good about and working with our contractors and shipping contractors.
And our trading segment, we're going to limit our purchases to very select.
Core suppliers, maybe pricing on a weekly basis. So we're looking at how we step that back to so I'm just a very cautious approach to it as we look forward to seeing.
Hopefully a resolution get out the winter and things improve and.
We do believe though that theyre going to be a buildup in volume.
In the in that market. So we're working towards how we how we react to that and I think we have good plan. There when we think about the end of January.
We're looking at inventory volumes around 3.74 million cubic meters on the ports, but we think there's a potential for another million or more.
Spruce and containers that'll be backing up in this process. So it's definitely as you mentioned a fluid situation and one that we're trying to scale back I'm not trying to exacerbate at this point in time and move would around the different markets as we can.
That's helpful color I just want to continue on the export markets here, what maybe talking more specifically as far as the impact of that.
Salvage would from Europe.
Both again for I guess, Doug end market and I again acknowledge this is likely at work in progress, but can you maybe just update us on some of the initiatives. You've previously highlighted that were underway to maybe understand the impact of this bruce beetle epidemic and maybe how long that could impact the market just kind of what's your latest thoughts on the overhang that's created.
Sure Con I'll take that one again.
Yes, as you mentioned, we've talked about we have a strategic objective for this year to put some boots on the ground in Europe to try to understand better what's going on to date offices are linear we haven't done that yet, but we have done some research looking at the different information, we can get from the different departments of forestry and mysteries of agriculture and.
What I would say is what we know now.
2017.
Damage was roughly 27 million cubic meters.
And by 2018 of the ground 80 million cubic meters, so a pretty significant increase.
Some of that about 35 million was winds Roe.
By 2000.
The 19, its stepped up to 118 million cubic meters across the air impacted in Europe.
But the good news is of that only 8 million was when throw so why is that good news. It appears at the winter helps fuel the Beatles spread and so we've seen an estimated 70% to 77% reduction between 18 19, a winter damage from 35 million.
Meters to eight months meters.
So based on some of the information we've gotten from the Czech Republic and Austria.
They believe that of the epidemic could be peaking in 2020 2021.
And we've seen very aggressive harvesting.
By the Germans, where most impacted.
To the point.
Where in 2018.
There are cutting about 50% of damage would by 2019, 85% of harvest was damaged wood. So they really stepped up in 2019 and moved onto that logging and getting that moved out.
So it's definitely something that's out there we're monitoring again, we don't have the boots and around yet that's that's to come in the next couple of months as we look forward into this.
But we're hopeful that maybe the worst is behind us that's it's still hard to tell but there's some positive signs out there.
But we have seen a significant amount of spruce coming into the markets.
To your tier points and kind of the impacts on things.
And on a year over year basis.
Spruce lumber our.
Chris log sorry, coming into China in 2018 made up about 2% of China's market share.
By 2019, it was 14% so it's a pretty significant increase that we've seen in a short period of time, a one year.
And on the Q4 basis it was actually 20.
6% of the market share only behind New Zealand at 36% to market share. So it is amazingly increased its amazing feat that they've been able to get the logistics in place to move that much volume.
Primarily by containers from Europe to.
China.
We have seen some.
Intel still to be to be verified that.
Basically the Q4 volumes may have reached pretty much capacity the supply chain can handle and thats one of things will be studying as we go for next couple of months also to understand logistically has the supply chain come to a point, where it is it is at full capacity or not.
So.
That's that's the main the main information I have right now what we've done to date Collin. This is Dave one thing to add to that to keep in mind is this is very different from the the mountain pine beetle epidemic NBC in the context that that the spruce volume.
Heska has a much much shorter shelf life.
We've heard estimates anywhere from six months to three years and so this really speaks to the of the higher proportion of damaged would that they're cutting and they're trying to cut it as fast as they can while it's still has has value. Another another nuance that that is important understand is that.
This would has.
Limited substitution capabilities. So for example, it does not appeal real well and so thats an area, where our New Zealand market is somewhat protected and then a fairly large chunk of the radiata pine goes into a into into plywood markets and so that's a market that is.
Generally unaffected.
By the spruce volume, but the spruce volume absolutely effects. The general construction lumber that we compete against both in the Pacific Northwest as well as to you a south.
Yes, that's right I'd say, that's new Zealand benefits from the plywood furniture.
Your finger jointed boards molding type markets that the European spruce doesn't play well in.
And the U.S. south.
We've seen so you'll find going well and the treated market for landscape and underground uses type thing and European spruce doesn't do both for that so there's some potential opportunities there, but I'm, obviously theres a lot of a lot of volume there on the construction lumber side.
Good ad.
Okay, if I were to try and again, maybe tie it all the commentary there together as it relates to the Pacific Northwest New Zealand and just overall the export markets can we maybe switch that to the harvest plan for the year, particularly again in the Pacific northwest pretty substantial jump there expected, but actually the upper end of the range would.
Actually a appear to be above your sustainable yield in the regions. Maybe can you just elaborate on your decision to increased harvest specifically the Pacific northwest given some of these headwinds and along those lines, maybe just expand I know it was referenced in the.
Prepared remarks about some of the stumpage opportunities in the Pacific Northwest I know it looks like this is the first quarter and about.
Out a year that youd anything other than delivered log sales in the regions, maybe just talk a little bit more on the harvest plan civic northwest given some of these headwinds.
Sure.
Well as you can see deliberate sawtimber pricing was remarkably flat for the year as the market adjusted to the reduced exports and based on the British.
The next Gen, one announcements and some other announcements in the United States, we're anticipating some improvements.
But our market Intel suggested that it would take up six months to drawdown the warehouse stocks at these mills and start to tighten the lumber supply chain.
So for these reasons, we chose to defer volume from Q4 of last year and run it really measured pace there most of this year.
As we.
Moved into Q4, we began see single digit price improvements across all the grades but export logs.
And we believed this was a signal that the impact of the BC curtailments was being realized and Pacific markets.
So we chose a test that stumpage market again, and we really had quite pleasing success.
So on a quarter over quarter basis, we realized a 15% increase.
In Q3 in Q4 in our net stumpage per tonne.
Triple a better prices as well as lower login costs.
So we believe that the market as well that stable pricing for the four quarters of last year has has reached kind of a stable point.
With respect to the lack of exports and leases believed that we start to see some improvements.
And lumber demand.
In that area, particularly related to the DC curtailments.
Colin if I could add just a couple of points to that.
I think it's important to note that that was it was a very intentional move on our part to tap on the brakes. During the year you you generally.
You have limited.
Levers that you can pull but certainly timing within a year is one of them and so.
We saw that inventory, taking a long time to kind of go through the system.
For the BC mills that were curtailed and Thats why you saw in the first three quarters.
Or excuse me in the.
Q2 in Q3, we were we harvested about 20, 122% of our annual volume and really pushed that into Q4, we captured 34% of the annual volume and that was very intentional on I think it. It's it get it gets back to one of the things I was discussing earlier on the importance of being nimble and trying to.
Due to time to markets based on the based on the market intelligence that we have the other thing I would note to your question regarding 2020 is recognized that we have deferred some volume and so.
Some of that higher vol higher volume that Youre seeing is representation of that deferred volume being captured in 2020.
Okay, and one last one and I'll turn it over but just sticking with that theme, Dave maybe can you expand on the optimism that you kind of highlighted in the press release related to the phase one of the trade deal and then again, recognizing it's an evolving situation or any early read on it log in the Pacific Northwest could benefit from this decision by China.
I've got some tariffs next week.
Hey, Hey, Collins, Mark I'll take that and then I'll, let let Doug add some color I mean look as were is we're going into the year.
Coming off a year in which you know export we experienced them really significant export market headwinds.
Our expectation is that things can only get better with the phase one trade.
[music].
It's unclear exactly what's what's in that agreements still I think everybody is still trying to sort through what it really means for their respective industries, we're still trying to sort through what it means for for logs, but it certainly better than than what we had last year and I think we even had an announcement today about some china tariffs be rolled off again unclear if that impacts our industry.
But but our expectation again like we said we're cautiously optimistic that as we move forward, we will see some benefits of the phase one trade agreement.
That's our general expectation is that it can only get better from from this point kind of relative to where we are coming from.
Yeah, I would I'd just add to that is a little bit some I agree completely mark.
I want.
The things we saw in this phase one deal.
Was that there was an acceptance in the rules for food and agriculture trade that provide a set of standards by China, They except us quality controls for a number of agricultural products and we really see that as a positive sign.
One of the reasons, we chose to curtail our.
Ins from export that we mentioned couple of calls ago was we're really seeing a lot significant non tariff trade barriers opportunities, where we're having a fumigate containers of logs up to three times and so those costs that cost is exceeding the value of of the.
Laws are being transferred so that was the primary driver it wasn't that we.
Can operate within tariffs, we understood what that meant but we couldn't do is just in a blank check every time, we sent a load of logs to China with this some acceptance in the phase one trade deal that quality controls that China is going to set us quality controls around their culture. That's a big big went to US. We believe so we're hoping that will reduce the non tariff barriers that I'm just really caused us to.
So back and.
Just like I said, just it was something you just couldn't control. So were helpful to see that obviously with the Chinese lunar new year and the krona virus, it's going below whilst we understand it that how that plays out and what happens there, but that's that's something we're hopeful for to.
Mark point.
Another important point is in the deal China's agreed to buy additional 200 billion.
Yes, and business services in 2020 and 2021.
And within the category manufactured goods, which is actually were what has been included deal calls for additional 33 billion in purchases in 2020 and $45 billion in 2021.
So we see that is some potentially good upside to.
Between the Delta between 2000.
70 in 2019 pulp is down about 30% purchases from China or about $1 billion and wouldn't logs is down about 49% or $1.6 billion. So there's definitely some opportunity to them to pull back and be part of that increase in those agreed purchases again to Mark's point, we don't how thats going to work we're.
Just now these are the upsides, we have to work with and the reduction in non tariff barriers are things that give us some hope.
Very helpful. Thank you.
The next question is coming from Paul Quinn RBC capital markets. Your line is open.
Yes, thanks, very much morning, guys.
Morning.
Just a question on you mentioned sustainable harvest levels and.
Following up Collyns question on R&D increase in the Pacific Northwest If you could just review.
Sustainable harvest levels are for the South Pacific Northwest and New Zealand right now.
Yes, sure Paul we disclose them in our 10-K.
So I believe the.
The U.S. South is 5.9 to 6.3 per our last disclosure.
On the Pacific Northwest is 1.3 million tons, and New Zealand is 2.4 to 2.6, but recognize that last year's disclosure.
We have had some portfolio activity during the.
Of course of the year on New Zealand in particular, we've been evaluating.
Our sustainable yield bear with respect to some of the acquisitions that we've made but thats currently our latest disclosure will of course be updating that will release, the our 10-K in a couple of weeks.
Okay. That's that's helpful. And then just your son in law.
Pricing.
What you're seeing in the U.S. So I mean, this seems to be flat.
Plot for almost ever.
Just wondering if you're seeing any kind of a regional pickup.
Barring some kind of.
The improvement in the phase one trade deal.
And I am sorry, Paul before answer that I think I said one.
Point 3 million tons, the northwest, which has had its 1.4 million tons as our sustainable yield that.
Okay. Thanks.
Okay.
Sure I'll take on the question on the pricing in the south so as we've been discussing for the past few years due to age classes for harvest has been the process of shifting more to the Gulf States.
And that's.
The temporary period, but it will happen for few years.
On a Q4 year over year basis. This geographic ship represent a 21% volume reduction from Atlantic coastal region with the highest net stumpage prices and a corresponding 46% volume increase in our Alabama, Mississippi region with lower net stoppages.
And if you just look at Terremark South prices, you can see theres a several dollars.
Spread between sawtimber chemsil prices between these two regions.
So this volume trend continues into 2020, which is the reason for our slightly down pricing outlook.
So it really has a lot to do a geographic mix. When you think about why pricing was flat we've seen opportunities have trended up in certain areas and held flat in other areas, but we really have a significant shift and volume between the two.
While our shift has shifted that region with lower net stumpage. The actual anchors are more productive in that region. So on a total volume basis. When you look at kind of Q4 year over year.
The adjusted EBITDA per acre is actually up even when you net out the non timber income stronger onto our income performance.
I'm kind of go to refrain from speaking the sub market.
And as many of our competitors and customers listen these calls and we've had some operational backlash from that level specific specificity valley tougher from you say.
So but.
Needless to say as we've talked about some more specific markets. So there's other folks who are listening. These calls and submitted made a tougher and some some opportunities for so we're going to.
Shied away from that.
Okay. So that does shift to the to the Gulf region when is that expected to.
Back to more of the balance that we saw.
Number two years ago is that is that within the next two to five years.
Yes, I'll get yes. It is in the next next two to five years, that's when that time.
I don't have exact over that time ranges works for them.
Okay, Great and then let's go ahead with just on that Don class caused by the weather doubled.
The guidance going forward.
Well recognize is we're getting into more of the improve development sales those have a much higher basis component.
To them and so as we're looking at it 2020 in particular.
We do have a higher level of improved development sales baked into our estimates for the year.
Okay.
Internet specialists.
Thanks.
The next question is coming from Anthony Pettinari of Citi. Your line is.
Okay.
Good morning, guys. This is actually Randy full sitting in for Anthony.
Can you just talked about your expectations for New Zealand than Feldman pricing in 2020, it looks like just using your guidance that you expect EBITDA per ton to fall, 5% in the solid closer to 25% New Zealand what is baked into those assumptions.
Thank you.
Yes, I mean without without getting into specifics on pricing I think we've given our general expectation is that prices are going to be down on a year over year basis, and that's partly a function.
New-zealand, our second half in New Zealand was considerably worse than the first have recognized there wasn't meaningful price decline.
Mid year, and so you know two large extent I'd say, we're rolling forward kind of our current expectation of.
Pricing relative to kind of where we sit today are where we've been for last few months, but on a year over year basis, because the last half of the year represents weaker pricing then the first half of the year on year over year basis, we're anticipating the prices are going to be down modestly.
Okay. That's helpful. And then just maybe switching gears.
As we approach the spring selling season can you just comment broadly to the extent that you cannot inventories through the supply chain.
Ducks lumber at the dealers any color there would be helpful.
Yes.
It's very very variable I guess due to wet weather across different parts of the parts of the country. There's I don't really have a specific location I'd say is up or down.
We have seen restricted supply in areas, where we're has been wet so parts of coastal Florida coastal Georgia, and even parts of over in the in the southwest Texas things.
That.
Has been very wet in the northwest also Washington's had had a what you're in that area. So we have seen some contraction, but no specific market until that things are are outside of normal.
Okay. That's helpful I'll turn it over thank you.
The next question is coming from Mark will de CMO capital.
Markets. Your line is open.
Hi, Dave I wanted to just.
What kind of come back and kind of close the circle on these harvest volumes in 2020, because I think there is some concern out there this morning.
Turning up above kind of sustained yielded it sounds like in the northwest what you're really doing is.
It's kind of offsetting kind of below.
Sustained yield last year.
Maybe you could confirm that and then put a little color on what you're doing in the south because you're also above sustained yield there.
Yeah.
Mark This is mark I'll take that yes, I mean look I think.
Across our segments, you have the south and the Pacific Northwest.
The pickup in 2020 is largely a function of deferrals that we've taken in both 2018 and 2019.
Again, I think you can run the risk of kind of deferring indefinitely, and then finding yourself with a lot of Merck mature timber and with a market that.
Can't really sustain.
Thats supply and so I think look we're trying to be measured in terms of how we go to market. How we time sales when we pull back when we ramp up recognize that after two years of harvesting kind of below expectations in both of those regions. We are anticipating some.
You know getting some of that back next year.
Okay, and then I just wanted to pivot to New Zealand for a minute.
Can you first of all give us a sense of where kind of export log prices are out of New Zealand right now versus what you put up in the fourth quarter.
Yes, again, I'd, rather not comment on kind.
The the intra period pricing again like Doug said, I mean, we we tend to have customers and competitors listening on this call and so kind of getting granular about you know kind of where we see export pricing today are where we see a being next month is something that we generally don't like to do.
Okay.
Another question.
It's always been a more volatile.
Market with bigger swings in cash flows and valuation I'm just curious.
Would you be inclined to invest more in New Zealand, if we see a significant downturn there over the next year.
Mark I think we're always looking for opportunities to you on to buy through through the cycle and you know.
I think you look this is a very long term asset class and you have to take a long term view on trend line pricing because if you're always buying when when markets are up you can find yourself overpaying and when you know and if Conversely, if you're if you're never willing to buy when when markets are down you can find yourself missing those opportunities and so yes I think in.
In New Zealand in particular, I think we have time to some of our moves there quite well if you recall back in 2015, when we increased our stake there we bought in an implied value of 15 40 per acre we increased our stake there and implied value 15, 40 per acre and our last appraisal in New Zealand was.
It was over $3000 per acre and so you're right. It has historically been a much more volatile market from a price standpoint.
And also from a cost standpoint, you recognize when you have a lot.
Higher cost to market, particularly with that export business.
That that topline volatility that 10% swing in pricing has a much more.
Or a pronounced effect on on your on your bottom line then it.
Doesn't say, the south where if you're kind of measuring a price moves off of stumpage revenue that somebody's revenue is a you know the 80 plus percent EBITDA margin in terms of the pass through and so it isn't more volatile market and you know invariably we're having to take a a longer.
Longer term view of pricing the other point I'd make with New Zealand in particular, I mean, we've obviously you kind of experienced a a rocket ship in terms of the earnings growth there over the course of the prior three years on and if you look at the result that we achieved in 2018 year. Dave made the comment is a third highest I'm sorry 2019. It is a third highest result that weve achieved since we started.
Validating the business in 2013, and so yes, we were coming off some some extraordinarily strong markets in New Zealand I, certainly don't think that the entire sector has ER segment has been revalued commensurate with 90 plus million dollars of EBITDA for example, the we did.
In 2000.
18 on its a lower multiple business, it's a business where people are underwriting it set me up through the cycle and so you know this type of price volatility, while it's not helfer helpful. As we're kind of and trying to manage on.
Earnings targets and whatnot.
One thing that you obviously have to live within in that region in the.
Mark This is Dave what I'd add to that just just like we've talked about the importance of.
Utilizing bolt on transactions in the US we've done the same in New Zealand.
We bought two small properties this year.
Totaling just under 7000 acres, we spent $36 million.
Is on those were very happy with them, we tend to be pretty.
Pretty deliberate in looking at the the bolt ons in New Zealand that can help us in sort of a regional age class fit and so that's that's typically is something that we are are keen to and.
And there there are a fair number of opportunities.
Down there, but I'd also say that that.
We approach it in a pretty disciplined manner and as we saw the run up in prices on the log side over the last few years.
We frankly been a little less competitive on some of the.
Actions down there and but we're we're in it for the long term and we're going to continue to to look for things that make sense.
And we'll just have to see whether we get any of that type of pullback that you're referring to from a valuation standpoint in the impact it has on transaction markets.
Okay, and then last one for.
Dave just.
On Pope as best you can comment on this I mean, it just I'm curious in general terms about how much HBU potential you think there is kind of with those landholdings around future.
I don't want to be too specific.
Close the deal, but it does strike me I mean, you bought a lot of.
And with proximity to a pretty large and pretty fast growing metro market.
Yes, I think the thing that's the thing I would I would comment on that with Mark is it recognize recognized at Washington State has very.
A very strict growth management act that precludes you from.
From doing.
A lot of land conversion Pope has the benefit of having a lot of land that is in smaller.
Say 20 acre zoning areas I also give them a lot of credit for monetizing some of that through the creative use of.
Patient easements, where they have sold underlying development rights on on a lot of their land holdings, which does two things that it it brings in cash flow from the sale of those development rights, but then it also constrict supply of remaining lands that can be used for those.
So.
It certainly is an attractive portfolio in that perspective, but keep in mind, the geography that you're dealing with and the and the restrictions on those underlying.
Limits I think where we're we're probably more excited is just in the sense that with the fast ferry.
Legislation that past few years ago, you now have.
Much more access to the Seattle job market with passenger only ferries.
In particular going from Kingston into downtown Seattle, and so that has improved the absorption rate on a lot of their HBU portfolio.
In the North Kitsap.
Part of the market, we think it will benefit the projects that Pope has.
Has in both Kingston and Port Gamble, and so we see that more akin to to our Wildlight and Richmond Hill South of Savannah those types of.
Projects and so we're excited to have those come into the fold. We think that we have the right skill set to.
To both understand them and folded into the business, we do here in the south.
I've been up the both of those are both very interesting situations I'll turn it over thanks, Dave.
Once again to ask your.
You May press Star one on your Touchtone phone. The next question is coming from John Babchuk Bank of America. Your line is open.
Morning.
First question I guess, just as it kind of pertains to this Bruce Pete I was wondering if you could comment on recognizing that exports from the south to try to are pretty minimal at this point, but.
How does the southern yellow pine compared to.
On the other products that are that are making their way into China. So no eyewear, what is niche be relative to radiata, where would it be relative to spruce and.
This all assumes of course that you ultimately would even see some southern yellow pine returned back to the Chinese market over time.
Yes ill take that one so one of the primary uses that we've seen the niche market. Even in these kind of tariff markets is further pressure trading so far you're like I mentioned for kind of your decking or for things are going in the ground say post things like that so it's definitely niche suddenly opines, well known globally as being really really good material for absorbing.
For the treatment chemicals, and so thats one of the markets. We've seen strong obviously like prioritize things like that where its is accepting treating so the salvage kill spruce and dispersed in general is not near them.
Well regarded so that's an area that it said, you'll pine has advantage over many other species in the world.
And so is there much room for demand for that.
In China, assuming this whole salvage timber.
You know issue asked for an extended period.
Prior to the tariffs we were growing that market significantly so I would say, yes than it was well received.
But once the tariffs went in place than if it got much harder, we're still doing a minimal amount of volume kind of keeping.
The supply chain open.
Of our Atlantic Coast, and a lot of that would that we're doing now goes into that market. So yeah, I think there's opportunity for growth if we can.
Move past tariffs in other things John another thing to keep in mind is the southern volume flowing into China goes by container versus the break bulk that you see out of the northwest and in New Zealand.
And and so it really boils down to the.
The the efficiencies of the port and in effect the the cost of that container shipping and so as we saw the tariffs be put into place. It constricted. The number of ports that could still compete in terms of having competitive cost structure.
And so were.
We're that's that's a big impact so to extend to the phase one deal opens that up and loot loosens out a little bit it will likely open up a reopen up the number of ports that Ken competitively compete in that market.
Okay. Thank you and then.
You know a second question I guess just quickly.
Back to New Zealand, how much did you pay for the 7000 acres that you acquired there.
$36 million.
So just a little over 5000 acre.
Okay, John I recognize that the per acre values in New Zealand can be all over the map. It's all on exclusively plantation timberland. So it's.
It's heavily influenced by the age class of a specific property.
And one of those one of those properties in particular, John had a lot of merchantable timber on and so thats why.
That's that's why you see that average for the two so high.
That's helpful. And then just last question just how are.
Are you assuming no further opportunities to kind of grow non timber income from here recognizing that you know it sounds like non timber income will be down a little bit 2020.
Yeah, that's a great question.
So we have a team and their their constant looking those opportunities we can do what specked out the forest products, how we can.
Capitalize on.
On helping people kind of the carbon neutral. So we've got lot initiatives going on out there a lot of Merck kind of in their infancy, but any point in time. The teams always test with identifying new opportunities and funding ones are scalable. So they can go out across a lot of acres now can get too specific about those once again because of some kind of until they have been achieved on talk about.
We also don't give ideas to my competitors.
Thank you.
The next question is coming from Mark Weintraub Seaport. Your line is open.
Thank you.
So it looks like 2020 is going to be relatively decent year for us housing but.
Most.
For Caf.
In the direction of what would historically have been considered normalized.
Yes, we're still struggling on the pricing side, recognizing theres different says by sub markets, but still pricing for sawtimber is pretty depressed any thoughts on.
What it's going to take too.
Get that step change that we've been waiting and hoping for for awhile.
I mean, mark keep in mind and this was that we spend some time in our and our teaching in September and you can look at the materials on our web page about that but recognize that you had a fairly.
The large build in inventory.
Between now and the and the prior.
Prior prior cycle, and so and but also that thats very differential and I think that has acted as a governor of at least step change pricing that your that you're referencing and that we continue to believe that you're going to have.
Parental price elasticity across the south based on relative growth drain ratios that in some cases are under one and in some cases are well above.
Two x. and so it really is going to be a function of what part of the south that you're in and that's something that we spent a lot of time looking at our own portfolio.
On and thinking about from a from a price recovery standpoint.
Thank you and how important or not so is the Asia component to this equation.
I think it's I would I would attribute it to a similar to the northwest and that all.
All else being equal.
Optionality is your friend and if you've got additional markets youre going to benefit and.
We have a fairly high proportion of are you a south portfolio that is proximate to ports and so to the extent you have strong Asian markets Youre going.
And I have more optionality to.
To ship that that product, but recognize you know today at least in the short term, we're dealing with the corona virus and elevated inventories in China.
On the European spruce and to a lesser extent.
The Australian fire salvage would and so.
The short term, we don't see nearly the the opportunities that we would say that we would think are going to be there longer term, but we think the the U.S. south as we discussed earlier from a port competitiveness standpoint, the us south or portions of it stack up very nicely in and can bring in wood at a very competitive price.
Relative to other global suppliers into that market.
Mark recognize it in the south at least you mean that market was essentially nonexistent a few years back and so the fact that it pulled back significantly last year I think we're kind of looking more as a a lost opportunity as opposed to something is going to necessarily havent.
Depressant effect on the market and likewise, if and when it comes back we think that Thats, a real opportunity to put some upward pressure on prices there.
Think that export market is also helpful and essentially to the extent you are getting backlog out of the U.S. or out of that local region as not being processed by local sawmill. It's.
Also contributing to the chip supply in the region and so taking that fiber out of the market I think is positive for both sawtimber and pulpwood prices.
Yeah, I would just add to that kind of on scalability type thing.
Q2 of 2018, which was then tariff for announcements and upon in June of 2018, but that second quarter yourself with.
About 677000 cubic meters.
Exports to China, and without those tariffs that were going to increase significantly on top of that our own company. We're we're moving from.
One ports the two parts to three ports to for Port type thing so on and we sell our competitors on the same thing. So I think there was a lot of opportunity to scale up but also the tariffs.
Came in and in Q4 kind of our estimate was about 230000 cubic meters. So we saw significant 65% decrease so that people are still operate is good but that 677 was by no means that the peak that was a ramping up period and like I said I know myself as well as me other brokers other folks were in the process.
As a building up scale at that point in time and unfortunately, those tariffs came in right Mike when the market was starting to take off first on Yelp on.
And then very very quickly on the Pacific Northwest I guess out a little surprised that given the improving domestic housing situation and that perspective that Asia, probably then get worse.
And that is a more tension market than the U.S. south that you weren't anticipating that there might be some more price improvement.
Those markets than what you seem to be forecasting for for 2020, any any color there well I think more part of it is that we're trying to take a pretty measured.
View recognize that we kind of got burned last year Bye bye bye, taking what we said it was a middle of the fairway approach, where we had seen a big decline in prices in in Q3 in Q4 of 2018.
Within anticipation, we anticipating that there would be some near term resolution to the U.S., China trade situation that we would see a bounce back.
And prices that didn't materialize and so we ended up having to cut our guidance pretty significantly mid year for the Pacific Northwest and so we're now kind of sitting at.
Four quarters or so of relatively stable pricing I think the fact that we're able to place volume now on that at prices that we think are reasonable on is as much in advantage in terms.
How we're thinking about the market relative to where we were last year. We thought it came we try to push is falling off the market. It's actually going have a depressing effect on price and so we do feel as though the market is improving but.
Look I generally hold the view that the best indicator of Tomorrow's prices, probably today's price and so you are taking a really bullish view on.
Kind of how things are going to develop during the course of the year. I think you could just be setting us up tapped or kind of revised that expectation going forward and so we look we clearly think that if we do see some real momentum from the phase one trade agreement that there there is upside to these numbers, but the kind of baked that in as we sit here today following four quarters of relatively flattish.
Pricing I think it's something we opted not to do and Mark do you have to also just recognize that that while that European spruce volume is present in that market, it's going to make it much harder to meaningfully.
Bring Pacific northwest volume into that market and that that therein lies.
Lot of that that historic tension in the northwest as enjoyed by virtue of that market. So that's just another reason for some of our.
Some of our caution.
Thank you for the color.
Our last question is coming from Collin Mings Raymond James Your line is open.
[noise].
Thanks, just a few follow ups from me a as far as a real estate development investments Mark recognizing this will likely change wants to poke transaction closes, but just how should we think about your spending in 2020 as compared to last years 7 million.
Yes, I generally think it would have been on relatively flat on year over year basis, but recognize.
We had guided initially to $8 million to $11 million in 2019, we only end up doing seven. So next year is clearly going to be higher than that you probably more in the range of 12 to 15, I'd say because there is some carryover from 2019 that didnt occur and that's going to be both in the Belfast Commerce area Richmond Hill.
Oil and Wildlight you have a call on the biggest the biggest jump in that year over year is really that growth in that Richmond Hill.
Project, which really had a fairly small.
Component of capital this year.
You may recall there is.
New Interstate exchange being being.
Bucket as we speak and Thats opening up a lot more interest in that project and so we're moving forward with some of the investments to help position ourselves for sales.
Once that is completed later this year.
What will of course have specific guidance on that end the in the 10.
Okay, but but generally just for planning purposes, I think it's going to be in that range I talked about.
Okay, and then I want to go quickly back to John's question, just on non timber income in particular, it looks like New Zealand or the sizable increase in non timber sales during fourq, you and again, recognizing you don't want to be two specific but can you maybe just talk about the.
Inability of that specifically in New Zealand or was that just an unusual uptick there or should we think about that as kind of a go forward run rate.
No I definitely think 2019 was probably modestly elevated level in New Zealand you recognize their non timber income business a across our three key regions is quite a bit different and then even quite a bit different.
And within a region for example, the south we had a record year.
In 2019 on a lot of that was driven by pipeline easement income which of those tend to be kind of more one off opportunities. But then you also have your core kind of recreational leases.
That tend to be sustainable that's recurring year over year income in the Pacific Northwest.
Yes, it tends to be Cedar salvage revenue, which is somewhat recurring but again you can only get on and do that at certain times on and New Zealand, primarily carbon credit sales and yes. There is a legacy on bank so to speak of carbon credits that we have there, but it's not it's not infinite and the the bank that we.
Bob I would say is not is not generally growing and so that will ultimately taper off overtime.
Okay and then.
Last last one from London.
No sorry.
Sorry, sorry call and I'm, just Gonna mentioned, one thing on the carbon market New Zealand is.
In late December the government announced some key changes to their they're kind of carbon trading and actually raise the kind of their fixed price option $35 for 2020 missions and so ultimately we saw prices jumped from say $24 range to $29.50 on that announcement and settle back down around 20, 750. So we have seen a per unit increase in.
And carbon trading basically in just the last month and expect that that'll.
On a go up as time goes honest people approach 2021 surrenders type thing so so the theres some upside.
And the per unit pricing with respect to carbon as things move forward force.
And just for just calling for for clarification in New Zealand with this carbon scheme.
You basically are granted credits during during a rotation and then you have to give back some credits when you harvest and you end up keeping a small net that you can trade and that's that's outside of the volume that Mark talked about which were more legacy credits that we can sell.
That's an ongoing.
Source of potential source of.
Non timber income.
Got it okay very helpful. There and then just one last one from me recognizing in the prepared remarks, Dave you did touch on kind of aggregate acquisition activity.
For 2019, and then obviously, the pope transaction or kind of on.
Half year for 2020, but can you just expand a little bit more on the acquisitions, specifically completed during the fourth quarter. It does look like a fairly sizeable level of investment activity in the U.S. out.
Sure column, we had.
For the full for the full year, we had 18 transactions Fourq 14 of those were.
Created and four were bid in Q4, we had three transactions one which was just under 24000 acres was in northeast Florida.
We had another transaction that was in east, Texas for just under 7000 acres and then we had a small transaction of about 600 acres.
In Washington State and so we're happy with with all three those overall, we spent $60 million across those covering approximately 31000 acres across the three.
Thank you.
I'll now turn it back to Mr. King for closing comments.
Well, thanks, everybody for joining today and please feel free to follow up with me with any additional questions. Thank you.
This will conclude today's conference all parties may disconnect at this time.