Q3 2021 Rayonier Inc Earnings Call
Welcome and thank you for joining Randy or third quarter 2021 teleconference call at this time all.
Participants are any listen only mode. During the question and answer session of today's conference Press Star one on your Touchtone phone too.
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Now I will turn the meeting over to Mister, calling <unk>, Vice President capital markets and strategic planning.
Thank you and good morning, welcome to Rangers Investor Teleconference, covering third quarter earnings are earning 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. We include forward looking statements made pursuant to the safe Harbor provisions of Federal Securities laws are.
<unk> released in Form 10-K filed with the SEC lists some of the factors that may cause actual results to differ materially from forward looking statements.
They make they are also referenced on page two of our financial supplement.
These presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measure and our earnings release and supplemental materials with that let's start our teleconference with opening comments from Dave Nunez, President and CEO Dave.
Thanks column 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 Forest resources to comment on R. U S and New Zealand timber results and following the review of our timber timber segments Mark will discuss.
A real estate results as well as our updated guidance.
We're very pleased to report our strongest quarterly adjusted EBITDA result, since our separation into a pure play timberland re in 2014, specifically, we generated adjusted EBITDA of $115 million and pro forma EPS of 35 cents per share during the third quarter.
Adjusted EBITDA exceeded the prior year quarter by 71% fuelled by solid contributions across our timber segments as well as an outsized contribution from a real estate segment due to the closing of two significant development transactions.
We continued to capitalize on healthy domestic timber demand in the U S favorable log export pricing in New Zealand and robust real estate market trends in the third quarter.
However, wet weather conditions and trucking shortages in the U S cell constrained production during the quarter, while production in New Zealand was negatively impacted by government mandated shut down in response to an outbreak of COVID-19.
Given these headwinds we were very pleased with the results delivered by our team is mark will discuss in greater detail based on our performance over the first nine months of the year and our outlook for the balance of the year, where modestly raising our full year 2021, adjusted EBITDA guidance to a range of 320.
To $330 million.
Drilling down to our different operating segments are southern timber segment generated adjusted EBITDA of $24 million for the quarter, which was 7% below the prior year quarter. We were encouraged to see net stumpage prices increased by 16%, but this lift in pricing.
It was more than offset by a 20% reduction in harvest volumes due to weather conditions and trucking shortages.
And our Pacific Northwest timber segment, we achieved adjusted EBITDA of $13 million, an improvement of 38% from the prior year quarter.
This increase in adjusted EBITDA was driven by a 15% increase in sawmill prices as domestic lumber markets remained favorable.
And our New Zealand timber segment third quarter, adjusted EBITDA increased 10% year over year to $20 million.
Favorable pricing more than offset a significant increase in exports shipping costs as well as 14% lower production volumes due to the government mandated shut down.
Which prohibited harvest activity throughout the country during a two week period in August.
And a real estate segment, we generated record adjusted EBITDA of $64 million up from $22 million in the prior year period as we closed on the $38 million unimproved development sale in Kingston, Washington, and a $25 million improved development transaction.
And our Belfast Commerce Park.
Project South of Savannah, Georgia.
Switching gears from the third quarter results I would like to provide an update on our timber fund business.
We acquired last year through our merger with Pope resources as.
As we previously communicated the private equity timber funds business was not a good long term strategic fit for Rainier.
I am pleased to report that we have now completed our exit from the timber fund business.
During the third quarter as previously announced we sold the rights to manage timber funds three and four as well as our co investment stake in both funds for an aggregate purchase price of roughly $36 million.
We subsequently entered into three separate agreements to sell the remaining fun to timberland assets for an aggregate purchase price of $157 million.
Note that one of these transactions closed on September 30th and is reflected in our third quarter financial results. While the other two transactions closed on October 5th and November one respectively and will be reflected in our fourth quarter financial results.
All said based on Rainier is 20% ownership interest in fun too and factoring in the repayment of fun too that proceeds to rainier from the sale of fun too assets will be roughly $24 million.
In addition, we expect to receive a carried interest incentive fee with respect to fun too of approximately $14 million.
Overall, we view this as a favorable result for the sale process, particularly given the negative impact that last year's forest fires had on roughly 10000 acres of fun too and fund for properties in Oregon.
We believe the successful sale of our co investments and funds three and four as well as the properties and fun to represent a positive outcome for our shareholders as the wind down of the fund business allows us to simplify our operations and allocate capital to other strategic priorities were.
With that let me turn it over to Mark for more details on our third quarter financial results.
Thanks, Dave let's start on page five with our financial highlights sales for the quarter totaled $365 million, while operating income was $123 million and net income attributable to Rainier was $76 million or 53 per share.
On a pro forma basis, net income was $50 million or 35 per share.
No forma adjustments for the quarter were primarily associated with a large disposition in the Pacific northwest as well as the actions taken to exit the fund business.
As they've touched on third quarter, adjusted EBITDA of $115 million was considerably above the prior year period as an exceptionally strong contribution from a real estate segment and year over year improvements in the contributions from our Pacific Northwest in New Zealand timber segments more than offset a modestly lower contribution from our southern timber segment.
On the bottom of page five we provide an overview of our capital resources and liquidity at quarter end as well as a comparison to year and our cash available for distribution or CA D.
For the first nine months of the year was 204 million versus $124 million and the prior year period, primarily due to higher adjusted EBITDA, partially offset by higher cash taxes and capital expenditures.
A reconciliation of to cash provided by operating activities and other GAAP measures is provided on page eight of the financial supplement.
Consistent with our nimble approach to capital allocation, we raised $52 million there are at the market equity offering program during the third quarter at an average price of $37.26 per share as.
As previously discussed we view the ATM program is a cost effective tool to Opportunistically race capital strengthen our balance sheet and match fund bolt on acquisitions.
Also building upon the actions taken in the second quarter to improve our debt maturity profile and lower are weighted average borrowing costs in September we opportunistically repay the $45 million outstanding under a credit facility with northwest farm credit services, which had previously.
Which we had previously assumed and the Pope resources transaction.
And some we close the third quarter with four $420 million of cash and $1.4 billion of debt, both of which exclude cash and debt attributable to the timber funds segment, which is non recourse to rainier, our net debt of $957 million represented 15% of our enterprise value based on our closing stock price at the end of the third quarter.
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I'll now turn the call over to Doug to provide a more detailed review of our third quarter timber results.
Thanks, Mark good morning.
Let's start on page nine with our southern timber segment adjusted EBITDA in the third quarter of $24 million was $2 million below the prior year quarter.
The year over year decline was primarily driven by lower harvest volumes, partially offset by higher net stomach pricing.
More specifically volume declined 20% during the third quarter as weather conditions and constraints on tracking availability enter production throughout most of the region.
This decline in volume was partially offset by a 12% increase in average saw long stumpage pricing compared to the prior year quarter.
As slightly over $20 per ton third quarter pricing reflected the highest average solid pricing we have registered since early 2015.
The improved pricing reflects strong demand from sawmills weather related constraints on supply upward pressure on chip in salt pricing due to increased competition from pulp mills and improved export log demand in certain markets.
Likewise pulpwood pricing was also at its highest level since early 2015.
Specifically are prices climbed 23% in the prior year quarter in response to strong domestic demand constrained supply due to weather conditions and an increase in pulpwood exports to China.
Overall weighted average pint, so much prices increased 16% year over year, despite a shift toward a higher mix of pulpwood sales as compared to the prior year quarter.
We are encouraged by the pricing gains registered during the quarter, albeit fueled in part by the weather conditions move.
Moving forward, we believe certain southern markets are poised for stronger pricing and believe our results continue to underscore the relative strength of local tumor market dynamics across our footprint in the region, including proximity to the dominant serving log export markets.
Moving to a Pacific northwest timber segment on page 10.
Adjusted EBITDA of $13 million was $3 million above the prior year quarter the.
The year over year increase was largely attributable to favourable domestic lumber markets, coupled with increased export demand relative to a year ago as.
As the third quarter harvest William was flat versus the prior year quarter.
At nearly $108 per ton are average delivered solid price during the third quarter was up 15% from the prior year quarter <unk>.
Strong pricing was generally sustained throughout the quarter as underlying log demand for made healthy even as lumber prices receded in the record level earlier in the year.
Meanwhile, pulpwood pricing fell 2% in the third quarter relative to prior year quarter as Somal residuals remain plentiful amid strong lumber production.
While domestic demand remains healthy in the Pacific Northwest.
Export demand from China soften over the past few months.
This softness is largely attributable to elevated MOG inventories in China.
Concerns about the country's near term economic outlook and supply chain disruptions.
We expect some choppiness and demand for log exports from the region to continue over the near term.
However, we believe the reduced harvest of European Spruce Savage logs. The continued ban on Australian log exports to China and the band on Russian log exports beginning in 2022 will support continued demand for logs and.
Northwest, particularly as inventory levels in China normalized.
I'd also like to offer a few comments regarding the wildfires that have impacted parts of the western U S. This year.
Fortunately none of our properties were seriously threatened by the fires.
That said the availability of Burntwood has constrained pricing in some areas and there's been upward pressure on hauling costs in areas that have been directly impacted by fires.
Consistent with our previous updates on this front our operations have not been materially impacted from the salvage efforts conducted by others, which are generally winding down.
Page 11 shows results and key operating metrics for New Zealand timber segment.
Adjusted EBITDA in the third quarter $20 million was $2 million above the prior year quarter.
The increase in adjusted EBITDA was driven by much stronger domestic and export pricing largely offset by lower harvest volumes higher costs and reduced carbon credit sales.
Volume declined 14% in the third quarter as compared to the prior year quarter.
Is the government shut down all non essential activity across New Zealand from August 18th August 31, due to COVID-19.
Our team in New Zealand was generally able to resume harvest operations in September but there were some regions where restrictions continued as the government aimed to limit the spread of the delta variance.
Harvest operations have now resumed across the country, but full year 2021 volumes are expected to be modestly lower than we had previously anticipated due to the disruptions encountered in the third quarter.
Turning to pricing average delivered prices for export soft timber jumped 59% in the third quarter from the prior year to $150 per ton, reflecting solid demand from China. The ban on a stray and log exports, China and the reduced level European screw salvage logging into China.
While net stumpage realizations on export volume or well above the prior year period levels.
Export pricing was largely offset by a significant increase in shipping costs as supply chain issues drove freight and emerge cost higher.
Since reaching record levels, a few months ago, there's been a pullback in pricing for radio pine logs in response to elevated log inventories in China.
A slowdown in construction activity adverse weather conditions and power shortages in China have collectively reduced the off take from ports and resulted in pricing pressure on log exports while.
We anticipate pricing will remain favorable from a historical perspective, we expect relatively lower export pricing over the balance of the year.
We generally expect that net stumpage realizations on export volume will decline in the fourth quarter as we've seen only limited release and shipping costs.
Shifting to the New Zealand domestic market demand remains very strong, albeit constrained to some degree by covered related restrictions and the ability of availability of labor.
The third quarter average delivered solid prices increased 21% in the prior year period to $85 per ton.
Excluding the impact of foreign exchange rates domestic software prices improved 14% versus the prior year period.
Following the upward trend in the export market.
As a reminder, domestic software pricing normally follows export pricing with a lag.
Average domestic pulpwood pricing climbed 25% as compared to the prior year quarter.
As it relates to carbon credits, we continue to the first sales during the quarter the value of carbon credits has roughly doubled over the past year.
Moving forward, we will continue to be opportunistic and our sale of carbon credits based on a market outlook.
And some were pleased with third quarter results in the New Zealand timber segment, especially given the COVID-19 related disruptions and cost pressures we encountered.
Moving forward, we remain well positioned to continue to capture market share from Australia, and Europe, and the export market as well as method from strong domestic demand how're.
However, we do anticipate at relatively lower contribution from our New Zealand operations in the fourth quarter as compared to the first three quarters of the year.
I will now briefly discuss the results from our timber fund segment highlight on page 12, the telephone segment generated consolidated EBITDA, a $4 million in the third quarter on harvest volume of 61000 tons.
Dusted EBITDA, which reflects the look through contribution from the timber funds was less than $1 million as.
As Dave discussed earlier, we recently completed our exit from the general funds business.
Lastly, in our trading statement, we generated breakeven results in the third quarter as a reminder, or trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our feet timber export business.
I will now turn it back over to Mark to cover real estate results Mark.
Thanks, Doug as detailed on page 13, a real estate segment delivered exceptionally strong results in the third quarter third quarter real estate sales totaled $93 million on roughly 12000 acres sold which included a large disposition in Washington, consisting of roughly 8100 acres. Excluding this transaction third quarter sales totaled 70.
$3 million on roughly 4100 acres sold.
On an average price of over $17000 per acre.
Adjusted EBITDA for the quarter was $64 million.
As Dave mentioned earlier, excluding gain on the large disposition third quarter real estate sales.
Third quarter real estate results set a record for pro forma sales pro forma operating income and adjusted EBITDA since our separation into a pure play timberland Reed and 2014.
Sales and the improved development category totaled a record high $28 million in the third quarter and a Richard Hill development project South of Savannah, Georgia, We closed the $25 million transaction for three entitled Industrial parcels at the Belfast Commerce Park near the New Interstate 95 interchange that is adjacent to our property.
This transaction coupled with the sale of of 153 acre parcel to a national industrial developer last quarter underscores the strong demand for shovel ready sites strategically positioned near transportation corridors and in this case the port of Savannah.
Meanwhile, within our Wildlight development project North of Jacksonville, Florida, We close on 42 residential lots to three different homebuilders for $2.8 million in total or $66000 per line.
Unimproved development sales of $38 million consisted of a 359 acre sale and Kinks in Washington for roughly $105000 per acre. This property known as Arbor Wood is a well positioned entitled land parcel accessible by passenger ferry to downtown Seattle, which was sold the two national homebuilders.
The property was acquired through a merger with Pope resources last year, and we are very pleased to have successfully completed the sale and an attractive value.
The benefits of the strategic investments we've made on the real estate front over the last several years are being increasingly realize the location of maturity of our development projects have allowed us to capitalize on favorable migration and demographic trends and looking ahead, the pipeline of future opportunities and Wildlight Richmond Hill in the West Puget Sound area of Washington.
Remains strong.
And the Royal category sales totaled just under 3300 acres and an average price of roughly $2100 per acre as we close out 2021 and look toward 2022 demand for rural land remains healthy as a space privacy and recreational opportunities offered by these properties continue to attract buyers.
Lastly, we close on large disposition, comprising roughly 8100 acres in Washington state during the quarter for $20 million or nearly $2500 per acre. This property was a non strategic holding sold through a competitive bid process to a conservation oriented buyer.
Now moving onto our outlook for the year based on our strong results through the first nine months of 2021, and our expectations for the balance of the year, we're raising our full year adjusted EBITDA guidance to range of $320 million to $330 million, which reflects a 5% increase of the midpoint from our previous guidance and an 8% increase at the mid.
<unk> from the original 2021 guidance, we provided in February.
And our southern timber segment, we now expect full year harvest volumes of five 7% to five 8 million tons as production has been constrained by regional weather conditions and trucking availability. However, we expect that improved pricing will largely offset the decline in volumes overall, we expect full year adjusted EBITDA of $118 million to $120 million on our southern.
Timber segment, a slight decrease at the midpoint from prior guidance.
And our Pacific Northwest timber segment, we are maintaining our full year volume guidance of 1.7 to 1.8 million tons, we expect that weighted average Lord pricing in the region will be lower in the fourth quarter as compared to the exceptionally strong pricing realized during the third quarter, but will be fairly consistent with the pricing achieved during the first half of the year we.
We now expect full year, adjusted EBITDA, a 53% to $55 million a modest increase at the midpoint from prior guidance.
And our New Zealand timber segment, we now expect full year harvest volumes of 2.5 to 2.6 million tons as we do not expect to fully recover production loss during the third quarter due to the COVID-19 shutdown. We further expect lower export pricing during the fourth quarter as log inventories in China remained elevated overall, we now expect full year adjusted EBITDA 75.
To $78 million a decrease from prior guidance.
And a real estate segment, we now expect full year adjusted EBITDA of $101 million to $104 million a significant increase from prior guidance as previously discussed the successful completion of the Arbor would sail in Washington as the primary driver for this favorable revision.
Following an extraordinarily strong third quarter, we expect real estate closings for the balance of the year will be relatively light.
Even with lower EBITDA in the fourth quarter. The full year contribution from real estate segment in 2021 is poised to be well above historical levels in this segment.
While we expect continued favorable tailwinds in this business. We believe it's prudent to remind everyone that we do not expect these outsized result in 2021 to be repeated in 2022 as usual we plan to provide detailed 2022 guidance in conjunction with our fourth quarter earnings release.
More details regarding our updated 2021 guidance can be found on page G of the earnings release as well as page 15 of the financial supplement I'll now turn the call back to Dave for closing comments.
Thanks, Mark overall, we're very pleased with our financial performance through the first nine months of 2021 and believe we are well positioned to benefit from continued strength and U S housing market and favorable longterm export market demand trends.
That said, we're not immune from the supply chain and inflationary pressures that are impacting many parts of the global economy.
Significant constraints on trucking availability as well as higher fuel costs and a considerable increase in fertilizer costs are among the headwinds our industry is facing in the current environment. We expect these challenges will likely persist into 2022.
However, our team continues to work diligently to optimize haul distances leverage our scale on both domestic and export markets and make prudent silviculture investment decisions tied to localized supply demand dynamics.
Further we believe our focus on local timber market dynamics and active portfolio management leave us well positioned to navigate logistical challenges and recoup the impact of cost increases in our log pricing.
On that note active portfolio management remains central to our view of how best to create value for shareholders. We have continued to improve our portfolio through both addition, and subtraction. This year, we opportunistically recycled capital out of non strategic Timberland holdings in Washington State and exited the timber fun.
Business, while also closing on a total of $52 million of bolt on acquisitions through September.
Moving forward, our balance sheet as well positioned for future growth, particularly following the actions we have taken this year to reduce leverage extend our debt maturity profile and optimize our cost of capital.
I would also note that we continue to advance many of our ESG related initiatives in August we published our sustainability report as well as an updated carbon report.
With Cop 26 currently underway in Europe, I want to reiterate the important role working for US can play as a natural climate change solution.
As discussed within our sustainability report, we believe the myriad environmental and social benefits offered by our lands and the products made from our trees leave ranier uniquely well positioned for a low carbon economy.
And some I remain extremely grateful for the dedication of our employees and their ability to adapt ever evolving market conditions and business opportunities. Our team remains committed to maximizing the potential of our assets and creating long term shareholder value through growing cash flows and value per share.
Over time.
This concludes our prepared remarks, and I will now turn the call back to the operator for questions.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one Unmute your phone and record your name clearly your name is required to introduce your question. If you need to withdraw your question Press Star two again to ask a question. Please press.
Dar one.
Our first question comes from Mark Wildey.
Good morning, good morning, Mark.
Good morning, good morning, Mark.
David I Wonder just around some of these real estate in the land sales in the third quarter. If you could give us a sense of what remains at.
At Belfast in terms of your portfolio there and also what is left in the portfolio.
In terms of either developed or undeveloped land opportunities.
Yeah, So I'll start with.
I'll start with the Richmond Hill project and so keep in mind we.
We opened up a new I 95 interchange that roughly bisected our ownership there where we had the Belfast Commerce center to the West and are mixed use community development project to the east.
And the the Belfast Commerce Center is very well positioned with rail access to the port of Savannah, and what the interchange did was it opened up other opportunities and so we've seen with the transactions that we've completed and Q2 and Q3, we've seen a an acceleration of.
The absorption, we're probably 10 years ahead of where we thought we would be when we originally underwrote that project and so we're very happy with that I'd say, we are mostly through.
That commercial park, we do we do have a few remaining pieces of it left but the bulk of it has been has now been sold and so.
We're pretty happy with that and it has it has a carry on effect to the mixed use development project in the sense that that you're going to be seeing.
Facilities that will add jobs.
The transaction that we closed the.
$25 million transaction that we close is going to be four 6 million square foot U S. Distribution center that is expected to add a lot of jobs and we see that as being complimentary to our mixed use project on the other side of I 95, So we're pretty excited about about that.
Switching gears to what is left in those projects I think the the on the on the on the Richmond Hill project, which we're calling heartwood. It's really just getting started we've done the catalytic <unk>.
Investment in that our partners our community partners have completed.
A lot of the major spine infrastructure roads that connect the property to other existing infrastructure and we're just getting started in terms of.
Ramping that ramping that up.
Into the future.
The so so that that that is I'd say still at the very early stages.
Wildlight I think similarly, we have we have accelerated the absorption there with with.
Home sales.
We are downstream customers expect to sell roughly 100 homes. This year and we're well ahead of the underwriting pace as it relates to to that and really the focus now is on opening up new new elements with respect to your question on the Pope.
Transaction in Arbor Wood. This was a project that had been entitled back in 2010 had a 15 year development agreement.
We had.
Back when the project was originally entitled.
It was very much ahead of market readiness, and we decided to test the market early this year.
On a subset of the asset.
On a completed.
Finished lot basis, and the results of that we're strong enough that we decided to test.
The value on the whole project on an undeveloped sense and we ultimately decided to transact we were very happy with that I think it speaks to the value of having.
Already.
Projects out there there's as has been communicated a lot. There is there is a shortage of lots out there and so we have basically transacted with national to National Homebuilders, who are going to be finishing those constructing those finished lots themselves and we think it not only is helpful.
<unk> as it relates to our our our business and an accelerating the absorption of that but we think it will have carry on beneficial effect to the to the pork gamble asset that is to the north of that.
Okay, Yeah, I think I visited Arbor would with you with some investors several years ago. It was very interesting project I'm. Just curious date the world has changed a lot in the last 12 to 18 months I know you're trying to kind of.
Manage expectations going into next year, but but is there an argument because of the.
Now the greater interest and perhaps a little more residential space for people that.
Your real estate business could be moving on to.
Higher track here that might be sustained over the medium term.
I think we I think we generally share share that view I mean, I think we've all seen that especially with Covid, where we've seen a.
Ah desire to have more space to be out of.
Cities and whatnot and we've seen that reflected in our rural demand. We've certainly seen it reflected in the projects that we have.
In place and so I think.
At that level I would agree and I think as we think about particularly these two projects in Jacksonville in Savannah.
Keep in mind that our all of our initial capital in these was really designed to catalyze downstream demand and that with the idea of being that as we as we proved out these projects others would step up and be willing to take on other pieces similar to the to the Arbor would transaction and it's.
Can really how we think about timber.
You can sell delivered or you can sell in stumpage and so we're seeing that now and wildlife. We saw it in Arbor Wood, where developers are stepping up and saying we will we will.
Build out these lots ourselves and to us that was really the.
The strategy, all along and that will do two things a it it it reduces our our capital.
Expenditure exposure.
And accelerates the absorption of more land into these projects.
But it it also it also has a big improvement just in terms of the overall.
Financial profile of that so we're pretty bullish on it but at the same time, we also want to not set expectations too high going forward.
If anything I think we've out stripped some of our entitlements and so we have we have work to do to refill that pipeline even within these projects and so we're we're working pretty hard to kind of get the next layers of of.
Of these projects fully entitled So that we have things that we can sell and market I would just add to that they recognize it for the last couple of years in particular, and we really shifted towards fewer acres sold but higher values per acre and so the EBITDA result, this year I was obviously very strong, but even if you compare it to say going back to <unk>.
18, when we also had a very strong real estate year, we've sold far fewer acres in the premium realisation, which is really where you get economic value in this real estate business I'd say has been even even more favorable but I would say counterbalancing that to some extent as we also believe we're in an escalating timberland value environment and so.
The kind of rural real estate sales, which have really been the bread and butter of a real estate business, we're going to continue to focus on trying to maximize premium and not just Max maximising.
Sale value and adjusted EBITDA. So obviously his values change that that bar gets higher and that's going to factor in your calculus in terms of velocity of real estate activity.
Okay, then just two quick ones for Doug.
Is it talking with some some of the big Timo managers.
Feedback on getting around.
Stumpage.
Friends is actually a little more bullish than what's showing up in timber mark numbers or public company numbers like yours, so far and so I'm just curious.
Whether you have a.
That there is kind of momentum finally, starting to build around around stumpage pricing and then secondly, when you get high fertilizer cost and high labor costs like we have right now what's your ability to just for that for a year or two without.
Damaging.
The growth trajectory of your for US you have that discretion.
Sure I'll start.
With the first question then go on to that one.
We're seeing strong markets for sure and across the yourself and you know I know there are some comments about so I'm kind of our quarter over quarter numbers type thing and we typically focus more on year over year comparisons show trends a quarter of a quarter because there was a lot more noise typically enter quarter. Then there is across the year is often based on seasonality. For example, Q3 is often heavier to the thing.
<unk> during the during the summer and so that's one of the reasons, we see some of that.
That said whether significantly impact on removal is along the Atlantic coast in Q3, So we had a higher proportion approximately about 10% of our total removals that came from our western Gulf region.
Because he finally started get some drawing weather over the western Gulf almost all of our stumpage with where things. So we had a group that can compare to clear cut and things in that area to regenerate listen happened at stumpage compared the Atlantic Coast.
And then September was even more pronounced we had about 20% shifts and total volume from our coast Atlantic market store Western Gulf region.
A large amount that was September volume swap them from our northern most Arkansas expiring kimberley's, which until now I've been uneconomic to harvest and so these sales during that stumpage below $6 a ton.
Long haul distances, we had what's really weighed in our quarter over quarter comparisons. So I'd say looking at <unk> Pearson of our numbers you gotta be very careful because of what we what we see like that with all these different ways, but.
Kind of going back to your question about momentum off let's say.
We've been really encouraged by the upper pressure on loan pricing, we've seen this year and the USL and there's a lot of factors at play strong lumber prices and driven strong demand as well as strong help demand from our pomo customers and.
And there's also been increased demand on the export front in some markets. We have seen constraints on logging in Hong capacity as well as weather conditions have also played a role in this price gains being reported by us and others, but.
But we remain really optimistic about the underlying housing fundamentals moving forward and what appears to be very low inventories of finished products and supply chain.
So I do think that what you're hearing from those teams. There's there's truth behind that we're seeing a lot of strength and sort of a quarter of a quick comparison was noise like I said in our information there.
And as we were talking about the relative strength of our footprint for a long time, we're announcing pricing above pre GSC inflict Tms regions, such as long in Atlantic Coast, where we've talked about before as being very strong.
Okay, and then finally just trying to.
Fertilizer.
Yeah.
Moving moving on your fertilizer so.
And labor costs. Your point, we do have some discretion, but we also tried to trying to optimize our land base in decision on fertilizer is very much based on our expected returns and our financial financial metrics. So in that process, we have the ability to either to some point differ dependent we think the outcome prices are going to be but also we can adjust our prescriptions. So we.
We can do a smaller mountain dew and more often so we do have flexibility to move those around it's not we're not held to any one year, how we how we operate with that.
Okay very good I'll turn it over.
Our next question comes from Paul Quinn from RBC capital markets. Your line is open.
Yes, thank you very much wearing guys.
Good morning.
Hey, I'm, just trying to understand the upside in 22.
Even the expected rested log export ban and Ah, let's just start with New Zealand, how sustainable do you think that pricing there'll be and if he could remind us what the what the sustainable harvest level is for that career properties down there.
Yes. This is Doug.
There's a lot of factors at play from the.
Australian band that we still believe is going along with seeing that happening and then as you mentioned the Russian the Russian log band coming in 2021, 22. So we see a lot of a lot of opportunities on that side, a little bit are posing that as we've seen some recent influx of European salvage would it seems to be slowing down the harvesting, but they've had some recent up.
Savings about 25% in the shipping coming in the China as we have seen an influx of that so we think.
Mid to long term, it's very very favorable for export volumes come out of come out of them New Zealand, but also on the short term right. Now we are seeing higher log inventories that it'll take a little Walter to wind down.
On your question about sustainable yield Ahmar disclosed sustainable yield in New Zealand is two four to two 7 million tons annually.
Okay and it just just on the European salvage wood coming into the market.
We cover a couple of European companies that would say that salvage effort over there. It's just about complete.
Is that your understanding as well would you or do you expect that to be a.
Meaningful Packer and 22.
My understanding is is that last year slash. This year was kind of the peak of it and it is definitely slowing down.
We believe it is going to taper off and I still think there's gonna be some wind coming across but not near what it was before and as I said, we're just getting this influx right now it's around shipping. So there's there's been this burst, but we don't expect that to be long term and sustainable. So we think there's been a a last minute pushing and they'll still be volume coming in next year, but I do think it's going to start to wind down from everything we've seen the both the infestation a slowdown they also have.
Less climatic changes a lot of that volume was also impacted by a really extreme weather kind of 2018 2019. So I think what you have heard similar what we're hearing is it seemed to be winding down, but I will still be in the market next year, but to a lesser degree and Paul consistent with what you've heard as well keep in mind that the shelf life of the European spruce as much sure.
<unk> then what we experienced in western Canada. So so that's consistent with this idea that the harvest volumes, you're going to be ramping down and and now you just sort of add this shipping component where.
It's driven it's driven as much by the harvest as it is the some of these shipping constraints.
Okay, Yeah, no I understand that.
Okay, and then just move it on to southern timber just and it's been a busy morning, So I met I met might've.
Might've missed it but just any color that you've got on an export volumes and and what you are seeing in current trends there.
Sure.
Since as a competitive developing market I won't speak explicitly about Rainer volume and then just say that we're actually producing from two ports in the south but.
But I can't speak more generally about the total syp's exports. So.
The demand in pricing Forum, Sonya pine logs in China has been gaining momentum all year.
And you will find exports exceeded 750000 cubic meters this quarter, which is a 64% increase year over year. So we seem really really strong demand and strong pricing in the market.
While over half of the shipments are leaving for the poor Savannah. Several of the ports are growing their contributions to float logs at yourself and we'll see that also has a positive trend.
We continued to encouraged by the demand for these logs as well as what the incremental tension is doing in pricing to mix in our coastal markets and as I mentioned before it's almost kosta markets, we're seeing pre GSE pricing again, so great very pause momentum there.
We are optimistic about the potential export more logs in yourself to markets, such as India, and Vietnam are looking to grow that part of our business and I've done some work there but for now over 9% of the law is being exported to yourself are going to China with India being a far distance, 6% the volume the.
Demand signals are really strong from India, but the high shipping cost a day just referenced are a significant hurdle given the current supply chain issues. So we're looking to see what we can do in the supply chain them correct itself, but.
Real strong market right now very pleased with it.
Alright, that's all I had best of luck.
Our next question comes from Buckhorn from Ranier James Your line is open.
Hey, guys good morning, sorry about that.
Yeah I'm just curious if you guys had any high level thoughts about the announcement coming from the Canadian government yesterday that kind of surprised a lot of industry observers about.
The British Columbia acreage that is now looking to be set aside for harvesting and.
Potential implications might be on.
Regions like the U S. U S out would you how do you think that plays out in terms of.
Shifting lumber production and or shifting capital into U S. Producing regions. How do you think that kind of plays outgoing or given this Canadian announcement.
Sure. This is Doug I'll start and then somehow smidge of them with me.
As you mentioned British Columbia announced this week the deferral of harvest on about $6 for mine acres of old growth forests.
And these deferrals are classified as temporary to prevent irreversible biodiversity loss based on communications, so far that I've seen.
It really appears to be aimed at permit protection now that the preservation are restricted harvesting. So we do think there's gonna be an impact here.
Government has already ceased selling British Columbia timber sales in the affected areas and expect the process of analyzing.
This to last at least in the 2023 and possibly beyond.
And further suggesting that this will have meaningful impacts on removal the government committed to provide necessary support offset job losses and economic impacts of our communities.
And then based on that Council of Forest industries indicated from their initial analysis that such deferrals would result in the closure between 14, and 20 sawmills and to pulp mills.
Pretty significant.
And this action as a result of a multi year strategic review that declared the need for a paradigm shift in British Columbia are managing for timber such constraints to managing for ecosystem health recognizing that all forced her non-renewable in many cases.
So it does feel like there's a real shift here.
Additionally, concerns were raised over log exports.
Much of the the British climate industry is configured to harvest primarily from the 20 million acres of over a force in the area. So a potential reduction of say over 20% of the area would likely have significant impacts on the industry.
Which currently exports about 6 billion worthy of lumber to the U S and as you mentioned I'm kind of the south about 25% that goes to yourself, which I think surprised a lot of people, but due to the rail networks, we do significant amount of that so you're talking.
$1.4 billion coming into yourself.
As well as approximately 600 million board feet goes to both China and Japan. So.
So it's a significant export opportunity there for them also.
So if you assume it advertised mill kind of 200 million board feet across that 14th almost the low enough coffees impact range. This could equate to approximately 2.8 billion board feet of lost lumber capacity.
And in addition, visa exports about 1.9 million cubic meters of locks to China that the 1.6 million to Japan and 300000 to Korea.
So depending on the magnitude of the referrals or the revised harsh practices.
Additional production capacity may definitely shift out of the region, which bodes well for the recently announced capacity expansion yourself as well as possible for the Greenfield Mills and.
And this appears to be very incremental uhm positive opportunity for number operations U S. As you mentioned.
And in turn will create more demand hopefully for our timber.
In addition to that we recently purchased an existing export operation in Port Angeles, Washington that will be fine with our legacy Rainer volume as well acquired foot volume and third party wood.
And this chart equidistant between Rainer and former POW plans provide this operators operational synergies associated with our greater skill in that area and we see this BC announcement will create additional export market opportunities for nearly established team as they start up operations next few quarters.
So it's obviously an evolving situation will follow closely but it does appear from what we've read so far and Red District report that this is a net positive for both export operations and lumber in the U S and Buck if I can just sort of add to that.
We obviously are close enough to.
Make for reliable estimates, but just based on the stuff that's out there even if it was it sort of have that level.
You're still talking about very substantial.
Kind of overall impacts to the North American lumber market and I think when you see these kind of disruptions.
You have to really sort of think through the second and third order effects. There's a lot of ripple effects associated with transportation and kind of traditional markets for some of these products and then what what other products will end up Backfilling and then you have to sort of think through all of those so we think it's definitely going to have a lot of impact but it's.
Still still pretty fresh where we're going through that that analysis process ourselves right now.
Yeah. It was just great guys very <unk>.
Go ahead, I'm, sorry, I was all right.
Just add with his comments were kind of at that point. If it was just half of what's kind of I've mentioned there. That's been proposed you are still talk about was equivalent to though what's been export via south out of British Columbia, So it's still very meaningful.
No absolutely very helpful answer appreciate the thoughtful description in color there.
Also.
Thinking about some of the bolt on acquisitions, you've done year to date I was wondering if you could just talk about kind of.
If there's any theme or.
Geographic regions, where you seem to be.
Focusing more in on in terms of where the.
Incremental opportunities for.
Future acquisitions lie what are the kind of thing that you're looking for.
In terms of how to deploy your your.
Rapidly improving cost of capital here what is it that.
You guys are targeting going forward.
Sure I'll I'll I'll take that I think the first thing I'd say is is we are always active and all three of our geographies. I mean. This is this is a continuous process, but recognize that deal flow is very differential you've got the most deal flow in the south followed by then.
Northwest and then and then followed by New Zealand Covid has disrupted that considerably for larger properties that require.
Physical.
Due diligence to verify inventory.
That was that was restricted for much of this COVID-19 period, and so I think we've seen.
A lot of offerings come to market.
As travel restrictions have been east, we've definitely seen the market in the northwest heat up in part because.
Of.
Strong lumber markets and resurgent export markets, we certainly were able to capitalize on that in the context of our our fund business sale New Zealand. Conversely has been more restricted in deal flow in part because of the Covid related shutdowns, we were still able to.
And the deals that we've done this year, we've had a total of seven bolt on transactions to in New Zealand and five in the US South for a total of about 50000 acres. So we still down a little bit of activity New Zealand, but we're always looking in terms of the attribute we're always looking for the complimentary fit we look at age class Wheeler.
Look at productivity.
We also look at properties that where we think we can.
Bring a property up to the standards that were used to through our management intensity and so will often find situations like that we're looking at at lease expirations often on lands that we have been managing as another opportunity and we try to we try to be both nimble.
But also disciplined we're seeing we're seeing a lot of capital in the market right now and.
And so there's an awful lot of deals that.
They'd go to others, but we feel like that's that's part of our job is.
As being disciplined on a capital allocation standpoint.
It's very helpful. In in terms of evaluation would you say you know implied cap rates are discount rates are compressed noticeably in recent months with them more due diligence possible or more capital available.
I wouldn't say in months I think it's been a gradual compression.
Of discount rates for sure I think.
Frankly, the the introduction of.
Carbon as a potential product offering has changed the flows of capital.
We have seen a continued progression of European capital.
Flowing into.
Into the North American Timberline markets. There were three three notable transactions.
Globally.
Late that had pension funds from from Canada, France, and Sweden, being the ultimate buyers and that's indicative of some of the.
Some of the capital flow.
Attractiveness of the asset class and we have to we have to sort of.
Be prepared to respond to that.
Very helpful. Thank you guys.
Our next question comes from Anthony Pettinari from City. Your line is open.
Good morning.
Just may be following up on on Paul's question on China. It sounds like given restrictions for Australia, and Russia. You are positive I think he said midterm longterm on New Zealand price volume, but.
Kinda has this inventory issued near term if that's sort of an accurate summary, I guess my question is.
What is the visibility in terms of how long it could take for that inventory situation to normalize or is there any kind of like.
Historical example, that you point to whether it's a couple of quarters more or less and then Ah apologies if I missed this but the the COVID-19 restrictions that held back <unk> results in New Zealand in terms of the size of that or maybe getting a little bit of a <unk> tailwind from that nonrecurring.
Four Q.
Any thoughts there.
Yeah.
I'll start with them, they're trying to inventory of questions. You have there and then we can follow up on the New Zealand impact.
<unk> Chan long inventories are currently around $6 5 million cubic meters, which as we discussed are prepared.