Q2 2021 Rayonier Inc Earnings Call

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Welcome and thank you for joining the <unk> second quarter 2021teleconference call. At this time all participants are in a listen only mode. During the question and answer session. Please press star 1 on your Touchtone phone.

Today's conference is being recorded if you have any objections you may disconnect at this time now.

Now I would like to turn the meeting over to Mr of Collin Mings, Vice President capital markets and strategic planning.

Thank you and good morning, welcome to range of Investor teleconference, covering second quarter earnings our earnings statements and financial supplement were released yesterday afternoon and are available on our website at <unk> Dot Com I would like to remind you that in these presentations may 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 SEC list. Some of the factors that may cause actual results to differ materially from the forward looking statements. We may make they are also referenced on page 2 of our financial supplement.

All of 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 with that let's start our teleconference with opening comments from Dave Nunez, President and CEO David.

Thanks, Colin and good morning, everyone first of all make some high level comments before turning it over to Mark Mchugh Senior Vice President and Chief Financial Officer to review our consolidated financial results. Then we'll ask Doug long Senior Vice President of course resources the comment on our U S and New Zealand timber results and following.

The review of our timber segments, Mark will discuss our real estate results as well as our outlook for the balance of 2021.

We were pleased to report that the encouraging momentum we experienced across all our businesses to start 2021 continued into the second quarter, specifically, we generated adjusted EBITDA of $95 million and pro forma EPS of 22 cents per share adjusted EBITDA exceeded the.

Prior year quarter by 21% as favorable results in each of our timber segments more than offset lower adjusted EBITDA in the real estate segment.

As we reflect on the second quarter, the operating environment was markedly improved as compared to the prior year period. We're pleased with how our team continues to capitalize on strong domestic lumber markets, improving real estate market trends and export market opportunities as mark will discuss in greater detail based on our <unk>.

Solid first half results and our expectations for the balance of the year, we are modestly raising our 2021 adjusted EBITDA guidance.

Drilling down to our different operating segments, our southern timber segment generated adjusted EBITDA of $31 million for the quarter, which was 16% above the prior year second quarter, net stumpage prices increased 14%, which more than offset of 4% reduction in harvest volumes.

As wet weather conditions impacted productions across the south.

In our Pacific Northwest timber segment, we achieved adjusted EBITDA of $14 million, an improvement of $10 million versus the prior year quarter. This sharp increase in adjusted EBITDA was driven by a 30% increase in delivered saw timber prices stemming from favorable domestic market.

The domestic lumber markets and increased log export demand as well as higher volumes following the merger with Pope resources.

In our New Zealand timber segment second quarter, adjusted EBITDA, nearly tripled to $28 million the.

The year over year increase in adjusted EBITDA was due to both significantly higher harvest volumes as the second quarter of 2020 was severely impacted by COVID-19 related headwinds and weighted average log prices that increased 51% as a result of robust export and domestic log demand.

In our real estate segment, we generated adjusted EBITDA of 29 million.

Down from $45 million in an exceptionally strong period last year.

The prior the decline versus the prior year quarter was driven by of 61% reduction in the acres sold partially offset by significantly higher per acre prices.

Importantly, our real estate team closed significant transactions in both of our Wildlife and Belfast Commerce Park development projects during the quarter.

Switching gears from second quarter results I'd like to provide an update on the timber fund business that we acquired last year through our merger with Pope resources.

2 weeks ago, we announced that we had sold the rights to manage 2 of the timber funds as well as our co investment stake in both of these funds the aggregate purchase price was $35.9 million.

And the transaction will be reflected in our third quarter financial results.

As we have previously communicated the private equity timber funds business was not a long term strategic fit for Rainier. We believe this transaction reflects a favorable outcome for our shareholders as it allows us to simplify our operations and allocate capital to other strategic priorities.

Following this transaction, we continue to manage as well as 1 of a 20% of co investment stake in <unk> timber fund comprising 31000 acres in the Pacific Northwest. Since this fund is at the end of its investment term. It was not included in the sale transaction, rather we have convinced commenced a process.

To liquidate the assets from this fund, which if successful will complete our exit from the fund business with that let me turn it over to Mark for more details on our second quarter financial results.

Thanks, Dave let's start on page 5 with our financial highlights sales for the quarter totaled $291 million, while operating income was $84 million and net income attributable to rayonier was $57 million for 41 per share.

On a pro forma basis net income was $31 million for 22 per share pro forma adjustments for the quarter were primarily associated with the large disposition in the Pacific northwest as well as a series of debt actions that I will discuss momentarily.

As Dave touched on second quarter, adjusted EBITDA of $95 million was above the prior year period as higher results across all of our timber segments more than offset a lower contribution from our real estate segment.

On the bottom of page 5 we provide an overview of our capital resources and liquidity at quarter end as well as the comparison to year end, our cash available for distribution or <unk> for the first half of the year was 101 hundred $11 million versus $80 million in the prior year period, primarily due to higher adjusted EBITDA partially.

The offset by higher cash taxes interest expense and capital expenditures are.

<unk> of Citi to cash provided by operating activities and other GAAP measures is provided on page 8 of the financial supplement.

Consistent with our nimble approach to capital allocation, we raised $81 million you are at the market equity offering program during the second quarter at an average price of $36.79 per share as previously discussed we view the ATM program as a cost effective tool to opportunistically raise capital strength of our balance sheet and <unk>.

<unk> fund bolt on acquisitions.

We're also active in the debt market during the quarter, taking steps to address our 2022 bond maturity improve our debt maturity profile and lower our weighted average borrowing cost specifically in may we issued $450 million of 275% senior notes due 2031. Additionally, while currently remains Undrawn, we executed of Craig.

That agreement for a delayed draw term loan for up to $200 million, which if utilized would mature in 2029, we.

We also obtained an amendment to lower the interest rate on the term loan we have maturing in 2026 and amended the terms of the debt we assumed in the Pope acquisition to make this debt unsecured. Furthermore, we also lowered the pricing of our revolving credit facility as well as extended its maturity by year to April of 2026.

Portion of the proceeds from the May debt offering were used to completely repay of $250 million term loan that was due in 2025. Additionally, given our strong cash position. Following the large dispositions completed during the quarter, we prepaid $100 million of the term loan that matures in 2026, reducing the outstanding balance of 200 million.

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In conjunction with these actions, we recorded a $2.2 million loss associated with the termination of an interest rate swap as well as cost of $1.1 million related to debt debt extinguishment and modification.

Collectively these items translated the 2 cents per share of pro forma adjustments in the quarter.

Looking ahead, we believe the actions taken during the quarter helped to facilitate an optimal capital structure and leave us with ample liquidity to fund the repayment of our 2022 bond maturity early next year.

Pro forma for the repayment of our 2022 bond maturity, we expect that our weighted average cost of debt will drop below 3% and a weighted average maturity will extend to roughly 7 years. Moreover, almost all of our term debt has been swapped to fixed which gives us strong visibility on our forecasted interest expense lastly by tapping into the bond markets at a net.

Advantageous time, we preserve additional debt capacity within the farm credit system, providing us with increased future financing flexibility.

In sum, we closed the quarter with $310 million of cash and $1.4 billion of debt, both of which exclude cash and debt attributable to the timber fund segment, which is non recourse to ray any of our net debt of $1.1 billion represented 17% of our enterprise value based on our closing stock price at the end of the second quarter.

I'll now turn the call over to Doug to provide a more detailed review of our second quarter timber results.

Thanks, Mark good morning.

Let's start on page 9 with our southern timber segment.

Adjusted EBITDA in the second quarter of $31 million.

Was $4 million above the prior year quarter the.

The year over year improvement was largely attributable to higher net stumpage pricing, albeit partially offset by lower horsepower use.

The 4 per cent decline in volume during the second quarter.

Largely due to wet weather resulted in lost production days.

This modest decline in volume was more than offset by higher prices specifically.

Specifically average it's all of stumpage pricing was roughly $28 per ton of 10% increase compared to the prior year quarter.

Improved pricing the strong demand from sawmills as well as improved export log demand in certain markets.

Pulpwood pricing climbed 14% for the prior year quarter, reflecting robust customer demand, coupled with tighter supply due to wet weather conditions.

A favorable mix shift toward our coastal Atlantic markets also contributed to the strong year over year comparison.

Overall weighted average pine stumpage prices increased 14% versus the prior year quarter due to higher salt timber and pulpwood prices as well as the more favorable mix of salt timber.

We are encouraged by the pricing gains registered during the quarter, which underscores the importance of local timber market dynamics across the yourself and the construction of our portfolio across those markets.

Moving to of Pacific Northwest timber segment on page 10.

Adjusted EBITDA of $14 million was $10 million above the prior year quarter the.

The year over year increase was largely attributable to significantly improved pricing due to strong domestic lumber markets and the incremental pension credit by health care export demand.

Second quarter of harvest volume was 4% above the prior year quarter due to additional volume from last year's merger with Pope resources.

At $98 per ton, our average delivered solid price during the second quarter was up 30% for the prior year quarter.

Strong pricing was sustained throughout the quarter, even as lumber prices seen it on the record levels set in may.

In part due to the price of support created by stronger export market demand.

Meanwhile, pulpwood pricing fell 21 per cent and the second quarter relative to prior year quarter.

As some of residuals remain plentiful and the increased lumber production.

As it relates to the export market and Pacific Northwest.

Proved demand we discussed on our last call has continued into recent months the cash.

The strictest flow of European spruce salvage logs the bag.

In Australia, and log exports to China.

And an improvement in Japanese demand have all contributed to a favorable environment for log exports from the region.

Well, we have seen log inventories in China rise in recent weeks. We believe these forces continue to support healthy demand for log exports for the civic northwest.

We believe continued strong demand for domestic sawmills as well as attention created by the flow of Pacific northwest logs in the export market for it.

Translate into a relatively stable pricing environment in the second half of the year.

While we are closely monitoring the correction of lumber prices, we believe the underlying market demand remains healthy.

Particular, the man for Green logs remains robust given the supply disruptions caused by wildfires and other regions.

On that note I'd also like to offer a few comments regarding the risk wildfires across parts of the western United States.

Thus far none of our properties have been seriously threatened by the fires that have impacted the region in 2021.

As a reminder, none of our fee timber properties were impacted by last year's forest, either all of the roughly 10000 acres of timberland properties sustained fire damage.

While there continues to be upward pressure on hauling cost and the areas that have been directly impacted by fires over the past year.

Our operations have not been materially impacted for the salvage efforts conducted by others.

Page 11 shows results and key operating metrics pardon me of the only timber segment.

Adjusted EBITDA in the second quarter of $28 million was nearly triple the $10 million that we reported in the prior year quarter.

The increase in adjusted EBITDA was driven by much stronger pricing in the more normalized level of harvest activity versus the prior year period constrained by COVID-19 disruptions.

Increased volumes and pricing for partially offset by reduced carbon credit sales.

The continued to defer Hartman credit sales during the quarter.

The the value of these credit is poised for further price appreciation.

Turning to pricing average delivered prices for export saw timber jumped 50% for the second quarter for the prior year period to $148 per ton, reflecting improved China demand. The ban on a strain of log exports to China and the reduced flow of European spruce salvage logs into China.

As we have previously noted part of the band Australia, What's the point approximately 10% of the total volume imported by China.

Furthermore, shipments of European spruce salvage logs and the China for me.

The constrained by higher transportation costs, and the lack of container availability.

These constraints on the flow of logs in the China, when coupled with the healthy demand translated to exceptionally strong export pricing in New Zealand.

Underscoring the favorable pricing environment, a grade log export prices to China surpassed the previous record highs during the second quarter.

Since reaching record levels, though there's been a pullback in pricing in recent weeks as demand for radio logs has softened in response to higher log inventories in China.

Shifting to the New Zealand domestic market.

The average delivered solid prices increased 27% when the.

Our year period, the $85 per ton.

Increase in U S. Dollar pricing was driven primarily by foreign exchange rates at Zealand domestic pricing improved by more modest 9% in the second quarter versus the prior year quarter.

Average domestic pulpwood pricing climbed 35% as compared to the prior year quarter.

And some.

We expect lower pricing over the balance of the year or is the owned operations continue to generate strong net stumpage realizations.

We believe we are well positioned to continue to capture market share for Australia, and Europe in the export market as well as benefits from strong domestic demand.

I will now briefly discuss the results from our timber fund segment.

Highlighted on page 12, timber fund segment generate consolidated EBITDA of $8 million in the second quarter when harvest volume of 100 day 5000 tons.

Adjusted EBITDA, which reflects the look through contribution from the timber funds was $1 million.

As discussed earlier, we are in the process of exiting the timber funds business I expect contribution from this segment will be negligible moving forward.

Lastly, in our trading segment, we reported $400000 of adjusted EBITDA in the second quarter.

As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale, Turkey timber export business.

I'll now turn it back over to Mark to cover our real estate results Mark.

Yeah.

Thanks, Doug as detailed on page 13 of real estate segment delivered strong results in the second quarter second quarter real estate sales totaled $75 million on roughly 17000 acres sold which included a large disposition in Washington, consisting of roughly 8500 acres. Excluding this transaction second quarter sales totaled 30, new.

$9 million on roughly 8000 acres sold at an average price of $4900 per acre adjusted EBITDA for the quarter was $29 million.

Sales in the improved development category totaled a record high $19 million in the second quarter as we closed significant transactions with within both of our Wildlife and Belfast Commerce Park development projects and are wildly development project North of Jacksonville, Florida sales included a $9.1 million sale of 130 acres to of National Homebuilder.

For the first phase of an active adult community.

Due to post closing obligations roughly $5 million of revenue from this transaction was deferred and will be recognized in future periods. The.

The addition of an active adult community is of significant milestone for the wildlife project as it adds of complementary market segment, which we believe will help the catalyze additional downstream demand. In addition, we closed on 36 residential lots in our wildlife project for $2.3 million for $65000 per lot.

Meanwhile, in our Belfast Commerce Park development project South of Savannah, Georgia, We sold of 153 acre parcel to a national developer of industrial properties for $7.9 million or $51000 per acre.

Overall, we are pleased with the demand for entitled infrastructure sort of land that is translating into additional momentum across our development projects. We remain encouraged by the pipeline of opportunities and Wildlife Richmond Hill, and the West Puget Sound area of Washington.

In the rural category sales totaled roughly 7700 acres at an average price of just over $2600 per acre.

Nearly 6200 acre sale in Georgia to the Conservation fund comprised the bulk of our second quarter activity.

More broadly demand for rural land remains healthy as the space privacy and recreational opportunities offered by these properties continue to attract buyers we are well positioned to capitalize on these demand trends moving forward and remain focused on achieving price realizations well above timberland values.

We also closed on of conservation easement sales covering 18 acres in Washington for $4 million in the second quarter. The property covered by the season was in the town of Port Gamble, which was acquired as part of the merger with Pope resources.

Lastly, we closed on a large disposition in western Washington during the quarter for $36 million roughly $4200 per acre. This roughly 8500 acre property was a relatively less strategic holding for us in the region and was sold through a competitive bid process.

Now moving onto our outlook for the year based on our solid first half results and our expectations for the balance of the year, we are raising our full year adjusted EBITDA guidance to a range of $300 million to $320 million, which reflects a 3% increase at the midpoint from our original guidance in our southern timber segment. We now expect full year harvest volumes of <unk>.

5.9 to $6.1 million tons as production has been constrained by regional weather conditions and trucking availability, we expect the weighted average pricing will remain above prior year levels driven by continued strong demand from domestic pulp and lumber mills as well as improving export demand in select U S South markets.

However, we are seeing higher trucking costs, which could limit the upside in net stumpage realizations over the balance of the year. We are taking measures to mitigate the upward pressure on these costs by optimizing haul distances on our delivered log sales and targeting stumpage sales to customers with great advantages.

Overall, we expect full year, adjusted EBITDA of $118 million to $122 million in our southern timber segment of modest increase from prior guidance.

In our Pacific Northwest timber segment, we are maintaining our full year volume guidance of $1.7 million to $1.8 million tons, along with our full year adjusted EBITDA guidance of $50 million to $55 million we ex.

The pricing in the region remained relatively stable as long as the band across both the domestic and export markets remains favorable.

And our New Zealand timber segment, we are maintaining our full year volume guidance of 2.6 to $2.8 million tonnes given the robust start to 2021, we now expect full year adjusted EBITDA of $78 million to $82 million that said, we expect relatively lower export pricing over the second half of the year as log inventories in China have increased significantly.

In recent weeks further we anticipate the shipping and demurrage costs will remain elevated.

The real estate segment, we now expect full year adjusted EBITDA of $78 million to $86 million, we expect a strong second half of the year in the segment given the healthy demand for residential and commercial properties within our real estate development projects as well as continued strength in rural land sales activity.

More details regarding our updated guidance can be found on page 3 of the earnings release as well as page 15 of the financial supplement I'll now turn the call back to day for closing comments.

Thanks Mark.

Overall, we're very pleased with the quarter and optimistic about our outlook for the balance of the year.

As I reflect on the last 18 months I'm very proud of how our team has successfully navigated pandemic related disruptions and integrated Pope resources, while also continuing to execute on several other strategic priorities.

And in the second quarter, we continued to improve our portfolio through both addition, and subtraction, we opportunistically recycled capital out of the non strategic timberland holding in Washington State. While also closing on a total of $22 million of bolt on acquisitions.

These portfolio moves have helped us improve our positioning and the strongest softwood log markets in the U S and New Zealand, which should help us grow both cash flows and value per share over time.

Subsequent to quarter end, we also closed on the sale of 2 timber funds an important step toward exiting of private equity fund business that is not a strategic fit for rainier.

Meanwhile, the benefits of the strategic investments we've made on the real estate front are being increasingly realized net quarterly improved development real estate sales reached a record high in the second quarter. Furthermore, we took steps to optimize our cost of capital and better position our balance sheet for long term growth.

By accessing both the debt and equity markets during the quarter. In addition to achieving the important operational and financial goals. We also continue to embrace the increased interest from stakeholders in our environmental social and governance practices as previously discussed we believe our mission.

<unk> of providing industry, leading returns while serving as a responsible steward of the land.

Is well aligned with key ESG principles that we're looking to advance.

Building on the inaugural carbon report, we published earlier this year, we're planning to release a comprehensive sustainability report in the coming weeks, which will further enhance our ESG disclosures.

Overall I continue to be impressed by the dedication and focus of our employees as they work together to better position range here for long term success.

This concludes our prepared remarks, and I'll now turn the call back over to the operator for questions.

Thank you Sir at this time, if you do you have any questions or comments you May press star 1 to withdraw your questions. You May press star 2.1 moment please.

Mark will day from BMO capital markets you May go ahead Sir.

Jesse Barone on for Mark Good morning, guys.

Good morning.

First question for you guys, just kind of dive a little deeper into what's driving the rise of inventories in China. The.

More of just slower demand is there kind of a return of European supply in the China.

Just any additional color would be helpful.

Sure. This is Doug I'll take that 1.

So at the end of July and we did see China log inventories Gupta of around $5.9 months the meters.

3 of the pine, making up about 70 per cent of that and European spruce actually down significantly the only around 15%.

So while the massively weaker during the hot summer months, there are a lot of the storms months of anything like that we even saw less the normal demand about 60000 cubic meters per day in June and the first weeks of July.

And that was due for a couple of things there was on the shortlist of electricity and some of the areas where the mills operate there was also a government anti pollution of regulation locked down at the sort of tie song.

And then there was deferral of the construction due to lack of materials of high cost debt beyond lumber just part of the products also.

But over the recent weeks, we've seen demand return to more normal kind of 70000, plus the sitting here as per day for this time of year.

And as we move into August construction typically begins to pick back up as we get into a little bit cooler amongst some of them and get pass of the range and logging of towards the fall after that.

So whether it's 10 thousands of meters per day increase in log demand. We recently saw it appears that trend maybe starting to happen now.

The last year as we moved in this time of you're going to fall. We saw about 80 to 110000 cubic meters per day of demand.

So lastly, we're also encouraged that for the first half of 'twenty 'twenty 1.

National Bureau of Statistics reported debt investment in Chinese real estate, the over 15 per cent compared to 2019 pre COVID-19. So I think there is still a strong demand out there for construction materials of the afore.

Great. Thanks, and then could you guys give an update on legislation around the the Australia logged out and then.

If there is any update on the Russian legislation you guys kind of mentioned in Q1.

Sure I'll take that again right now the the Austrian lot of band still ongoing we haven't seen any changes that are making anything that makes us think this isn't going to happen for them. Some more time here going forward.

Actually seeing some of the Australia, and some others and other folks repositioning what suppliers. So when we think the somethings here here for a while so there's no real update on the actual regulation of themselves, but just the way people positioning it appears that the the it looks to be drawn out.

And on the Russian log banned all.

All indications are it's still going forward for January 1st and that'll be a band of exploring those for saw logs into China and also we've seen markets reposition themselves looking ahead of the cure.

The other longer lumber I mean, the were expected to be some more of it will come out of Russia as time goes on the midterm, but in the short term, we're seeing increased demand for for logs, particularly of the United States.

Great and then last 1 for me.

Have you guys seen any kind of alleviation on the logistics front, especially on the ocean freight side. It sounds like trucking in the U S sales still remains pretty tight.

Just any color there and then I'll turn it over thanks.

Sure.

Happy to answer that 1 again, so ocean freight is still a major issue for US you know the economy has picked back up in the world. We're seeing a lot of competition for ships on put the out of New Zealand and we've seen freight rates go up there.

When it comes to containers out of the United States also very competitive, but so far we of ourselves some position with multiple airlines and we were able to procure of containers. So it hasn't been too much of a problem for us the bigger issue as you mentioned in the trucking and at the Port slowdowns of the ports.

So where we see the biggest issue is that those ports and getting trucks in turnaround times, where it can take 2 or 3 hours for truck. The turnaround. So it's nice day that we don't have enough driver of the trucks. Its at the time of the court so long that it's causing us to not deliver as much as possible.

Great. Thanks, I'll turn it over.

Yeah.

Thank you. Our next question comes from Anthony Pettinari from Citi Research You May go ahead Sir.

Hi, This is the astrocyte I'm sitting in for Anthony asked for my first question during the quarter I think Europe unveiled their plans to go carbon neutral at the same time line of large asset management firm, Bob Campbell altogether for the carbon market. So can you just talk about how the <unk>.

Drive to go of carbon neutral by different stakeholders, which it seems to me to be accelerating its impacting the business writing any premium creep in timberland values. Just wondering how does the can move the needle financially in the coming years.

I mean, we are certainly watching this very carefully I think right now there's a lot of speculation around how carbon.

Is playing a role and in terms of in terms of the.

In terms of the the rationale for the purchase of Campbell Global I mean, that's I'll leave that to leave that to them.

Much of JP Morgan Chase to the sort of address.

I think there are a number of people that are certainly look at the space both on the private equity side as well as public equities and.

Our making assumptions that theres some.

There are some carbon value that is starting to creep into the various valuations, but that's a pretty hard 1 to 2.

To segregate out I think the.

I think the key though going forward as debt.

The working for us are going to be part of the solution and I think there's a greater awareness of the carbon sequestration that is taking place when we use wood products relative to other construction materials. So I think there's generally a view that we're gonna see more wood used.

In the future and that's a positive for for the sector whether it's.

Whether it's.

Related to the carbon monetization or just overall demand of wood, but this is an evolving thing on both kind of of regulatory level as well as.

The private market's level and we're continuing to participate in it and we feel that we have you know a little bit of.

Of an advantage in that we've been operating under a new emissions trading scheme in New Zealand for.

Number of years and so.

We've seen how that has evolved over time.

Expect to participate in and the U S is it 2 evolves over time.

Thanks, That's helpful. And then just with regards to your raised guidance can you talk about what the biggest swing factors that could get you to maybe the high or low end of the range is it fair to say the China demand and maybe meet the laying out of the biggest sources of variability or are there other factors that we should keep top of mind.

I mean real estate is going to always be the the biggest swing factor just in terms of the the lumpiness of revenue there and obviously 1 larger transaction can really kind of the.

Dial pretty significantly.

I mean, just in terms of the overall stability of our different business segments without a doubt U S. South you know tends to be the most stable and predictable followed by Pacific Northwest followed by New Zealand. We obviously had an extraordinarily strong first half of the year of New Zealand, we've seen some inventory build in China that for giving us a little bit more muted view of the second half but.

Clearly if that resolved we could see some price upside there in the back half of the year as well, but generally speaking I'd say real estate, followed by New Zealand are likely going to be the biggest.

The biggest the upside swing factors.

Thanks, I'll turn it over.

[laughter].

Thank you. Our next question comes from Mark Weintraub of Seaport Research Partners. You May go ahead Sir.

Thank you first question when you think about the impact of weather versus stronger demand for in the U S. South on saw logs in and maybe in pulpwood as well.

Recognizing it's hard to segregate, but I mean, if 1 were to assume just things dried out again and demand stayed at the types of the levels that we've been seeing do you think that much of the pricing would be a net pricing would be retained or do you think that.

Most of that would be giving back just trying to get a feel again for how much is weather driven versus demand driven.

Sure. This is Doug I'll answer that 1 so of that 14th day increase you saw in stumpage across the south at Youre right. Its multiple factors out there and what I would say is when you think about we think about kind of impact of the export business from supply chain cost increases the geographic mix and an improved market demand are for the main drivers whether it's.

Part of that market demands and as I think about that each of these factors had a relatively similar kind of contribution to the overall increase as we went through the year or through the quarter.

Okay.

And then on the the question of the the carbon credits and how that could evolve.

Understand things can change a lot from where they are now, but if 1 were to look at.

How things operate in New Zealand now and apply that to your North American business.

If that makes any sense whatsoever can you give us a sense as to what type of financial contribution.

That might.

Provide and.

And any additional color you want to.

Give us.

In terms of being cautionary about how to use that even as the starting point.

Yeah.

As a hard 1 mark to gauge because it took the it took a lot of time for that New Zealand system to evolve there.

There are a lot of key.

The key policy questions around carbon such as you know how you treat additionality.

There is also a strong effort of foot.

To focus.

On the <unk>.

Emissions reductions.

Versus carbon offsets and and that's more of a public policy.

The debate that will ultimately kind of come into play so.

Pretty hard to predict both timing and kind of the the nature of of that it took it took a walk of it took a while for the New Zealand systems or so.

To get into place and we think the same is going to take.

Take place in the U S. We've seen some efforts in the U S to to sort of test that we have the California cap and trade system.

And and that is that's been around for a little bit it has tended to operate in areas.

That don't have as strong of a market for us we've seen another effort, it's looking more of annual.

For roles and so this market is testing itself and the evolving and we expect that's going to continue for for some time.

And how much what is the.

Contribution from carbon credits to the New Zealand business I'd say this year order of magnitude of last year.

I mean, it's it's right now it's pretty it's pretty de Minimis and part of that is intentional on our part. We are we have elected to withhold carbon credit sales, because we see increasing pressure on carbon credit pricing and so that's the decision that we have.

The.

But we make each year as we sort of look across that so it's.

And it's not going to be a a a super large contribution but in the timber economics. You you were looking for those increments of value wherever you get them share in Atlanta last year, we disclosed that in our financial supplement last year. It was roughly $8 million. This year, it's been pretty de Minimis, because like David said we've.

Ben I really holding back on sales of carbon credits given our optimistic view about the trajectory of our carbon prices are got it and then correctly was about 8 million of want don't want it to be the dead horse, though is that the kind of roughly what your.

If you were to monetize the annual credit that you're force provided it would would that be more kind of.

Representative of.

If you were monetizing the credit since there.

They come out of a bit more complex than that we can maybe take that offline and give you a little bit more detail on how the emissions trading scheme works. There sure thing Yeah. Mark do you have a mix you have a mix of you have a mix of of onetime credits the.

Debt essentially can be liquidated then you have a mix of others that are more ongoing through through normal forestry operations.

Understood.

Last 1 if I could on the real estate business. The the guidance for the full year. So EBITDA went up some and then the E bit of guidance went up a lot of.

Can you sort of debt.

Talk through that and then I may of a follow up for me on what you say so.

Yes, it's really just a function of the mix of profit mix of properties of the year is progressing as we got better visibility on the pipeline.

Say more of the.

The real estate transaction activity and upside that we've seen there has come from price and not necessarily volume and so that's what kind of drives the.

Lower DD&A and non cash basis figures of just kind of having gotten the stronger price per acre and I'd say that that's what's driving the the differential.

And is that purely was that primarily a function of just the the mix of businesses or are you actually seeing an improvement in the types of realizations, you're getting for a given property. So it's.

Your assessment of the value would presumably be going up at the latter or the case.

It's it's it's both it's both it's a mix issue as well as just having gotten strong realizations on what's transacted and what we see in the pipeline for the balance of the year. Okay. Thank you.

Yeah.

Thank you once again, if you do you have any questions or comments you May press star 1.

Our next caller comes from Buck Horne with Raymond James Sir You May go ahead.

Hey, Thanks, Good morning, guys I wanted to follow up on the real estate question, there a little bit just.

Maybe you can offer of any additional color on exactly how the pipeline is shaping up for the back half and maybe into next year as well in terms of what types of opportunities Youre seeing if youre seeing additional capital that's interested in different types of residential development I think the active adult communities of gray.

In addition are you seeing any other interest from perhaps multifamily developers or even single family rental operators or what kind of a you.

You know whats shaping up in the pipeline for for land development. These days.

I'd say about what youre seeing real probably with the within some of your other segments on the homebuilding front is probably representative of what we're seeing in our development projects I would say pretty strong.

Demand and interest across the board from different categories of the real estate, you know kind of mixed use real estate development.

I would say that that's been a.

Definitely not.

Not necessarily of surprised that it's been some upside that we've seen within our development projects here in the last 12 months.

Yeah, I'd add to that I think it covers both of the full mix, but also I think youre seeing an acceleration of of the absorption based on that demand and so it's a it's been.

It's been positive both from a timing and value.

The breadth.

Perspective.

And because of that demand.

We anticipate investing additional capital into.

Land development activities is that is that of.

The opportunity growing to reinvest some cash flow.

Yeah.

Yeah.

Go ahead, Mark Yeah, I mean, I'd say that we.

Of our stance on that is always going to be that we prefer to minimize our investment of development capital you know, it's not really our core business, we're really investing capital, where we see the need to do so to catalyze demand and so much like we saw in wildlife and for in the early phase of that we were doing kind of more of that horizontal wind for.

Structure development, we're now seeking to do less of it and I think you can kind of see that with the with the active adult site that we sold it was more of sort of Oh.

Just macerated land and so I.

I think our appetite around that is it really going to be driven by kind of what we see is a downstream demand opportunity. The generally speaking I think we're going to seek to minimize our investment of capital, but only do so when we kind of feel like we need to capitalize that demand on the recognized as well.

We really had 3 primary areas that were kind of focus on development activities. It's in.

Wildlife Richmond Hill area of Georgia.

Puget Sound area of Washington, with the acquisition of Pope and so the the flow of investment capital and kind of the pace of activity is going to be quite differential among those markets but.

But again I think that our appetite to invest more capital is really going to be driven by the demand opportunity that we see in kind of the need to invest that capital to catalyze that demand.

Got it that makes a lot of debt.

And the last question is is the.

With the balance sheet, so well positioned now and congratulations on all of the activity in the quarter.

Does that afford you more flexibility to accelerate or look at additional M&A opportunities and kind of what are you seeing out there in terms of availability of offerings and kind of what are sellers pricing ex expectations right now.

I mean, I think we're a couple of a couple of things I mean first of all we're always in the market really across all of our geographies. So that's something that we're monitoring at all times I think 1 of the things that we've seen that's a little different.

Right now is that as people are starting to travel more of your youre starting to have more of an availability to do on the ground due diligence and I think because of that you're tending to see some properties that may have come to the market last year.

Because of the market now so we've got we've got plenty of things to look at right now.

But for US it's we continue to.

To have kind of a flexible approach, we're looking across all regions and trying to improve our portfolio, where we can and it was certainly 1 of the things that we the.

We had in mind as we looked at working on our balance sheet this quarter and to really be prepared.

For for properties that might fit us.

Great. Thanks for the color I appreciate that.

Thank you. Our next question comes from John Babcock from Bank of America. You May go ahead Sir.

Good morning, and thanks for taking my questions you know for.

First 1 I was just wondering have you seen any notable change in activity in the southern saw log markets with 1 of our price of settling Laura.

Okay.

Yeah I'll cover that this is Doug again.

Yes, as you well know the correction, we've seen numbers off of an unsustainable historic high.

So all of the headline pick the current price drop is eye catching.

For the saw mills in South are still generating very strong cash flow and so while lumber pricing trends, both good and bad or are inherently a point of discussion you have of their customers. Our customers are still doing quite well for now and they have low log inventories as we've discussed for pillar of this wet weather, but also just on demand side and so demand remains very strong in the south as well as in the northwest.

There was an earlier the normal fire season that has the market nervous about getting fire restriction shut downs when the thing available logs. So demand has really remained pretty constant constant for us and or shutdowns in British Columbia that we're hearing back from the fires. We've also things Pacific Northwest Mills are trying to ramp up and capture of that loss of capacity. So overall, we've seen strong demand across the United States for the.

All of them.

Thanks, Mike.

And on the.

You know reasonably similar topic I know, we've also heard a fair bit about increased fiber cost from the paper and paperboard mills and so on that point I was I was just wondering if you might be able to provide some color on which regions in the south of the city and we're seeing the greatest increases in pulpwood prices and also how of those prices up there since the end of the core.

Yeah. So you know as we talk about pricing the differential across the U S South and where are we seeing you know both on the fiber and saw logs.

Where we have incur.

The increase in demand from the export side in particular, so those markets in that zone co.

Coastal area of the Atlantic Coast of Florida, and Georgia in particular, we've seen some strong pricing, but we haven't really encourage the pricing across the board of them across the south and so theres, a stronger uptick where we have leveraged the export but overall, we've seen a general increase I'd say, the only place where we really haven't seen as much of that probably market responses has been and I'm kind of.

Of Arkansas, and the Sip area.

Okay.

And then also you did talk a little bit about some transportation challenges on the trucking side.

Of that.

Is that kind of broad based across the south of the northwest.

Or you know more focused in the South and then also you know what I mean.

Are you seeing signs of that getting better.

So trucking of Bell Buddy, it's actually across the United States, New Zealand and China. So the trucking trucking is an issue across the board with some kind of ramp back up after post pandemic.

What we've seen is we have long term contracts with a lot of our suppliers and so we've had relatively you know good opportunity to get the bill body of trucks in most cases, except for the new developing here like I mentioned in and around the portion of exports in the south and that's work developing new markets and so we've had to compete strongly for trucking there and we're competing against other products. So it's been kind of hampering for us there.

And really the wet weather has a major impact and that it takes longer for the trucks to get down in the woods roads as well as in the law of yards. So of truck driver might lose the low today it doesn't sound like a lot, but when you're at Max capacity closing of low today, you could lose 10% of the capacity of the workforce. So we've we haven't really been constrained by not being able to get trucks, it's been a matter of real play.

1 of the trucks and it's really been more mature on the ports.

Okay. Thank you.

And then the ZIP on that front, I mean might be able to be able to provide some color on what sort of increases you are seeing on freight rates.

So that's the sort of all the talking available it is having.

And in fact on that and then also I think you did mentioned something around that.

And so just overall I mean, if that does have some pass through effect into.

Log prices.

How sustainable would that increase the or would that just be something that's variable based on the trade rates.

Yeah, I'm kind of go back to the as I mentioned before on that the increase we had you know it's kind of broken there's multiple factors with export supply chain cost increases geographic mix and improved market demand in each of those factors of relatively similar contributions that increase and I'm not going to break it down any further than that just don't want to get too specific in there, but kind of give you a sense of where things along.

Okay. Thank you appreciate it.

Thank you Paul Quinn from RBC capital markets you May go ahead Sir.

Yeah, Thanks, very much good morning, guys.

The strong results in the I'd like to see the increased guidance 1 of the areas that are would also saw increases increase in corporate cost what is that increase related to.

Yeah.

Yes.

I guess 1 of the components would be as we as we measure our corporate costs and our bonus allocation, it's going to be dependent or crew on the basis of kind of where we're tracking relative to budget and so that would definitely be a component of it Paul.

But also okay and then just for the integration of the Pope resources and sort of right sizing. The the overall corporate you know we're still working through some of that so I'd say those are probably the 2 biggest components.

Okay.

And then just on the exports I notice the big pick up in the Pacific Northwest just what are you seeing in southern southern markets and as your I guess the increase in exports you know sort of on parallel with the.

In the U S. Overall.

Sure. This is Doug I'll answer that 1 again.

Census of the instead of and develop the market as I mentioned before I won't provide real granular detail on Rangers efforts.

The other than to say as I mentioned before it is providing medical uplift for our southern net stumpage prices. So we're very pleased with the outcome so far.

I'll kind of talk about more general terms and as of May U S south southern yellow pine log exports.

Recovered to the 200000 cubic meters per month achieved pirates of the tariffs the implement in 2018.

We're seeing quite of few parties looking at trying to open up the the export yards, including ourselves.

While the bulk of the shipments are leaving for the port of Savannah. Several of the ports are also trimming of that flow of logs out of the yourself in particular Jackson 1 of the pork operating out of so we continue to be encouraged by the demand for these logs as well as what that incremental pension is really doing for a price index and our coastal markets.

And demand currently exceeds our ability supply does the supply chain districts as I've mentioned before at the ports both share in the us and China.

And its quite of chassis the central part of monthly exports to China have now exceeded Pacific northwest export to China on a monthly basis. So we're seeing quite of bit of growth in this market.

And we're also optimistic about the potential of export more logs from yourselves markets, such as India, and Vietnam and I am looking at growing this part of the business too but for now the bulk of the logs and export out of south of still going to China.

And so we've got opportunities with the head of US and we believe our timberlands are well positioned for multiple southern ports as we've mentioned before in particular the largest ports in Savannah.

The I think going out of the Gulf.

Yes, there is some volume going out of the Gulf shipping is not as favorable of the golf business out of the east coast and so we see more container availability of the east coast, but there are logs coming out of the Gulf from mobile and New Orleans area.

Great. That's all I had thanks guys.

Thank you at this time I'm showing no further questions.

Thank you. This is Collin mings I'd like to thank everybody for joining us please contact us with any follow up questions.

Thank you. This concludes today's conference call you May go ahead and disconnect at this time.

Yeah.

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