Q4 2020 CatchMark Timber Trust Inc Earnings Call
[music].
Good morning, and welcome to the catch Mark timber Trust fourth quarter, and full year 2020 earnings call and webcast.
All participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Ursula Godoy Chief Financial Officer of Ketchmark. Please go ahead.
Good morning, and thank you for joining us for a rainy of Petsmart <unk> timber trust results for fourth quarter and full year 2020, I am also like the Lilly Chief Financial Officer of catch Martin joining me today on the call are Chief Executive Officer, Brian Davis, Chief Resources Officer, Todd Reitz, and John Rasor for.
And of Triple T Timberlands.
During this call catchment management will make forward looking statements.
These forward looking statements are based on management's current beliefs and the information currently available.
<unk> actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations.
For more information about the factors that could cause such differences. We refer you to our 2019 annual report on form 10-K, our quarterly report on form 10-Q for the first quarter of 2020 and subsequent reports that we filed with the SEC.
Today's presentation includes certain non-GAAP financial measures reconciliations of these measurements are included in our fourth quarter of 'twenty 'twenty earnings release, and financial supplement both of which are posted on our website.
After our presentation, Brian Todd John and I will be pleased to answer any of your questions now I turn over the call to Chief Executive Officer, Brian Davis.
Thanks, Ursula and thank you all for joining us on the call today.
All of US the cash Mark Hope you and your colleagues families and friends are staying healthy and safe the extent particular appreciation and thanks to our employees for their ongoing dedication resilience and performance.
Probably created turbulence and dislocation across the economy last year.
Specially at the start of the pandemic, what whether from Hurricanes and Pacific Northwest Wildfires also presented challenges during 2020.
On a cash Mark these challenges served to further prove the strength of our business model, which is based on three key elements.
Investing in prime timberlands with industry, leading productivity focusing our investments in top mill markets, where we have strong counterparty relationships and executing superior management, focusing on delivered wood sales as well as opportunistic stumpage sales.
As a result, our nimbleness and flexibility allowed us to meet customer demand and we continue to generate predictable and stable cash flow, which resulted in fully covered dividends.
We ended the year with very strong results delivering an excellent fourth quarter, which exceeded prior year lifted full year results above our of company guidance.
Throughout 2020, our core operations generated premium timber sale price is substantially above market averages, we realized higher year over year annual harvest volumes, which were consistent with historical productivity levels, and we completed opportunistic timberland sales capturing higher margins.
During the year, we also preserved healthy liquidity stable leverage and advantageous management of that capital.
The large disposition of the Georgia timberlands in the first quarter continued our strategic deleveraging by recycling $21.3 million, realizing a $1.3 million gain on that transaction.
Meanwhile, we enhanced our overall portfolio the average stocking and core operating areas.
In the second quarter, we made significant progress in furthering our long term strategic objectives, specifically with the Triple T joint venture.
The successfully renegotiated, Georgia Pacific Wood supply agreement, allowing market based pricing and sales to third parties among other benefits to triple T. How propel a very strong year of operations under the leadership of John Rasor.
Not only did the Georgia Pacific agreement set the stage for the improved joint venture performance, but all has also enhanced our long term asset value.
In the wake of the G. P agreement, we continue to evaluate recapitalization of alternatives for the joint venture and expect to make significant progress during the year ahead.
This world class asset boasting strong counterparties and now market based pricing for all timber sales should attract interest and a relatively quiet timberland marketplace.
'twenty 'twenty also showed promise for our long term strategy of concentrating our prime timberland assets in Premier U S. South no markets, where we have strong counterparty relationships.
Since our IPO, we have been consistent in our view of macro factors that will positively impact the timber industry in the region.
This has played out as we have anticipated evidenced by a shift in production precipitated by the pine beetle in British Columbia, and the relocation of no capacity to the U S out to meet North American wood product demand.
Over the past decade, the devastating mountain pine beetle infestation reduce cost competitive blogs for saw mills in British Columbia.
As a result, we expected no operators to move production eventually into the U S south to.
To take advantage Ketchmark strategy has been to select prime timberlands in Premier U S South mill markets.
Our investments have successfully increased our fee timberland ownership by 56% and generated a compound annual growth rate for adjusted EBITDA of 47% since the IPO.
In the meantime, no closures in British Colombia began two years ago and the anticipated expansion of the mill capacity to the U S. South has been well underway over the past several years in fact capital investments and would using assets. Since 2016 has totaled over $20 billion with over 80 per cent of that capital invested in.
The U S out.
Specifically sawmill capacity in the U S. South has experienced a sharp increase of more than 20 per cent since 2018, with new capital projects and Greenfield Mills continued to be announced to meet growing demand for wood based building products.
The next stage of our opportunity lies in a sustained and durable housing recovery of resilient housing market will help drive consumption of wood products reduce the log supply overhang in the U S south and create price tension for all regional timberland owners.
We were on the cusp of of that increased demand when COVID-19 hit a year ago.
Although the pandemic created a momentary pause the combination of demographic trends growing household formations aging in place baby boomers and aging households stock bodes well for the forest products industry.
And that is playing out now in the current upsurge in the housing demand.
As a preferred and reliable supplier to our customer base with the differentiated operating model, we believe catch markets poised to participate and anticipated log price improvements in our markets. All the elements now are falling into place to propel our value proposition.
Our relatively simple and straightforward business strategy designed around providing predictable and stable cash flow to our shareholders continues to be well executed.
It provided the framework for generating strong 'twenty 'twenty results and should provide ketch mark with an operating tailwind in the year ahead. Most importantly, we continued to deliver reliable fully covered quarterly dividends.
And yesterday, we declared a first quarter 'twenty 'twenty, one dividend of <unk> 13 in the half cents per share for stockholders of record on February 26 payable on March 15th now also would detail of fourth quarter and full year results.
Thank you, Brian and annualized from our fourth quarter, we exceeded plan, where the license timber prices higher than market average. Thank you.
The entire year over year of pricing in the Pacific Northwest and as we had anticipated executing on timberland sales delayed earlier in the year by Covid constraint.
We also capitalized on main fill opportunities that arose late in the fourth quarter.
Specifically total revenue net loss reductions in adjusted EBITDA registered above plane and prior year as net timber sales timberland sales and asset management fee revenue increase.
The losses from the on consolidated Triple T joint venture decreased significantly.
For the quarter ended December 31st Twenty-twenty catch my generated revenues of $30.9 million compared to 29 point of $1 million in fourth quarter of 2019.
Timber sales revenue totaled $19 $9 million comparables for the fourth quarter in 2019.
As expected total harvest volume decreased year over year by 8%. The 578000 tons of quarterly harvest volumes were more evenly distributed in 2020 compared to 2019, when harvests were weighted more heavily each of the second half of the year.
Net loss significantly improved from $11.8 million from fourth quarter of 2019 is $3 million in fourth quarter of 2020.
Primarily due to an $8 7 million dollar decrease in losses allocated from the Triple T joint venture.
We generated adjusted EBITDA of $17 $3 million compared to $15 $1 million in fourth quarter of 2019, if 15% gain primarily driven by increased harvest volumes and higher pricing in the Pacific Northwest and increase timberland sales.
We also continue to capture higher than average market pricing for timber sales in the U S South.
Breaking out of adjusted EBITDA by segment.
For the fourth quarter harvest EBITDA was $9 $7 million equal to fourth quarter 2019.
Real estate EBITDA increased by 35% year over year to $6 $4 million due to selling 800 more acres out of 5% higher average per acre sales price.
The improved margins, 19% in fourth quarter of 2020 versus 10% in fourth quarter of 2019 resulted from selling tracks with the longer average hold period and lower average merchantable timber stopped.
Investment management EBITDA of $3 $2 million was comparable year over year as increased asset management fees from Triple T were offset by lower EBITDA from the Dawsonville bluffs joint venture, which effectively wound down in 2019.
We also paid of did any of $13 of half cents per share. The stockholders on December 15, 2020, which was fully covered by cash from operations.
For the for year ended December 31st 2020 catch more of generated revenues of 100 and for $3 million compared to $106 $7 million in the prior year.
Timber sales revenue was also comparable to prior year $72.3 million compared to $72 $6 million from 2019 as total harvest volume increased by 3% offset by lower pricing from our U S South region.
Timberland sales revenue decreased by $2 million to $15 $6 million in asset management fees were higher than in 2019 due to the amendment of the Triple T Joint Ventures asset management agreement completed in the second quarter of 'twenty 'twenty.
Net loss improved by $75 $8 million for $93 $3 million for full year 2019 to $17 $5 million for full year 2020.
The improvement was primarily due to an $85 4 million dollar decrease in losses allocated from the Triple T joint venture.
Adjusted EBITDA exceeded guidance totaling $52 $1 million compared to $56 $9 million for full year 2019.
The year over year decrease, which we anticipated was primarily due to a $4 4 million dollar decrease generated by the highly successful Dawsonville bluffs joint venture.
Yeah.
Breaking out of adjusted EBITDA by segments.
For full year, 'twenty 'twenty harvest EBITDA increase over full year 2019 from $33 $7 million to $34 $2 million helped by increased harvest volumes and higher pricing in the Pacific northwest and higher than average market pricing for timber sales in the U S South.
Real estate EBITDA registered ahead of plan decreasing year over year by $1 $9 million to $14 $7 million.
Investment management, EBITDA declined by $4 $1 million to $12 $6 million due primarily to the dawsonville winding down.
Now, let us review catch Mikes capital position.
Over the course of 2020 capital recycling credit agreement Amendment, and an active interest rate risk management strategy combined to put cash mark in a strong liquidity and capital position for a meeting of the year's considerable challenges.
And the company is poised to capitalize on the anticipated economic recovery.
During the year, we completed $21.3 million in capital recycling through a large first quarter of disposition, realizing $1 $3 million from gains and paying down debt by $29 million, while enhancing portfolio average stocking in core operating areas.
We maintained healthy liquidity at year end, we had nearly $163 million of liquidity consisting of approximately $116 million under the multi draw term facility.
$35 million under the revolving credit facility and $12 million of cash on hand.
We removed certain restrictive financial covenants, providing increased working capital under our credit facility and lowering unused commitment fees.
And we maintained a stable leverage profile with net debt to adjusted EBITDA in line with the company's average since the I P O.
During 2020 catch my repurchased 305000 shares for a total of $2 million under our share repurchase program.
At year end, we had approximately $13 $7 million remaining in the program for future repurchases, we did not complete any repurchases in the fourth quarter.
Entering 2021, we remain focused on rigorous and thoughtful execution of capital allocation priorities.
Maintaining health the liquidity, having ample working capital continuing debt repayment identifying strategic dispositions and acquisitions as well as opportunistically, making share repurchases.
Our overriding objective and commitment remains to deliver fully cover our quarterly dividend.
Now Todd will cover operations.
Thanks Ursula.
2020 of will go down as one of the most turbulent years on record for our country. Our industry proved to be more resilient than most with the help of our field managers, who did an excellent job managing through the challenges, we remain nimble and responsive to customer supply chain needs and ever changing schedules in order to meet our targets for the year the <unk>.
<unk> fourth quarter was ultimately driven by heightened the housing demand in particular, we were able to capitalize on mill demand and a strong pricing environment in the Pacific northwest with the rainy season approaching the civic northwest sawmills needed to build of inventory during the fourth quarter after third quarter of wildfires disrupted their operations and depleted their inventories.
Number of order files remain robust, which in turn of lab mills to run wide open only taking downtime during the holidays export business also showed improvement during the quarter as it had to compete harder for logs against substantial domestic demand driven by strong housing fundamentals that all translated into better log pricing.
We capitalized on the upsurge of mill demand on the strong pricing environment, which led to generating an outsized quarter compared to prior year.
In the fourth quarter overall timber sales revenue was comparable to prior year as increased harvest and saw timber pricing on the Pacific Northwest helped offset what were anticipated decreases in U S south harvest volumes and pricing.
Our Pacific Northwest Salt timber price increased by 36% in the quarter compared to the same time period of 2019.
In the U S. South volume production was 12% lower year over year as higher harvest volumes in 2019 were deferred to the fourth quarter after weather related delays earlier in the year.
In 2020, our production was more consistently spread out over each quarter.
Importantly, <unk> pulpwood and sawtimber pricing in fourth quarter 2020 continues to hold substantial premiums, 46% and 18%, respectively outperforming timber Mart South U S south wide stumpage prices.
He also met and exceeded our timberland sales targets for the fourth quarter by both completing sales deferred earlier in the year due to pandemic related delays and taken advantage of opportunities that came late in the quarter.
For all fourth quarter helped to boost full year results as we managed successfully around various pandemic storm and fire related obstacles throughout the year, we realized premium timber sale prices substantially above market averages in our core operations and met higher year over year annual harvest volumes of productivity levels consistent with the story.
For rates.
Our delivered wood model, comprising 78% of our timber sales on the U S. South of 98% on the Pacific Northwest again played an important role in controlling the supply chain and producing stable cash flow. So we can meet customer demand.
The visibility provided by our delivered sales channel also permitted us to identify and execute on stumpage sale opportunities that captured pricing premiums throughout the year.
As a result full year timber sales of $72 $3 million were comparable to prior year.
Total harvest volume increased 3% and saw timber increased to 43% of total harvest volume with Pacific Northwest operations now fully integrated.
Other highlights of our harvest operations for the year include.
In the U S. South we realized premiums for stumpage prices for pulpwood and saw timber, 49% and 20% respectively above timber Mart, south south wide market averages in the Pacific Northwest net timber revenue of $5 $7 million more than double 2019 results driven by an 80% increase in.
Harvest volume and an 18% increase in year over year saw timber pricing.
Timberland sales for the full year 2020 of 9300 acres for $15 $6 million exceeded the upper end of guidance. The total number of timberland sales transactions 37 was the highest for any one year and cash marks history as we capitalized on increased retail demand that emerged.
In the wake of the pandemic.
Looking ahead supported by solid housing numbers, we expect the positive trends for log prices and revenues in the Pacific Northwest of continue in coming quarters and to register further gains in the U S. South as new mill projects come on line in and around our micro markets.
After a roller coaster ride in the fourth quarter lumber prices have remained strong even heading above a $1000 per thousand board feet on the first quarter of 2021.
Our customer orders have strong visibility into the year and saw mills are running at 90% plus capacity better than historical averages with any bottleneck to added production tied to labor and COVID-19 impacts.
While pulp product markets have remained steady during the fourth quarter and trend continues into the first quarter of 2021.
After finishing with a very strong fourth quarter and ahead of plan. The timberland sales outlook appears robust in 2021 with continued high levels of interest and activity. We anticipate a majority of closings to occur after the first quarter.
Considering all of the ups and downs of 2020, there was a very strong year for operations and we have good momentum entering 2021, Brian back to you.
Thanks, Todd and the team did a great job on maximizing productivity from our assets.
Utilizing delivered wood sales to deliver consistent cash flows taking advantage of stumpage sales opportunities in our micro markets and being nimble to navigate the various challenges we faced the.
The result was a very strong year and all of our key performance metrics.
And that leads into catch Mark's guidance for full year 2021.
We project a GAAP net loss of between six and $10 million with no expected additional losses from Triple T.
Adjusted EBITDA is expected to register in a range of between 43% and $50 million, which is consistent with 2020 guidance.
Harvest volumes are forecasted between two and $2 2 million tonnes, reflecting consistent annual productivity on a per acre basis from our high quality assets.
Harvests are expected to increase sequentially during each of the first three quarters with fourth quarter volume approximating the average of the year.
Approximately 95% of forecasted harvest volumes will be derived from the U S. South region with the south timber mix of between 40, and 45% from the U S South and between 85 and 90% from the Pacific Northwest.
Asset management fee revenue is projected at approximately $12 million and our timberland sales target of between 13 and $15 million remains around 2% of fee acreage.
Taken together, we anticipate continuing to meet our strategic goals during the year ahead.
We will remain focused on continuing to deliver sustainable and predictable cash flow.
Staining industry, leading metrics for high productivity per acre.
Maintaining healthy liquidity and a stable leverage profile positioning the company for transformative opportunities through capital recycling and most importantly, generating a fully covered dividend.
All signs point to a favorable outlook for housing and a more normalized post pandemic economy to help support demand fundamentals.
In addition, as discussed we anticipate benefiting from ongoing mill market expansion in and around our Prime U S South Timberland base.
In conclusion catch marks operating strategy proved its value again in 2020.
Helped us manage through a difficult year for the economy and delivered results exceeding company guidance for the full year.
Most notably we continue to achieve pricing premiums well above industry averages because of the superior quality of our timberlands. The mill markets. We are located in and of our delivered wood sales model supplemented by opportunistic stumpage sales.
And catch marks excellent Twenty-twenty fourth quarter provides momentum for us entering 2021.
Our capital position remains strong and liquidity is ample and we'll remain disciplined in our capital priorities, including assessing new investment opportunities.
Amendments to the Triple T Wood supply agreement have allowed triple T to realize market pricing on all timber sales enhance the future value of the asset and put in motion recapitalizing, our investment in the joint venture.
And the positive long term outlook for housing markets bodes well for strong demand and are of mill markets and overall improved demand for wood products.
Our team is fully engaged in ensuring that catch Merck continues to deliver an attractive dividend fully covered by cash flow from operations and to provide long term shareholder value.
We look forward to delivering strong results in 'twenty and 'twenty one.
You again for joining us today, and now Ursula Todd John and I will be happy to take your questions.
We will now begin the question and answer session.
If you ask the question you May Press Star then one on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the keys.
If at any time of your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Anthony.
But the <unk> of.
Of Citi.
Please go ahead.
Good morning, this is actually Randy tole sitting in for Anthony.
Just wanted to touch on the harvest volume expectations for full year 'twenty, one I think you're guiding to.
So something like down 10% at the midpoint year over year can you just talk about what's driving that expectation. Thank you.
Good morning, Randy This is Brian I'll first start on thinking about our business model, it's really about high productivity of the assets in which we own.
We're looking at maintaining that around five tons per acre and so you have to look at context of what we've been doing a better part of the last two or three years has been going through return of capital.
Capital recycling, we sold off of approximately 30000 acres of lower productivity assets and that has had a slight negative impact to us from a gross volume standpoint, but it is not it is actually addition by subtraction from a productivity standpoint, because those assets on a forward looking basis.
We're either going to be a neutral to dilutive on a CAD basis, and so even though you may have productivity numbers of one to two tons per acre you combine that with our regular way land sales that gets into your aggregation associated with day reduction in our year over year basis really tied back to what we believe is a smart capital allocation regarding.
Low producing assets Todd anything else the add regarding our volumes for 'twenty 'twenty one.
If you look at just the overall productivity on top of that as you know where the land sales that were.
That were sold were lower productivity compared to the core. So we're selling all of 15 20 tons per acre now you look at the core we're still on that 40 to 41 tons per acre and so from the overall productivity going forward. We're in really good shape throughout the year, we're going to build this.
Total production.
Probably a little bit under that 25 per cent in the first quarter, and then ramping up through third quarter and kind of leveling off there in the force.
Just to put in other emphasis on there our productivity on a per acre basis has been very consistent at that five tons per acre per year. So no real change in the underlying core assets that's right.
Gotcha Gotcha.
Maybe shifting to the Pacific Northwest have you seen any impact on pricing or demand from the fire salvage effort from the region I think one of your competitors called out some localized impact in Oregon. So I just want to make sure that wasn't affecting the bandon property at all.
Hi, Randy This is Todd you know at this point, it's still early to see how that's all going to flow in but just from the refreshing.
The refreshing kind of where the impact of the fires located that was not directly around our property there.
So it would have been to the north of maybe to the east of us of so far we haven't seen that come in but again. It's it's early season first quarter rainy of events and those kind of things kind of impacting production right now little early to see or to say just how much that's going to impact for us going forward from a salvage perspective, and then also what's that going to do as.
As far as maybe the export business typically fire salvage material doesn't really make it into the export side. So there could be some upside potential there if you're a green logs and the ability to capitalize on that going forward.
Okay understood got it. Thank you guys I'll turn it over.
Thanks Randy.
The next question comes from Paul Quinn of RBC. Please go ahead.
Yeah, Thanks very much.
I appreciate the added color of just I'm just looking ahead of a force to market reported back in September just trying they're trying to estimate the amount of excess of saw timber in the U S South and theyre, putting it at and of 10 billion board feet of lumber, which is sort of equivalent of 40 to 50 Mills I know you guys are located in sort of.
Tighter wood baskets, but would that be consistent with what youre thinking over the overall U S F.
Morning, Paul Brian Davis.
Of course market, we took a look at that as well we believe as data the number of years back but from the standpoint of the overall U S. South it is micro market driven we've heard some announcements of private investments in the state of Mississippi.
And I would not expect to see an impact a positive impact on pricing. There just the demand just from a demand standpoint, because of the excess supply now from our standpoint, what we what we've seen from an expansion not too dissimilar to enter for his acquisition of West rock. The first thing that they talked about was increasing the capacity associated with that mill.
It's slightly outside of our procurement area, but it's in the coastal market and we would anticipate seeing the increase in pricing from our standpoint. So the challenge here is Paul is that the U S. South is not all equal and so from the markets. What we're looking at we would anticipate a you know kind of the low single digit product price appreciation of our markets, which is somewhat.
Different than our natural peer set is talking about again it goes back to our micro markets being driven by the increased consumption of wood products and what's interesting to know we did talk about an increase in capacity of the saw mills of over 20% since 2018, but you're still seeing lumber prices drive of where they are so from that standpoint, we believe the.
Wood products industry is likely has followed behind housing, which we think housing has N E of duration that will help drive ultimately drive product pricing in the U S. South and we believe we are first one is well positioned in order to participate in those price appreciation.
Yeah, Okay, and then in your discussions with your with your log buyers in your individual markets.
Obviously, that's on the list for making record profit tiers. So they they have the ability to give up some of the there's some of this fortunate that they've got.
Is there is there significant pushback is or I get through lots of opportunity for them to go to the different suppliers.
Why are prices moving up.
More than the more than the incremental two to four per cent.
Yeah. Paul This is Todd you know right now it's youre seeing some of that I think during the first quarter, we will see maybe a little bit of an outsized increase in price just to a couple of factors here of one it's weather you know so that's going to be driving some of it you also of new capacity coming in and as they are building their their place in the market. If you will you might see some outsized.
Production of our push to begin to fill their orders as well it feel like it's a little early to try to bake in you know you know of six 7% change across the course of the year because we've seen so much of this.
Be cyclical for us if you will as you move into the dry season, you don't have to move out as far as production is easier for everybody.
People can fit in there its a matter of them balancing their production, we're still not seeing saw mills out there trying to build a lot of inventory.
Excuse me from a log standpoint, what's happening as long as they're coming in they're milling in and of immediately shipping it out and you know how that ties directly back to what we're seeing from housing also your box stores your repair and remodel all of this which is driving such of the demand.
There is still a long way of that three to five days, maybe seven days Max of inventory front or back. So it's it's they're being able to cover their needs. I guess is my point there theyre not in the scramble mode, where theyre having of just on price out there to get the volume up and above where they currently are.
Would expect Q1 of the B, you know pretty strongly coming out of the gauges with all the factors going on again as I stated with the weather and new capacity coming online.
Okay, and then just lastly, just any issues.
Issues that you guys have had on the on the personal of productivity side are related to Covid.
No we have not I mean, we've I think we stated early on kind of how we have managed on our position here at the office with people alternating were also set out to everybody has their own space Theres, no cubical or anything like that third party managers in the field you know or are for.
From the course of the business, they're working on their already social distance and they've all managed that really really well.
A lot of people who've gone more what we have seen it's interesting you've seen a little more technology go into the field, where people are using ipads and other connectivity in order to fill out reports on those kind of things. So they don't have to necessarily be in person. All the time. So now we've been able to manage through that very well I think the biggest challenge there is related to really the mills from you've seen some slowdowns or some.
As a result of the Covid activity that we really did see last year, we haven't experienced any of that as we sit here today recently and but that could be always of hang up associated with that yeah, a little more on that too. It's interesting how mills of transition their management of these issues and early on we saw some where if there was a you know if they had of a COVID-19 issue of the whole mill.
Would shut down and then they started breaking up into the areas of resection. They might take out of someone worked in a planar area. They might the shutdown. The planer do all of their their cleaning and what needed to be done there and then get back up and running so.
They've managed through that that transition as well.
Yeah.
Alrighty, thanks very much.
Thanks, Paul.
The next question comes from Buck Horne of Raymond James and Associates. Please go ahead.
Hey, Thanks, good morning.
Just wondering everybody hears it.
Sumption baked into the EBITDA guidance, just or what's your thought around logging and hauling costs over the course of the year do you expect.
The more inflation there how does that affect the overall EBITDA guidance or is it just.
The operating cost this year.
Hey, Good morning book No I mean, what we're seeing right now is that it's pretty much you are going to be your operating cost, we're not hearing or or experiencing any type of major up surge. If you will on the cost of running the business you end up seeing maybe on up the increased dependent upon really the the freight and how far were having to go to move product in those.
The things, but again that tends to move seasonally as well you know from the overall.
Production of moving from.
From stumped the trunk all of that's been really consistent you know I guess, the one thing would be just what ends up happening where the oil prices as we go forward and right now.
It's kind of early to say, if there's going to be much change to that should that have a major move then yeah. We would anticipate maybe some changes down the road or impact of the actual cost of of running the business. Yeah. I'd just add on top of that time from the standpoint of diesel we do have some of our wood supply agreements to allow for adjustments associated with diesel prices and so that does act as a partial offset especially on our pulpwood business.
No that's a good point.
Okay. That's great. That's helpful guys. Thank you.
I know the answer the question, but figured I'd ask it anyway, but you know with the economics of the saw mill business being so strong and with the outlook for continued.
The growth in kind of a long tailed up cycle in the housing.
Obviously, theres a lot of economic incentive out there for people to do some greenfield projects.
But do you consider ever the possibility of of more vertically integrating the model maybe looking at saw mills within your wood baskets to kind of capitalize the full value chain.
Is that something that that you kicked around in the back of your mind in terms of adding that to the <unk> the portfolio.
Sure. Bob This is a fun hypothetical question. So if you would've asked this of me in 2006 of that would've told you. None of you asked me into 'twenty 'twenty. One I'd tell you. Yes. If you can tell me, which time period, we'd be operating a saw mill, maybe hypothetically we can consider it ever I think that was where your two words, but now we're at Timberland company, we we we grow.
Trees book and that's what we're really really good at and we're going to allocate capital on the right markets and effectively through a delivered wood model. We were paired up with the right saw mills to the operate with along with the pulp mills and so from the standpoint of of return of capital I I get that during these periods of time, but you really have to have a 10 year mindset relative to that and it and we do of really.
Really good job of operating a forest.
We would have to really have a partner come in to run the mill, if you'd ever want to do that in a joint venture format, but that's that is so low on our priority list. It's kind of Ah is something you'd write down on a napkin more than anything else. So it's not a priority for us at all.
Alright, great I appreciate the context, thank you guys.
Thank you.
The next question comes from Dave Rodgers of Baird. Please go ahead.
Hey, guys Nick on for Dave just thanks for the update on the details for guidance I guess, one question on kind of wanted to dig into the kind of what does the acquisition pipeline look like at this point in time.
Well, it really kind of centers of Hey, Nick This is Bryan it really centers around our capital priorities at this standpoint, it's really about.
The dividend liquidity leverage the share repurchases and then acquisitions the acquisition market in general has been very very light.
From the standpoint of deals coming to market and that really bodes well for us as we think.
I think through the opportunities associated with Triple T. But we're always in the market. We're always looking at opportunities at this time last year. What I would have told you is consistent with what I'll tell you today is that we like the small bolt on acquisitions that are close to us in that kind of $1 million to $10 million $15 million size range, but as we sit here today.
We'd have to really weigh that relative to the share repurchases and leverage.
Okay, Yeah, just along those lines if the right opportunity presents itself like what is your guys' appetite to issue equity to fund <unk>.
Acquisitions at this time.
So you can really take a look at what we've done historically so when we made the coastal acquisition back in 2017, we actually per day, an acquisition with an equity offering it was accretive to us relative to that acquisition. So our share price would have to be at a working share per.
In order to do that so it was consistent with what we've done in the past.
Great that was it for me.
Thank you.
Yeah.
The next question comes from Brian Gibson of Raymond James. Please go ahead.
Hey, guys.
I appreciate the time here I'm, just trying to understand the company better.
And these this question and answer on a period.
That's very helpful and just listening.
You're answering the other questions.
But I've got a few questions here and I'm, just trying to understand the company better.
What percent of revenue comes from like pulp wood versus like two bicyclists.
Or what percentage of revenue comes from like pulp pulpwood and then what percentage comes from for like OSB border to buy six years of two by force.
Hi, Brian This is tod. So when you think about overall production of running of our business here.
Pulp is going to represent a little better than 50% of what we do kind of on an annual basis from a production standpoint.
Then you look at our solid wood production that comes in you know that's another piece of it.
The percent of that.
Salt timber production if you will that includes.
The smaller logs as far as chip and saw and also of the large timber which as you saw timber.
Products of that Salt timber prior revenue represents you know 20, 30% on the overall mix, which would cover part of your.
<unk> six production question there if you will and then.
OSB would be involved in part of our overall pulpwood production. So it's mixed within that the total volume. If you will so you know if you were on 2 million tons you'd be looking at about a million to $1 1 million tons of of our production is on the public side.
The next question comes from Craig Kucera of B Riley Securities. Please go ahead.
Yeah. Thanks, good morning, guys.
On the color you gave on the salt timber pricing expectations in 'twenty, one, but what what do you attribute the decline in pulpwood pricing from last year and kind of what of your thoughts on on pulpwood prices as we move through first quarter.
Hey, Craig This is Todd Yeah, you know so it was.
Just from a on an overall market perspective, what we saw.
The ample production coming on you on a lot of movement you think about early in the year, where you had saw mills go down take downtime due to Covid shift went more towards the pulpwood side of things. So you had added production going into it. So it really comes down in the from from the supply side. If you will it was the extra supply hit the market.
You know and then you look at going forward again, I would echo my comments earlier about Q1 being strong kind of across the board right now kind of all products, whether driven if you will timing so youll see some cyclicality around that.
Anticipate 21 being a good year on the pulp side is gonna be.
Very consistent as it has in years past the Counterparties, we have with the containerboard as well as the fluff pulp markets. Those kind of end uses are going to be very very strong and in demand.
So we would anticipate again of Goodyear there was a little bit of upside associated with it as you get back to more of a normalized kind of harvesting. If you will as far as mix across the board of things to final harvest, which will dictate and impact the amount of pulpwood of really flows into the overall market Hey, Greg. This is Brian just to add on top of that it is important to note that.
S. B is actually of pulpwood products and OSB the feeds.
<unk> really well into.
The new home construction, because that represents about 60% of supply out there on our manufacturing base goes into new homes and the other 20 per cent goes into repair and remodeling. So as you take a look at pulpwood prices OSB becomes an important consideration from a demand side as well.
Got it and circling back to your G&A I know there was a pick up in 2020 because of some severance costs, but kind of what expectations are baked into your 2020 on guidance as far as G&A.
Hey, Craig how are you yeah. So as you look at the G&A for 2021, we'd anticipate for.
The rate to go back down to the 2019 levels. As you mentioned 2020 was impacted by some unemployment benefits associated with the separation agreement. So when you think of it is on a cash basis, you can expect it to be around $10 million to $11 million.
As you look at gross G&A numbers, you will also want to begin another two one of the $5 million of equity compensation.
Okay great.
One more for me I feel like at certain times, you've had some fairly large land sales that were kind of out of the ordinary of selling one to maybe 2% of the portfolio.
Any of those on the table this year.
The thing what you're referring to is kind of sort of capital recycling if you will.
We evaluate the portfolio over the course of every year really so, whereas the right now youre looking more towards on a regular way type of business. If you will and that was where I think in some of Brian's prepared remarks, we're still looking at that you know around 2%.
Will if you will.
Okay. Thanks.
That's correct again, if you have a question.
Again, if you of a question. Please press Star then one.
The next question comes from Albert Sebastian of Prospect Advisors. Please.
Yes.
Good morning.
For now.
Hi.
Congratulations on the good results for us for last year.
And I think there's a couple of questions.
First what is the one of the underlying pricing assumptions with regards to <unk>.
Pulpwood and saw log prices for your for your Guy.
<unk> for 'twenty 'twenty, one of your looking for down or flat pricing or better pricing.
Hey, This is Todd Yeah, you know I would think you'd be looking at from a.
From an overall perspective, if you will you could be looking at the kind of 3% to 5% on the on the solid wood side of things moving throughout the course of the year you'll.
You'll see some up and downs quarter to quarter, depending upon whatever factors were dealing with at the time, whether it's weather.
If you had a fire season, and those kind of things that will impact you, but normal course business for US you know you look across our landscape, it's going to be in that three to five per cent range. You know we're already on a.
At an advantage to most of the the regions. If you think about our overall position, where we are on a pricing perspective, so that can be still very meaningful for you starting from a little bit higher point of view. If you will and so you know I think that would be consistent across the board just as a general view of where we are I mean, it's we're anticipating.
Supporting some increases throughout the year.
Good and on the.
On the asset management fee revenue I guess, you're looking for.
Flat kind of flat revenue year over year for 2021 is that correct.
Hey, good morning Al Yes, that's correct and so this is still all based on the asset management agreement.
For the Triple T joint venture in place, which as you know a.
The wife, an amendment on earlier in 2020, and so those numbers for the $12 million would reflect that already.
And so interest is just trying to understand where does it show up the better.
Supply agreements.
With Georgia Pacific.
And the Triple Triple T joint venture, where would that show up in the P&L in terms of you know.
Better EBITDA.
Hey, Al This is Brian so from the standpoint, its not consolidated in our income statement and so what you actually see will have supplemental information and are accusing our cage relative on a high summary basis on the performance of Triple T and so what you would see is really from an operating cash flow standpoint, where it stood for that also includes a lot of.
The other activities such as land sales.
Of that goes along with the operations of Triple T. So ultimately where it has a triple T hit with US it's really in the asset management fee non operations of the business.
Do you get do you get a dividend the does the does the joint venture pay a dividend then.
And there is of distribution it it would go in accordance with the capital structure and it would first go to the preferred shareholders and then to us.
We have not received the dividend from Triple T. At this point.
Okay. Okay.
And.
I'm just just just from a top down perspective, I'm trying to trying to understand the guidance because of the guidance.
You're looking for for EBIT that would be down about 10%.
In 'twenty 'twenty, one versus 'twenty 'twenty.
You know, we're looking at of lumber market, it's the best of lumber market.
We've ever had and I mean lumber prices are.
Through the roof.
The customers, who are making a lot of money.
And of course on the on.
On the paper side wood pulp prices in the linerboard prices et cetera quite strong as well.
Yes.
And it again and you get the G&A is going to be coming down this year versus 2020.
So and you've got better pricing, so I know and I know you've got harvest volumes balance I'm not completely understanding why the winding down but I just just from the from a top down perspective.
It just seems as though the industry conditions are quite good the fantastic for your free cash.
Customers.
And it seems like you're making the right moves, but yet as an investor I'm looking at EBITDA being down 10% this year.
So.
What conditions, which I really am not completely understanding.
So I'm trying to understand what conditions are necessary for you to grow EBITDA.
Hey, Al This is Brian.
I think the question in there is when and so from the standpoint, we have high quality assets. So we're still producing at five tons per acre per year. So that's not really of change while you see there from a volume standpoint is the reduction as a result of selling off nearly 30000 acres associated with capital recycling and then you combine that with the regular way.
The land sales of about 25000 acres over that period of time that gives you about 60000 acres, even at low productivity of two tons per acre, which is dilutive relative to the overall portfolio. That's about 120000 tons. So that's just a quick math for you on that as it relates to product price appreciation I mean, this has been from our standpoint.
This is the last leg, it's really housing and it's not just housing for a day day thing it's of housing for a duration element to it and so if you take a look at our natural peer said, what you're hearing from US is slightly different in the that is that we're expecting some product price appreciation in the U S. South it's not additional supply is coming in it's a duration so.
What we need are these mills the continue to expand our new greenfields to come in and have that you know the that.
The radius element to it of consuming wood products in the markets of which we operate in so our the what we're needing is duration of housing not just of the housing event now lumber from the standpoint, they've actually under built their capacity.
Think about it since 2018, they've had a 20% increase in saw mill capacity, but yet you're still seeing lumber prices to where theyre going and so from that standpoint.
More capital coming into the space more capital coming in the U S South should bode well for us on the long term basis.
Okay. Okay. Thank you.
Right. Thanks Al.
As we are getting close to the end of our time. This concludes our question and answer session I would like to turn the conference back over to Brian Davis, President and Chief Executive Officer for any closing remarks.
Okay.
Thanks, Andrew and thank you everybody for joining us today we're.
We're excited about 2021 the prospects the team we're all excited to see the results throughout this year, we believe it's going to be a transformative year and you'd be very proud of the results, which will put forth. Thank you very much.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
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