Q1 2022 CatchMark Timber Trust Inc Earnings Call
Beverages.
Lower year over year investment management results were due to lower asset management fees associated with the Triple T exit as it related transition services agreement expired at the end of the quarter.
While we continue to recognize income from the Dawsonville bluffs joint venture, which is capitalizing on strong demand for its wetland mitigation credits.
Since 2017, when we acquired Dawsonville the market price for its mitigation credits has risen from approximately $30 per credit to $94 as of the first quarter.
A 210% increase.
For the quarter, we realized $3 $2 million of net income or <unk> <unk> per share achieved adjusted EBITDA, 15% above the prior year quarter and produced a 34% increase in cash available for distribution year over year.
Yesterday, we declared a cash dividend of <unk> seven five per share for common stockholders of record as of May 31, 2022 payable on June 15.
We anticipate performance momentum in our operations from the first quarter to carry into coming quarters, especially in terms of salt timber pricing.
For the full year, we now expect to achieve saw timber pricing approximately 20% above 2021 levels based on strong demand for new housing even in the rising interest rate environment.
Although the economy presents a mixed picture of low unemployment and wage growth countered by high inflation and rising interest rates demand for new housing Hasnt waiver despite increased mortgage rates.
Builder backlogs are at or near all time record highs and new building permits and housing starts have not let up.
Repair and remodeling activity has also remained resilient.
This activity helps fuel saw log demand, particularly in our U S South markets, where new and expanding mills continue to come online as a regional population increases and requires more housing.
On the supply side tighter supply has resulted from various supply chain issues, including trucking availability and labor constraints.
This challenging market environment has favorite cash mark since we reliably have been able to meet our mills customer supply needs through our delivered wood sales model.
Taking into account first quarter results and by increasing our sawtimber mix to meet market demand. We are now on track to register a full year weighted average pricing increase of 15% to 20% for a blended harvest up from the previous expectations of 10% to 15%.
Our pulpwood pricing may pull back from recent highs as some no customers have upgraded facilities to better utilize chip and saw instead of merchandising pulpwood, while we continue to expect to register price levels, well above market averages for the pulpwood category.
In coming quarters, we also expect to make significant progress on our acquisition initiatives to help maximize both near term cash flow potential in the long term value of our timberlands at present, we are primed to execute on accretive acquisitions benefiting from our improved balance sheet and strong liquidity position, we are focused on <unk>.
<unk> bolt on acquisitions in and around our existing markets, where we can take advantage of our market presence to secure prime quality acreage.
That enables us to find good value, while enhancing our local footprint and market position.
It also fits with our business strategy to expand ownership and operations and leading mill markets, where we can better serve our customers and gain further efficiencies with our contractors.
With 60% of our timberlands are now in the top three markets and 100% are in the top seven.
So far we have entered into purchase and sale agreements to buy more than 2400 acres in two separate transactions totaling about $5 million.
<unk> are located within existing operating footprints in two states, Alabama, and South Carolina. These.
These properties fit our acquisition target objectives with long term accretive attributes.
They will be funded with cash on hand are expected to close by early in the third quarter.
These timberlands have characteristics that feature a high allocation of time plantations and good value compared to our underwriting metrics, we will continue to be deliberate and prudent and identifying acquisitions, whether under our small track program or larger acquisition strategy.
We also continue to build our pipeline of environmental initiatives involving wetlands mitigation banking carbon sequestration in solar.
With regard to wetlands mitigation banking, we're identifying properties for acquisition as well as looking to create new mitigation banking opportunities on our existing properties similar to Dawsonville bluffs.
Meanwhile, we have identified 5% to 10% of our existing timberlands to be part of our carbon offset program and we are pointing to a carbon credit issuance in the second half of the year.
As previously detailed we have signed at 4000 acre lease with a solar developer and have option agreements on almost 8000 acres with other solar developers.
Taking our operating performance outlook and growth initiatives together cash Mark continues to be very well positioned for successful 2022 performance.
Overall, we are meeting our objectives are prime timberlands, and leading U S. South know markets are continuing to generate superior pricing.
We are executing on our disciplined acquisition strategy and we are moving forward to create additional revenue streams from environmental initiatives.
These activities are designed to work together to grow durable cash flow and further enhance stockholder value as I said the year is off to a very good start for cash Mark <unk>, who will provide more detail on our first quarter results and discuss our capital position.
Thank you Brian .
In the first quarter catchment solid operating performance carried over from last year, driven by what has become a catch Mike hallmark, achieving timber sales pricing premiums significantly above market averages.
We also had an excellent quarter for timberland sale.
Capturing strong pricing for assets with lower quality characteristics than our portfolio average.
Adjusted EBITDA increased 15% year over year.
Slightly lower year over year revenues down 3%.
Is it mainly from lower harvest volumes, primarily related to the sale of our Pacific Northwest Timberlands in third quarter of 2021.
Our operations are now concentrated entirely in the U S South.
Timber sales revenue increased 17% year over year.
Our significant increases in net timber sales prices have lessened the revenue impact of planned lower harvest volumes.
For the quarter ended March 31, 2020 to catch Mark generated revenues of $26 9 million compared to $27 $7 million in first quarter 2021.
Timber sales revenue totaled $17 7 million versus $20 1 million in first quarter 2021.
As planned total harvest volume decrease year over year by 11% to approximately 470000 tons.
We capture significant net timber sales price increases year over year in the U S South.
30% for soft timber and 8% for pulpwood.
When compared to timber Mart, South U S south wide averages soft timber and pulpwood stumpage pricing registered 47% and 37% premiums respectively.
We realized net income of $3 2 million.
Compared to a $600000 net loss in first quarter 2021.
Adjusted EBITDA totaled $14 8 million compared to $12 9 million in first quarter 2021.
Breaking out adjusted EBITDA by segment.
For the first quarter harvest EBITDA was $9 6 million.
Compared to $8 9 million in first quarter, 2021, and 8% year over year increase.
Real estate EBITDA increased to $5 $8 million year over year up from $3 1 million in 2021.
The increase reflects closing a greater percentage of our planned timberland sales in this year's first quarter.
In the range of 35% to 40% of our full year 2022 target.
Pricing for acres sold was lower year over year due to significantly lower paying stocking levels unsold acreage.
But the sales represented strong relative value.
Investment management EBITDA of $2 7 million compared.
Compared to $3 8 million in 2021, resulting primarily from lower asset management fees related to the exit from the Triple T joint venture.
The fees recognized from Triple T. During the quarter were paid under a transition services agreement, which expired on March 31.
We recognized $600000 of investment management EBITDA from the Dawsonville bluffs joint venture and.
And received $100000 in operating distributions from the joint venture, which continues to capitalize on strong demand for its wetlands mitigation credits.
We also paid a dividend of $7.05 per share to stockholders on March 15 2022.
Now turning to review the company's capital position.
After concluding the capital recycling program with last year's sale of the Bandon property in the Pacific Northwest catch Martin has significantly improved its balance sheet and liquidity.
During the first quarter company leverage remained low and debt capital remained available and attractively price.
By the rising interest rate environment, which we have hedged again.
More than 90% of our debt outstanding is protected.
We are well positioned to move forward with our acquisition growth strategy, which is underway and should gain further momentum over the course of the year.
As of March 31, 2022, the company had over $250 million of borrowing capacity remaining under its credit facilities.
And over $27 million of cash on hand.
There were no changes to the credit facilities during the quarter.
Stockholders received a total of $3 6 million in dividend distributions, which were fully covered by net cash provided by operating activities and cash available for distribution.
No share repurchases occurred during the quarter under the company's share repurchase program, which at $13 $7 million remaining as of March 31 2022.
To sum up we had a very strong first quarter.
Balance sheet remains solid with excellent liquidity, and we will be able to fund our acquisitions comfortably as that program gained further momentum.
Now Todd will review harvest operations and Timberland sales Todd.
Ursula and good morning, everyone.
Much more continues to benefit from our prime timberlands located in Premier U S South mill markets, achieving significant pricing premiums.
The flexibility of our operating model using delivered wood and opportunistic stumpage sales helps control our supply chain and mitigate risk and we continue to capitalize on market pricing tension to negotiate delivered and stumpage sales pricing increases.
Strong demand for all products and low raw material inventories during the quarter maintained high pricing tension, we capitalized on the opportunity registering a substantial delivered and stumpage sales pricing increases.
Successful negotiations with many of our customers support a delivered price increases and helped to offset rising cut and haul costs, allowing us to maintain stumpage margins.
We offset logging contractor attrition from previous quarters with added stumpage sales aided by favorable weather conditions and market demands mills were still playing catch up from fourth quarter, 2021, which led to lumber pricing staying above $1000 per thousand board foot during most of the quarter.
Strong first quarter production, we achieved should help smooth out our production levels in coming quarters. As we are on track to meet full year volume guidance.
Macro demand fundamentals will continue to drive mill production needs and pricing for chip and saw and pine sawtimber products should remain robust in the second quarter.
For the full year, we expect to achieve saw timber pricing approximately 20% above 2021 and going forward. We expect to continue to capture pulpwood prices above market averages, but we do not expect a trajectory of recent market pricing increases for pulpwood to continue.
Kris supply due to spring and summer selling and higher cut and haul costs will reduce pulpwood margins.
Staying nimble gauging product mix and meeting changing market dynamics will continue to be the key to our success in maintaining our pricing premiums.
Now, let's review Timberland sales.
As planned we executed on completing approximately 35% to 40% of our annual timberland sales targets in the quarter and timberland sales revenue increased 81% year over year from selling significantly more acres as compared to prior year quarter.
We continued to generate strong relative pricing, while land sales taking advantage of robust buyer demand.
The acres sold at a substantially lower average merchantable timber stocking from the company portfolio average.
Reviewing the details cash Mark sold 3400 acres for $6 1 million.
Compared to first quarter 2021, when we sold 800 acres for $3 4 million.
The 8% lower year over year Timberland sales price per acre was due to the lower productivity characteristics. For example acres sold during the first quarter had pine stocking of only three tons per acre compared to eight tons per acre in the first quarter 2021.
These acres sold in the first quarter also had only 37% pine plantation compared to our portfolio average or 72%.
Given the strong land sales market and our current pipeline of transactions. We are on track and expect to complete 65% to 75% target full year sales by the end of the second quarter as Brian has highlighted we're off to an excellent start to the year, Brian I'll turn it back over to you.
Thanks Todd.
First quarter provides more evidence for how ketchmark simplified and more focused business strategy is paying off and strong performance based on owning Prime U S. South timberlands operating in the nation's leading mill markets effectively using our delivered model supplemented by opportunistic stumpage sales and executing superior.
Stuart ship and managing our operations.
Due to our carefully selected markets, we expect to continue to capture a higher than average pricing and due to our balance sheet, we will be able to demonstrate growth not only through product price appreciation, but also through disciplined acquisitions and environmental related investments with capital on hand, and good liquidity, we are making progress on completing attractive.
Acquisitions that fit our criteria with more to come for our environmental initiatives are gaining traction together all of these efforts are helping to maximize cash flow throughout the business cycle seeking to capture the highest value per acre and to generate sustainable yields narrows.
<unk>, Todd and I will be pleased to take your questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
So with Joe Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Dave Rodgers with Baird. Please go ahead.
Yes, good morning, everyone. Bryan I wanted to start with you on the acquisition side. It's good to see you guys back in that acquisition game on a wholly owned basis.
Can you talk about how that pipeline is coming together and give us any maybe better visibility as you look beyond this current set of closings that kind of outdoor toward the rest of the year and what that might look like.
Absolutely good morning, Dave.
So theres really two parts as we think about our acquisition strategy. One is really the small tracts program, which we talked about end of last year going into this year and the other is kind of off market or bid opportunities that come into the marketplace.
So we've been building this pipeline to get to the point, where we're starting to have closings. These are the ones that were reflecting in our earnings release today is really off market adjacent landowners as we noted in our prepared remarks high plantation.
Exceeding the 80% range, which is very accretive relative to our market and it's a from the standpoint that has great operability really bolt on and really be seamless in our existing operations.
By by really focusing on our acquisition strategy of being kind of threefold, one near term cash accretion opportunities to portfolio opportunities in three really alternative income, meaning everything from a mitigation bank credits solar as well as carbon we have been able to actually you think thats a broad array.
But it is actually very focused because we have very specific metrics. We look at in each one of those categories and so by virtue of spending a lot of time and making sure what really works for us in our market, especially when we said we're going to be solely focused in the U S. South where we've really seen obviously is a lot of a lot of activity on the small tract program.
1000 acres at a time.
Goodbye size, we can provide liquidity for owners that are looking for exiting opportunities and so from that standpoint, we like the pipeline thats being built there and we think that can be very accretive now obviously, it's not going to be.
Size and scale of some other transactions that you know kind of what we target in that 5% to $50 million range. A lot of those are very competitive now in this marketplace. We've seen some deals go off theyre very high quality opportunities, but relative.
For relative value, we're finding good value in this space today, and so we want to remain disciplined in what we're looking at but overall they were very excited about what we're seeing and the opportunities that we have and really the hardest part we're going to have now and this is a first world problem is really managing the pipeline of all the opportunities that are coming our way.
Great. Thanks for the update on that Brian maybe a question for Todd you talked in the press release that that kind of cost savings in the first quarter.
Then you talked about a little bit of margin pressure on pulpwood, which sounded more seasonal than maybe secular so with all that said, maybe an update on kind of where you feel like kind of the secular margin pressure is today as you've talked about on last couple of quarters and any update on whether whether thats easing from a secular perspective versus seasonal.
Absolutely so thinking around the the pulpwood comments, we had there recognize that Q1 was as we've noted was really strong for us great opportunity kind of across the board with all products, but what we're seeing is the impact of really from a merchandising your utilization of product.
This is a really good thing when you think about capital that's come into the saw mills utilization of the smaller saw timber stem.
At times, we've talked about it and we still move this product Super pulp Stringer type Wood, we've mentioned that before which ends up going into the pulp category, which is just a larger stems both pulpwood that gets.
<unk> utilized turned into lumber at some of these other producers while we've had some customers that have gone in and and retooled their facility. They actually are utilizing the chip and saw small log.
Tim a little more effectively and efficiently now so they're not having to purchase that smaller wood and therefore that product that had previously been in our pulpwood category. If you will really show up more in our chip and saw and saw timber side. So it's more of a merchandising issue than it is I would say any major change in the marketplace.
As far as just the seasonality of what we're doing right now that you start rolling into the time, when we're getting into more thinning.
During this time of year that has some added cost to it just due to handling and what have you there. So.
No change in the overall market you have a little more costs associated with the operation would have a little bit of an impact on the margin margins will still be very strong comparatively across the from what we see across the south. So so no real issue there. It's more of just the merchandising and marketability of what we're working with today.
I appreciate that thank you and then last question maybe for Ursula Dovetailed with Brian .
<unk> talked about 5% to 10% of the acreage I think set aside or thought about from the carbon offset program, one where are those revenue streams today for carbon offset and do you have a near term goal for 22% or 23 that we should be thinking about from a revenue contribution standpoint.
So hey, good morning, Dave.
So as we're thinking through the carbon program at this time, we havent monetize the program yet.
The 5% to 10% that we're talking about is really how we're looking at our entire portfolio and that there will be an opportunity to put that into the program.
But we haven't seen that yet in 2022.
At the time of guidance, we had come out and said hey, our expectation would be another six to nine months before we can see.
Some of that and we're still in on track for that and so really it's more of a second half of the year.
Dan in the first half of 2022.
From a magnitude standpoint, Dave.
It is more important by the incident of the action of executing on our carbon credit than the magnitude at this point in time.
Really more real and.
Present is really mitigation bank credit activity, along with solar projects, but again, an incident of actually executing on a carbon credit will be as important itself as the magnitude.
Yes, I think thats right alright, thanks, everyone.
Thanks, Dave Thank you.
Our next question comes from Paul Quinn with RBC. Please go ahead.
Yeah.
Yes, thanks, very much morning morning, guys.
Just trying to clarify this pulpwood chip and saw.
The sub notes retooled to be able to use that chicken log chipping.
Chip and saw prices moving up as a result of the increased demand.
Hey, Paul Good morning, Ashley we did see our chip and salt price go up very substantially.
Part of our overall sawtimber mix, we spoke of where we were showing the.
20% kind of going forward for the year, and we were up actually 30% for the quarter. If you will.
So it is showing up in there and why we are saying. This is a good thing is that we are better utilizing the stems that had been competing in that pulpwood arena. If you will that are now really going to fall into the <unk> market for us at a much improved price point, so tension as their capital being places coming online we're seeing the utilization rates go.
Sure.
And all of those things coming together is what we're seeing drive the.
Price improvements that were experienced at this point and feel like we can maintain going forward. The market will be there fundamentals are there everything pointing to.
Duration durability of it.
So then just a one off type of opportunity here so.
All of these things coming together have been key for us.
Okay great.
Then Brad.
Got it.
If you could give us some more details around the acquisitions that you acquired.
Post post the end of the quarter something around.
Index tons per acre.
These metrics.
Okay.
Paul This is Brian .
We're excited about these transactions. So it's interesting when you take a look at these small track programs.
That kind of running kind of a DCF, you're really looking at some of the quantitative and qualitative and so what we would find is that a lot of these are going to be fitting into the ones that we just did that analysis is really going to beyond the younger side.
But it has a high plantation and so really we view these as long term fitting inside of our portfolio from an age class distribution standpoint, so they're not going to be 70 tons per acre, they're going be likely below our <unk>.
Portfolio average, but where they really represent is.
Again age class distribution high pine convertible type of acres.
Very close to our hall zones or inside of our 38 mile.
Myles side indices, they're going be equivalent or better than what we currently have and so.
Thats not a lot of specifics that you can then put into your model, but from the standpoint, it doesn't really move the needle as it relates to our harvest tons, but it really does provide accretive type nature to overall portfolio.
Okay, and then just maybe for Eric.
No share buybacks in the quarter that is ethane basically that you've done better opportunities to acquiring timberland and then investing in your own stock.
Yes, that's correct, we didn't have any any buybacks in the quarter. So it really just goes back to our capital allocation priority.
And so as you have heard the team.
All our acquisitions program starting to gain some traction and really as we look at the rest of the year, we want to make sure we continue to cover our dividend and <unk>.
Good liquidity in order to be able to execute on those acquisitions opportunities as we go along.
Alright.
Thanks, very much best of luck.
Thanks, Paul.
Our next question comes from Anthony.
Pettinari with please go ahead.
Hi, good morning.
Good morning.
<unk> results were extremely strong and I think your full year adjusted EBITDA guidance is unchanged I was just wondering if you could talk about <unk>.
Maybe the quarterly cadence as we think about the rest of the year.
The comments about kind of <unk> normalizing a bit and maybe we're able to kind of pull forward some volumes in <unk>.
Why shouldn't that guidance move to sort of the higher end of the range or even maybe above the range.
Hey, good morning, Anthony.
Youre right I mean.
You heard the team.
We're all extremely pleased.
I guess not surprised with what we've seen from a bright from a pricing perspective, and what we've been able to achieve the quarter. You saw our volumes were actually ahead of what we had anticipated as well for Q1.
I think at the time of guidance, we had said hey, Q1 volumes will likely be the lowest and yet we were able to find some good opportunities take advantage of those.
Which really as we think through the cadence for the year Q1 is probably going to be our largest from a volume perspective, and so as we think through the rest of the year on volumes it should be fairly evenly spread.
Throughout the remainder of the year that said.
You had mentioned, we're not really moving our guidance and so even though those price increases that we've seen with 30% saw timber 8% in pulpwood.
It does give us a lot of confidence to say that we do anticipate.
Soft timber and weighted average prices to increase by call it 15% to 20% as compared to last year.
And that's up from what we had initially anticipated on a pricing perspective, I think we've come out initially with 10% to 15%. So all of those things are positive, but a today is still Q1 and as you know, it's both about pricing and volume and from a volume perspective for the year, we still anticipate.
<unk> the same one six to $1 8 million times.
So at this time, we're not making any changes to the full year target.
Anthony This is Brian come see us in August .
Yes.
I will I will.
Okay.
I guess, maybe just one last kind of follow up which is maybe related I mean, you guys had.
A decade or I think saw timber prices were up maybe low single digits.
Per annum.
In 'twenty, one and sort of year to date prices are up 20% plus.
Lumber prices are triple what we think of those or maybe a normal price I'm. Just wondering just kind of an inflection that we've seen in 'twenty, one and year to date I don't know if you'd call it an inflection but.
Brian or Todd is there anything that is really catalyzing. This whether it's just inventories finally drawn down.
Where there is tension or are new mill customers I'm, just wondering kind of stepping back if there's one or two things that really makes the market feel different or is this just kind of.
Lucky.
A few quarters any perspective there.
This is Brian .
The luck is the is the preparation meets opportunity part of this and so we've been really talking about this for the better part of a decade and that goes along with the saying that it takes a while to be an overnight success and sometimes I guess it is a decade, it's really been the macro aspects of this thing that everything from the mountain pine beetle.
It'll the redeployment of capital to the U S South and strengthen housing I mean, we've been meeting all of these confluence of events I mean, we have unemployment at three 6% youre getting wage growth consumer balance sheets are in great shape.
We still have historically low rates, even when you look back at O 400, 506 as rates were hovering tenure.
Tenure was around four 5% and so and so the demand side is really there. So thats why youre seeing in the lumber side they have capacity constraints we've seen.
There is still nowhere near the capacity, which they had an O 400 506.
You are seeing consolidation in that space, both on the lumber side, they're going to continue to have that demand.
<unk> component of that as you touched on is really the improvement in the growth drain ratios in the markets. We've been operating in the markets. We've been in have been a function of market for the past decade.
So for Us Todd and I were talking about this the other day when you take a look at the heat maps that we publish in our IP you have seen our markets really continue to improve and we're sitting here for our markets. It's really a balance to a constrained marketplace and so you combine that with the given the ownership structure in our markets.
We operate in really it is who is producing the majority of the old 80 20 rule.
80% of production is controlled by 20% of the ownership and Thats really the <unk> and the corporates.
And the rest is really small land ownership base and so we're not expecting to see this wall of wood coming in and so two years does feel like a trend make now can I promise you a 15% to 20% next year.
I sure hope so, but the future is not knowable bias you do like the wins at our back.
Got it got it that's great perspective, I'll turn it over thanks.
Thanks.
Yes.
Again, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Buck Horne with Raymond James and Associates. Please go ahead.
Hey, Thanks, good morning, fantastic quarter, and congrats on those those pricing premiums so.
I mean with the magnitude of premium you're achieving versus market wide averages I guess, Mike My first question just kind of.
What do you think in terms of the longer term sustainability.
Of those premiums as capital continues to come into the U S South and I guess as Youre looking at acquisitions in your market areas.
Are the sellers of those.
Potential acquisitions.
Pricing in or anticipating that those those premiums would be sustainable as well are you having to underwrite those premiums into Europe .
The bidding process.
Good morning, Buck So you've got a couple of questions in there one is on pricing and maintaining price premium when we measure price premium that is relative to the U S South.
And so we believe that there is an extended period of time, where we'll be able to maintain price premiums will be to the extent and where they are today. I mean, these are pretty exceptional premiums relative to what we've seen historically, but.
If you take a look at Mississippi, and we've looked at opportunities in Mississippi. There is a lot of wood, there and from a product price appreciation and where the mill infrastructure is and how long it takes to really build a mill.
That's a very difficult market to say I would want to be an owner and today outside of looking at it from a conservation standpoint, or having a really a 10 year.
You point on it.
Now so as a result of that from a price premium I really like our markets, we talked about how 65% of our ownership base is in top three markets in 100% is in the top seven markets and Thats out of 22 markets in the U S. South so and Thats really measured depth and breadth of the market and supply demand and.
Factors and so we like where we are we expect premiums to remain there and there is no reason for it to change the magnitude may narrow, but we don't see it really evaporating anytime soon as it relates to M&A, it's really a cost of capital element to it and so one question we get related to this as well is what's our.
Our expectations as it relates to increasing interest rates well timberland is really an inflation hedge and so what we've seen really the last two years product price appreciation has outstripped inflation, even though inflation. This past year was exceptionally high you still saw.
<unk> had in our product price appreciation. So it really in our marketplace is really on a real basis. So what's the expectation on what's happening in real we've seen some transactions go off in the U S South and we've looked at those transactions and there is always different factors. There is not one for US is that for US is a force every.
Each transaction has its own unique attributes that go along with it and so from the standpoint pricing is a very important consideration, but also alternative income such as <unk>.
Development recreational land sales carbon mitigation bank credits and then location from a development standpoint that we saw in the most recent transaction stocking levels have a very important consideration because thats really near term cash flows that go along with it so from a pricing standpoint, you really see it much more.
The discount rate and so how much can be attributed to price expectations that is a contributing factor but.
Think about it but you have been following this space as well as we want to we like the two points of the trend, but how much are we really going to be pricing in exponential increases of 10% to 20 percentage here for the next three years to put that in our pricing I still believe that there is some conservatism as it relates to price expectations for valuations remain.
Fair for the type of assets that are going off I know I just watch on that answer, but I think it's important detail to make sure we communicated.
That's very helpful. I appreciate the color. Thank you for that.
And I guess my follow up is kind of more bigger picture I am Wonder if you guys have thought through.
The impact later this year that maybe comparison.
European Wood imports into.
Into the U S. South continue to dwindle just due to the effect of what's going on in Europe . These days.
Hi.
What's your thought in terms of could that add another layer of tightening to the market or at least improved for sustained the comparisons or how do you think of the impact of potentially reduced European wood imports.
Hey, Mark it's Todd Yeah. So it's.
It's one of those things that it's going to continue to have that take place now you continue to see as tension that we have in our markets and thinking about where we sit how our mills are running does it.
They are up to near capacity with the shifts they have in place could they add another shift is there something else. They can do to help fill in some of that void.
If everybody feels they are maxed out and youre going to continue to see the.
The pricing tension that we currently have and as you think about how we operate how we are structured with our delivered wood model and all of that is going to add some additional value to what we bring to the table.
As far as being able to continue to supply on a very consistent basis to the customers we're operating with so.
See that as a potential tightening down the road, we'll see how it all plays out but we know the markets. We're in now are running at a very high level high rate of capacity. If you will so it would be kind of more of that overall number pricing improvement I think we might see occur due to that but just from a supply and flow within the market.
So we are in.
We like where we are in and feel that we're running at a very efficient rate right now.
Okay. Thanks, guys.
Thanks, Bob.
This concludes our question and answer session I would now like to turn the conference back over to Brian Davis for any closing remarks.
Thanks, Eric we really have a lot to celebrate concluding our first quarter, where our results and outlook are noteworthy in on themselves. We recognize there are bigger events in our lives with high school and college graduation ceremonies weddings upcoming summer vacations, but most importantly mother's day. This weekend, so take the time to be present and.
These moments. Thank you and we look forward to reporting our Q2 results in August .
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.