Q4 2022 Rayonier Inc Earnings Call
Okay.
[music].
Welcome and thank you for joining Rainier sports quarter and year end 2022 teleconference call. At this time all participants are in a listen only mode. During the question and answer session. Please press star one on your telephone keypad.
<unk> conference is being recorded if you have any objections you may disconnect. At this time now I will turn the meeting over to Mr. Collin Mings, Vice President capital markets and strategic planning.
Thank you and good morning, welcome to <unk> Investor teleconference, covering fourth 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. We include forward looking statements made pursuant to the safe Harbor provisions of Federal Securities laws, our earnings release and form 10.
K and 10-Q 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 two of our financial supplement throughout these presentations. We will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials with that let's start our <unk>.
The conference with opening comments from Dave Nunez, our CEO Dave.
Thanks, Colin Good morning, everyone first I'll make some high level comments before turning it over to Mark Mchugh, President and Chief Financial Officer to review our consolidated financial results. Then we'll ask Doug long Executive Vice President and Chief Resource Officer to comment on our U S and New Zealand timber results and following the review of our timber segments Mark will.
Our real estate results as well as our outlook for 2023.
We are pleased with our overall financial performance in 2022, particularly given the challenging macroeconomic backdrop that developed during the course of the year.
For the full year, we generated GAAP earnings per share of <unk> 73.
Pro forma earnings per share of <unk> 62, and.
And adjusted EBITDA of $314 million.
Notably our three timber segments generated total adjusted EBITDA of $275 million.
Representing the highest ever result for the company and roughly 8% above the previous record achieved in 2021.
Despite deteriorating market conditions towards the end of 2022 in response to rising interest rates growing macroeconomic uncertainty and a slowing U S housing market, we still achieved record full year adjusted EBITDA in both our southern and Pacific Northwest timber segments. We believe this underscores.
The relative strength of our timber markets and the ability of our team to navigate an ever evolving operating environment.
The strong full year results in our U S. Timber operations were partially offset by lower adjusted EBITDA versus the prior year and our New Zealand timber segment, which contended with slower economic activity in China as well as higher operating costs means.
Meanwhile, in our real estate segment, we achieved solid results that were generally in line with our expectations entering the year, reflecting our continued focus on optimizing the value of our portfolio through the sale of rural and recreational properties land entitled for development and non strategic holdings.
As Mark will discuss in greater detail later in the call.
We are providing full year 2023, adjusted EBITDA guidance of $280 million to $320 million. This is a wider range than we've historically provided for full year, adjusted EBITDA guidance, which reflects heightened macroeconomic uncertainty as well as log pricing headwinds entering the year.
That said, we've seen some recent signs of end market improvement, including increased wood products pricing, a more stable interest rate environment, and improving homebuilder sentiment, which suggests that timber market conditions may be poised to rebound to some extent, which is reflected in the higher end of our guidance.
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Stepping back to the fourth quarter, we generated adjusted EBITDA of $68 million and pro forma earnings per share of <unk> 11.
Fourth quarter, adjusted EBITDA increased 36% versus the prior year quarter, a stronger results in our Pacific Northwest and New Zealand timber segments as well as higher a higher contribution from our real estate segment more than offset a slightly lower contribution from our southern timber segment.
Drilling down deeper a further on our operating segments, our southern timber segment generated adjusted EBITDA of $33 million in the fourth quarter, which was 1% below the prior year period.
While weighted average net stumpage realizations increased by 7% versus the prior year quarter. This was more than offset by an 11% decrease in harvest volumes in general our southern timber segment continued to benefit from our concentration in some of the most tension log markets across the U S south although both.
Manned and pricing were impacted late in the fourth quarter as market conditions deteriorated.
In our Pacific Northwest timber segment, we achieved fourth quarter, adjusted EBITDA of $16 million up 18% from the prior year quarter.
The year over year increase was attributable to a 7% to 17% higher weighted average log prices and a 3% increase in harvest volumes our operations in the region continued to benefit throughout the fourth quarter from favorable supply demand dynamics as domestic lumber markets export markets and pulp.
With markets competed for a limited supply of logs.
Turning to our New Zealand timber segment fourth quarter, adjusted EBITDA of $14 million increased 39% from the prior year period due to increased carbon credit sales and 7% higher harvest volumes, which more than offset lower log pricing amid continued export market headwinds.
In our real estate segment, we generated adjusted EBITDA of $14 million in the fourth quarter up significantly from $3 million in the prior year period the.
The improved results were driven by increased sales and the wildlife development project North of Jacksonville, Florida, as well as a higher number of rural acres sold and higher per acre value realizations versus the prior year period.
Despite the increase in interest rates as compared to a year ago demand for rural land remains strong as we enter 2023 and we continue to be pleased by the favorable momentum in both our wildlife and heartwood development projects.
As previously announced in the fourth quarter. We also completed the acquisition of approximately 137800 acres of high quality commercial timberlands, located in Texas, Georgia, Alabama, and Louisiana for an aggregate purchase price of $454 million from <unk>.
<unk> life investment management, a leading timberland investment manager the acquired properties are well stocked and highly productive timberlands located in some of the strongest timber markets in the U S. South we are pleased to have successfully integrated these properties into our portfolio and have been encouraged by the customer response to our inner.
Timber sales from these assets looking ahead, we're very excited about managing these timberlands for long term value creation and with that let me turn it over to Mark for more details on our fourth quarter financial results.
Thanks, Dave let's start on page five with our financial highlights sales for the fourth quarter totaled $245 million, while operating income was $44 million and net income attributable tray and ear was $33 million or 22 per share on a pro forma basis net income was $16 million or <unk> 11 per share.
Pro forma items in the fourth quarter included $16 $6 million of income from large dispositions and 0.4 million favorable adjustment to a timber write off taken in the third quarter. Adjusted EBITDA was $68 million in the fourth quarter up from $50 million in the prior year period.
On the bottom of page five we provide an overview of our capital resources and liquidity, our cash available for distribution or <unk> for the full year was $189 million versus $208 million in the prior year period. The decrease was primarily driven by lower adjusted EBITDA higher cash taxes and higher capital expenditures.
Partially offset by lower cash interest paid as previously discussed cash taxes were elevated in 2022 due to the required timing of estimated tax payments for our New Zealand subsidiary following the full utilization of its Nols are reconciliation to cash provided by operating activities and other GAAP measures is provided on.
Page eight of the financial supplement.
During the fourth quarter, we closed on the previously announced five year $250 million incremental term loan through the farm credit system to partially fund the U S. South acquisition that Dave discussed the company also entered into an interest rate swap agreement to fix $100 million of the term loan and an all in effective cost of approximately four 6% net of <unk>.
<unk> patronage refunds. Additionally, in the fourth quarter, we replaced our prior aftermarket or ATM equity offering program with a new $300 million ATM program. During the quarter, we raised approximately $30 million through the new ATM program at an average price of $35 and <unk> 51 per share we continue to view the <unk>.
T M as a cost effective tool to opportunistically raise equity capital and fund capital allocation priorities.
In sum, we closed the fourth quarter with $114 million of cash and $1 5 billion of debt at year end, our weighted average cost of debt was approximately 3% and a weighted average maturity on our debt portfolio was approximately six years with no significant debt maturities until 2026, our net debt of approximately $1 $4 billion.
<unk> represented 22% of our enterprise value based on our closing stock price at the end of the year.
I'll now turn the call over to Doug to provide a more detailed review of our timber results.
Thanks, Mark Good morning, let's start on page nine with our southern timber segment adjusted EBITDA in the fourth quarter of $33 million was 1% below the prior year quarter, driven by lower harvest volumes, largely offset by higher net stumpage pricing lower leased land reforestation costs and higher non timber income.
Volume decreased 11% versus the prior year quarter as macroeconomic headwinds led to softer demand in certain markets, particularly for pulpwood.
Average saw logs, how much pricing was $34 per ton, an 11% increase compared to the prior year period.
The improved pricing reflected healthy demand from sawmills across most of our operating areas.
Spite, a significant decline in lumber prices relative to the prior year period.
Meanwhile, pulpwood net stumpage pricing decreased 1% to roughly $21 per ton versus the prior year quarter, primarily due to weaker end market demand and an increase in available supply as a result of dry weather conditions.
Overall weighted average stomach prices in the fourth quarter improved 7% versus the prior year quarter to nearly $26 per ton.
Entering 2023, we have seen some decline in both south timber and pulpwood pricing compared to the fourth quarter as our customers are approaching the new year cautiously given the slowdown in residential construction activity and other macroeconomic challenges.
Notwithstanding these near term headwinds, we believe that the longer term outlook for southern timber prices remains favorable.
Specifically, we expect that lower lumber pricing will lead to additional sawmill curtailments in British Columbia, which should allow yourself to continue to capture a greater market share of North American lumber production.
Importantly, we also anticipate that the southern tier markets with more favorable supply demand dynamics and corresponding price elasticity.
If it disproportionately from this transition relative to yourself as a whole.
Moving to our Pacific Northwest timber segment on page 10, adjusted EBITDA of $16 million was 18% higher than the prior year quarter.
Year over year increase was driven by the sale of a timber reservation to a conservation group.
Our net stumpage realizations lower costs and higher volumes, partially offset by lower non timber income.
Volume increased 3% in the fourth quarter as compared to the prior year period, primarily.
Primarily due to labor strikes in the region, causing a reduction in supply of pulpwood and residuals on the market.
Turning to pricing at nearly $112 per ton our average delivered solid price in the fourth quarter was up 14% from the prior year period.
Primarily driven by strong demand less lumber mills as well as a favorable species mix with a higher proportion of Douglas fir volume.
Meanwhile, fourth quarter pulpwood pricing of $66 per ton increased 80% over the prior year quarter, reflecting strong end market demand coupled with supply constraints, if youre residuals and increased competition from mills for limits flight of smaller sized logs.
However, similar to the U S South and Pacific Northwest, we've seen declines in both sawtimber and pulpwood pricing in early 2023 as compared to the relatively strong pricing realizations, we achieved throughout 2022.
A slowdown in residential construction activity has weighed on lumber prices and in turn sawtimber prices.
While public pricing has retreated from the exceptionally high levels achieved at the end of 2022 due to softening demand as well as the temporary curtailment of a mill in the region.
Although current market conditions are more challenging we believe our nimble approach to operational decision, making the relative strength of our markets and the optionality offered by our export market capabilities.
Isn't us well to adapt ongoing changes in the operating environment.
Moving to New Zealand.
Page 11 shows results and key operating metrics for our New Zealand timber segment.
Adjusted EBITDA in the fourth quarter of $14 million was $4 million above the prior year quarter.
The increase in adjusted EBITDA compared to the prior year quarter was driven by increased carbon credit sales and higher harvest volumes.
Partially offset by lower net stumpage realizations and unfavorable foreign exchange impacts.
Average delivered export sawtimber prices of $111 per ton declined 16% as compared to the prior year quarter, reflecting reduced demand from China.
While our New Zealand export business faced a number of headwinds last year, we're optimistic that the recent relaxation of COVID-19 containment measures and fiscal support from the property sector by the Chinese government will lead to a gradual increase in export log demand and pricing versus the prior year.
In addition, Chinese port inventories relatively normalized levels heading into the lunar new year, which coupled with ongoing supply side constraints.
Our reduced flow of European salvage logs into China, and ongoing Russian log export ban provide.
Provide us with further optimism that the export market will gradually improve as the year progresses.
On the cost side, we expect the decline in freight rates versus the elevated levels seen in 2022 should contribute to improved margins year over year.
Shifting to the New Zealand domestic market fourth quarter average delivered saw log prices declined 20% from the prior year period to $65 per ton largely driven by a sharp decline in the New Zealand dollar U S dollar exchange rate excluding.
Excluding foreign exchange impacts domestic sawtimber prices decreased 5%, reflecting weaker domestic market demand due to reduced competition from export markets as well as higher mortgage rates negatively impacting the demand for construction materials.
Domestic pulpwood prices in New Zealand were likewise impacted by foreign exchange rates declined 24% on a U S dollar basis compared to the prior year quarter.
Excluding foreign exchange impacts domestic pulpwood prices declined 9%, reflecting less competition from export markets for lower quality logs.
Well log markets and the New Zealand remained challenging in the fourth quarter non timber income in New Zealand, which primary reflects carbon credit sales continued to bolster our financial results during $9 $1 million of revenue in the quarter.
Going forward, we plan to remain optimistic in our sale of carbon credits, depending on carbon credit market conditions, and our pricing outlook.
Lastly, in our trading segment, we posted a slight operating profit in the fourth quarter. As a reminder, our trading activities typically joint low margins or partly designed to provide additional economies of scale to our fee timber export business I will now turn it over to Mark to cover our real estate results.
Thanks, Doug.
As detailed on page 12, our real estate segment delivered strong results in the fourth quarter real estate sales totaled $57 million on roughly 13100 acres sold which included a large disposition and Washington, consisting of roughly 11000 acres sold to a conservation oriented buyer for approximately $30 million. Excluding this transaction.
Fourth quarter sales totaled $27 million on roughly 2100 acres sold at an average price of over $13700 per acre real estate segment adjusted EBITDA in the fourth quarter was $14 million.
Drilling down sales in the improved development category totaled $17 million, including $15 million of sales from our Wildlife development project North of Jacksonville, Florida, $700000 for an industrial use parcel and Kitsap County, Washington, and $400000 from our Heartwood development project South of Savannah, Georgia <unk>.
Sales in wildlife included a $7 $3 million sale of 87 acres to an industrial park developer and a $3 million sale of 16 acres for a senior housing community on the residential side. We also saw a 74 lot residential pod to a national homebuilder for $4 3 million and 13 developed developed lots for 800000.
At an average base price of $65000 per lot.
Sales in our Heartwood development project consisted of 10 developed residential lots at an average base price of roughly $43000 per lot. While hardwood is still in its early stages. We are excited about the two new Hyundai facilities that had been announced in Bryan County, Georgia.
With an estimated 9500 jobs being created within a 30 minute drive from hardwood. We believe the project is well situated to capture incremental demand from these facilities as well as the ancillary suppliers they are likely to attract.
Overall, our wildlife and heart with development projects continue to benefit from favorable migration and demographic trends relatively affordable price points and a diverse mix of residential commercial and industrial and uses that each helped to catalyze demand for one another.
Turning to the rural category fourth quarter sales totaled $12 million, consisting of approximately 2000 acres at an average price of roughly $6200 per acre key transactions included the sale of 615 acres in Nassau County, Florida for $3 $8 million roughly $6300 per acre and the sale of 290 acres of former.
Pope resources property, and Jefferson County, Washington for $4 1 million or $14200 per acre.
Now moving onto our outlook for 2023 page 14 shows our financial guidance by segment and schedule G of our earnings release provides a reconciliation of our guidance from net income attributable to Rainier to adjusted EBITDA for full year 2023, we expect to achieve adjusted EBITDA of $280 million to $320 million.
Net income attributable to rainier of $52 million to $73 million and EPS of <unk> 36 to 50 cents.
As noted in our earnings release, we generally expect the results in the first half of the year will be meaningfully lower than results in the second half of the year as end market demand continues to normalize following the rapid rise in interest rates and associated market volatility. We further expect that year over year net income attributable to Rainier and EPS will be impacted by increased depletion rates and our.
Southern timber segment following the completion of the U S South acquisition that Dave discussed earlier.
With respect to our individual segments and our southern timber segment, we expect full year harvest volumes of $6 7 million to 7 million tons. The anticipated increase relative to the prior year reflects the additional volume associated with the acquisition of 137800 100 acres in Texas, Georgia, Alabama and Louisiana.
We also anticipate higher non timber income for the full year 2023 as compared to 2022.
However, we expect these positive variances will be largely offset by lower weighted average stumpage realizations in 2023 relative to 2022 due to softer demand as well as higher cut and haul costs. Overall, we expect full year adjusted EBITDA in our southern timber segment of $145 million to $160 million.
In our Pacific Northwest timber segment, we expect full year harvest volumes of one five to $1 6 million tonnes. The anticipated decrease relative to the prior year reflects recent land sales activity a more muted domestic demand outlook and an ongoing mix shift towards Douglas fir, which has a lower M. B after ton conversion ratio. Furthermore, we expect weighted.
Average pricing in 2023 to decline relative to full year 2022, due to weaker macroeconomic economic conditions and lower lumber prices.
<unk>, we expect full year adjusted EBITDA in our Pacific Northwest timber segment of $42 million to $52 million.
And our New Zealand timber segment, we expect full year harvest volumes of two five to $2 7 million tonnes as Doug discussed we are optimistic that export market conditions will continue to improve as the operating environment in China normalizes. Following the COVID-19 related disruptions that persisted throughout 2022, we further expect that favorable carbon credit.
Pricing and volumes will contribute to improved results in 2023 overall, we expect full year adjusted EBITDA in our New Zealand timber segment of $58 million to $64 million in.
In our real estate segment, we are encouraged by the continued interest in both our development projects and rural properties. Despite the higher interest rate environment.
We expect full year, adjusted EBITDA of $68 million to $77 million, we anticipate the real real estate activity in 2023 will be significantly weighted to the second half of the year with the first quarter in particular being relatively light.
Now I'll turn the call back to Dave for closing comments.
Thanks Mark.
As I reflect on 2022, I'm pleased with how our team was able to work together to deliver strong financial performance, while contending with considerable challenges during the year. These.
These challenges included significant inflation inflationary pressures, which were exacerbated by the Russia, Ukraine War, a slowdown in U S housing activity driven by a dramatic increase in interest rates and a challenging export environment due to COVID-19 related disruptions in China.
Nevertheless, our team was able to adapt quickly amid a very volatile business environment to deliver strong results throughout the year.
While our products and markets are certainly not immune from the macroeconomic headwinds facing the broader economy I believe that the dedication of our talented employees the geographic diversity of our portfolio and the tension log markets in which we operate position us well to build long term value for our shareholders across.
<unk> economic cycles.
On the capital markets front following a very active 2021, we entered 2022 with our balance sheet in an excellent position to deploy capital if the right growth opportunities emerged to this end we were pleased to close on seven transactions totaling 140000 acres for 404.
$58 million during the year.
Which was primarily driven by the large acquisition in the U S. South that we closed in the fourth quarter.
While we are very excited about these acquisitions our active portfolio management strategy. Also remained focused on addition through subtraction as we completed a large disposition of nearly 11000 acres of less strategic holdings during the fourth quarter for over $30 million.
And some over the past year, we improved our portfolio through acquisitions that will further bolster our competitive positioning recycled less productive capital toward uses with a better risk return profile and Opportunistically raised capital through our ATM program to fund growth opportunities.
In addition to our focus on achieving important financial goals and ongoing portfolio management objectives. We also continued to advance initiatives related to nature based solutions throughout the year, we made great strides in advancing various opportunities in solar energy carbon capture and storage and voluntary.
Carbon markets.
As we move forward, we believe we are well positioned to capitalize on these nascent business opportunities and we will continue allocating resources as these markets develop.
All said I am confident that the operational flexibility afforded by our pure play timber REIT model the ongoing improvements to our portfolio and the resiliency of our team will enable us to stay focused on long term value creation as we continue to navigate the uncertainty facing the U S housing market and broader.
<unk> in 2023.
Before turning the call back over to the operator, I would also like to congratulate Mark and Doug on their recent promotions in.
In late January we announced that Mark has been appointed to the additional position of president.
Mark has been a valued partner to me over the last several years and we're pleased to be expanding his leadership role within the company.
In addition to his current duties as CFO , Mark will be taking on a greater role in leading our strategic planning efforts as well as participating in broader operational and personnel decision making.
Additionally, we announced that Doug has been promoted to the position of executive Vice President and Chief Resource Officer. In this expanded role Doug will continue to oversee our global forestry operations. While also devoting more time toward developing business opportunities around nature based solutions. We believe these announcements underscore our.
Commitment to continuously developing talent, including our senior leaders are our our thoughtful approach to succession planning and our continued focus on allocating resources to the emerging opportunities for timberland owners in a low carbon economy.
This concludes our prepared remarks, and I'll now turn it back over 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 on mute your phone and record your name clearly if you need to withdraw your question Press Star Q again to ask a question. Please press star one.
Our first question will come from Mark Weintraub with Seaport Research partners. Your line is open.
Thank you thanks for all the detail details Dave Mark.
So firstly just a couple of questions if I if I could one.
So the more tension.
Wood baskets in the South which help you when things are good.
Does that mean that things soften a bit more when things are weak and then you get more upside.
Then they tightened again in the future kind of similar to how in the Pacific Northwest Theres, a bit more volatility or not necessarily what's your view on that.
Yeah. Good morning. This is Doug I'll I'll take a swing at that one first yeah, I think you've kind of CAGR is correctly. You know for example, some of the highest price baskets that we saw the biggest year over year improvements in 2022.
And while we're seeing some decline relative those levels reached last year, the absolute pricing level and the driver market is still very favorable compared to yourself as a whole and we're still seeing weighed average total pricing seeing 21 levels, but I think that price elasticity you pointed out is exactly right that when there's tension we see prices when they ramp up but then we also can see them slowly come back down off of this sometimes.
I think it's also worth noting mark that the overall pricing is quite a bit higher in those in those tension markets and so again, we saw very significant lifts in 2021 and then again in 2022 and some of those more attention markets, whereas you know bottom quartile markets really saw relatively flat pricing or very modest increases in so again, while we have seen prices.
Some of those extraordinary highs that we saw in 2022, the absolute pricing level in those markets is still considerably higher.
Understood and then second.
In New Zealand, if I could kind of look back last seven eight years EBIT does range from 55 million I think 200 million plus in your guidance for next year is obviously towards the low end of what we've seen.
Can you can you talk about kind of what you think the the medium to longer term.
Right type of normalized level is and how important is <unk>.
China, too where you know what.
When we start seeing higher profitability, there and and then any more color you can provide about that.
The changes in the the China property market initiatives and <unk>.
Et cetera, as to how that might factor into the timing of when the improvement might develop.
Okay.
Yeah sure Mark This is mark I'll take that I mean in terms of a normalized EBITDA there again.
Again, we to your point I mean, we've seen EBITDA as low as.
Thirties.
Go back a number of years ago, and sort of peaking here probably in the Ninety's and so New Zealand has always been more volatile and that's really driven by the much more heavily heavy reliance on export markets. Just the cost structure. There are a lot of the land is as least you've got a much higher cost component in terms of delivering wood in the in the export markets obviously.
Headline price volatility translates to greater margin volatility and New Zealand certainly relative to say the U S South where we're a lot of our sales or our stumpage and so you know that's a very high EBITDA margin on those stumpage sales.
I certainly don't think that that New Zealand is going to retreat to levels that we saw in 13 14 and 15.
But obviously, we've normalized kind of off of the levels that we saw a three or four years ago as well I think as it relates to China, Obviously, China was very challenged and in 2022, given the COVID-19 containment measures as well as some channel challenges in the property sector. There I'd say, we're very optimistic that now that the China is.
Is reopening.
We've already seen some some bounce back in export pricing there.
Is the supply chain in general has.
As loosened up we've seen some relaxation of of export freight costs are and obviously carbon has been a bright spot in new Zealand as well so a lot of moving pieces I'd be reluctant to kind of characterize what we see as a normalized EBITDA, but.
Certainly, we're hopefully trending back towards that type of level here as we move into 2023.
This is Dave I'd add just a couple of things I'd add to that is keep in mind that you.
You know a lot of a lot of the drivers are also around relative supply from other regions than you've had historically a lot of wood going into China from.
Russia as well as Australia.
Those two sources are essentially done and what what really overwhelmed. The last number of years was a flow of salvage wood from Europe , which which took europe's market share from essentially next to nothing to two right behind New Zealand and so I think where we have a lot of optimism is that his tape tapering.
Office, they have essentially gone through that wood and we feel like New Zealand is very well positioned going forward in <unk> and.
And we expect to see less volatility certainly than we had over the last year and things like shipping costs.
And so notwithstanding some of the headwinds in 2022, we remain pretty optimistic about.
How that's positioned in it and it shows in our cash flow generation on a on a per acre basis is superior to all of our other regions.
Right and I guess and I recognize you're juggling a lots of variables coming up with your your various outlooks by regions, but.
I know, it's kind of the range you had for New Zealand is actually maybe less wide than you had it for some of the U S regions, which which I guess surprised me a little bit given.
The uncertainties of exactly when and how China plays out as well as the historical greater volatility and I don't know if that's if that's communicating something specific or again, it's really just a function of you're juggling lots of variables and coming up with your best assessments and that's the way it came out any color on that.
Yeah. This is Doug again I'll take the start this one.
What that shows is we really are having some optimism around what's happening in China as they come out of the COVID-19 restrictions prior to the lunar new year, we saw demand really pick up.
The headline numbers only averaged 55000 keeps for day, which doesn't sound that amazing, but really what we saw is a real pick up towards the rate before the lunar new year and as mentioned by I think it was Mark you know we've seen a trend where the long brokers have additional confidence now to hold inventories because they're forecasting higher demand and pricing after the holidays, So where we're seeing some of you know potential really green.
Shoots in that area and then with I think you mentioned there that the property markets and we've seen quite a bit in your policymakers know governments have pledged quite a bit of money to restart construction areas and we're seeing that start to flow back through in demand also so the People's Bank of China recently launched a 200 billion won we're lending program and quite a few of the regional banks have also.
Kind of match that and so kind of what we're hearing you know kind of on the ground is that expecting property sales to stabilize at lower levels. Obviously in these coming months, but then to rebound gradually from the second quarter onward, and that's really helping that reopening of China.
Okay I promise you that last one just on the same thing.
I guess, what I'm trying to understand is if things play out as you are kind of thing is that particular, New Zealand is that one.
Our region, where maybe if we look into next year, you can really get an outsized increase relative to what one might expect in North America or is that not necessarily.
All right Avenue to be thinking about at this point again, I apologize because that's looking quite far out.
And it's certainly possible mark.
If you look at where New Zealand EBITDA has been.
Last year and kind of what we're forecasting for 2023.
It's generally kind of below the level that we've averaged for the last five years and so 2022 was obviously very challenging we're expecting to see some recovery in 2023 and to your point if that trajectory continues.
Obviously, not providing 2024 guidance, but you could certainly see some outsized gains there I would just add one more thing that's kind of probably not as appreciated a little more in the in the details but.
Fumigant issues that we've had been banned in New Zealand the Indian market has not been an option for us for most of last year, and we're seeing them discussions between India and.
The New Zealand officials basically around that and so we think that that market India could also open up for us in this current year and the next year. So some more optimism around that I think another last lastly, Mark I think another thing to think about is as you know historically carbon credit sales have not been a very big factor in New Zealand and that market has really evolved to a point.
Where.
It's making meaningful contributions the last.
Last year, and we expect that's going to play a role going forward as well.
I appreciate all the detail thanks a lot.
Thank you Andrew.
Once again, if you would like to ask a question at this time you can press star one and record your name when prompted.
Our next question comes from Paul Quinn with RBC capital markets. Your line is open.
Yeah. Thanks, very much morning, guys just following up David on your comment on carbon markets.
So that $21 million in sales in New Zealand in 'twenty two.
Versus kind of just over $1 million that you did in 'twenty one.
Maybe you could give us a background of what those.
How you achieve that and what your expectation is for 'twenty three.
I'll start on that and I'll, let Doug provide a little bit more color keep keep in mind that historically.
The carbon.
Credit market there had been.
At a fairly low pricing level and so we we had sort of taken a very opportunistic approach was one of the reasons that we really didn't have much in the way of sales a couple of years ago, but that market really took off in it and they they conduct quarterly auctions by the government where they release.
Carbon credits out onto the market and we watched that that pretty carefully in that that started giving us confidence that that the market was going to head up and.
Some of that is also predicated on an on prices that the government sets, where they will release.
Incremental carbon credits onto the market in those prices tended to lead the market up and so it gave us a lot of confidence to bring more volume forward last year of our credits and Doug can provide a little bit more color as to.
As to where we stand on the credits as we as we enter this year, but it's definitely playing a bigger role in how we think about those that region.
Yeah. Thanks, Dave I think as Dave mentioned them with those auctions of the government does set these cost containment reserve prices that.
At that point, if the prices reached they'll release, some more credits in to the market and so they often can't do tend to set our I won't say a floor, but that's we're targeting seems to be towards and so we saw kind of the current one is around $80 and so we saw pricing last year in the 70 to $80 range and as Dave said, it's markedly up from years before where it's been.
As low as single digits too probably more recently in the 30 to $40 range. So we saw a pretty dress.
Drastic step up and the opportunity to execute on those will still be opportunistic around that and those are all New Zealand sorry, All New Zealand dollars, yes, Thanks, Dave for correct me on that and.
As we go into this year.
We're building new units as we go growing them up but we also come in with the roughly around $1 6 million and I'd use that we had would you have to surrendered units as we harvest and then we also ganging gain units as we grow timber and so as we go through the year, we had the opportunity to sell some more in and can be somewhere.
Don't want to give out our exact what our plans are to the market, but exceeded at the end of the year over 2 million units type of thing and potentially more than that just depends on how we see the pricing flow through your and how we decide to execute.
Okay, and if I could compare that to what youre seeing in the North American markets on the carbon side.
Yeah, the North American markets those those are still voluntary so.
<unk> not and they still have a lot of standardization I guess, what I would say so you know there are a few obviously firm there basically focused on getting that standardization, but we've seen you know.
As everyone is seeing some issues around people talking about greenwashing and different things and so when things happening now is that the buyers are starting to figure out what is a valuable credit to them and looking for those and so we've really seen pricing move around in the single digits too.
$2030 a.
Ton, depending on how it's being produced and so I think we're still waiting on in that market is for more standardization and for the market to realize what the value is into a.
Possibly get rid of some of these lower value credits are out there right now so we've got some projects in our back pockets, but we haven't actually registered those yet because we feel like there's still opportunity in that market, yet fully but to do that.
Okay, and then just just turn it over overall it looks like.
'twenty three guidance, you're expecting a slowdown in North America on the timberlands side that percentage of real estate EBITDA of your total EBITDA.
Kind of holding.
Holding up a lot better than that and your timberlands business. Just wondering if that's a lag and you expect to slow down in coming quarters or its altered.
Maybe you could comment on that.
I think some I think some of what you're seeing Paul is is that we have these two big projects.
One that's in the Jacksonville, Florida area or the other in Savannah, Georgia, and as they kind of pick up heads of steam they they they have been running it at more kind of regular levels and so over over the past number of years, we've seen that wildlife project here in Florida.
Growing.
Larger and larger and Meanwhile, the project and Savannahs is really just getting started but we're very encouraged by the developments that we've seen there and we're leveraging a lot of the learnings that we've had here and one of the things that we're particularly excited about there is a large.
Investment being made by Hyundai.
Around electric vehicles and other aspects that's going to bring.
Substantial employment into into the area right adjacent to our to our project and we think that's going to translate into further demand and one of the things that we've done in both our Florida and our Georgia projects as we've got a really nice mix of of.
Product types from developed lots to to residential pods to build for sale to.
Multifamily.
All of those things I think are helping to propel.
The momentum on those two projects and so I think that those two projects as they as they exit kind of there. They are beginning stages are going to supply a more stable stream of cash flow going forward and then shifting to our more rural product.
Mix. That's one that's that's always been relatively stable and I think as we've seen.
Pressures on land values, you've seen that translate in terms of the types of values that we're getting and we're really we're really focused on on selling lands, where we can get a good premium and so we've been happy with the progress that we've seen on the real estate side and don't see that kind of tailing off.
As we go down the road.
Okay. That's that's great. Thanks for that and then just overall I mean, one of your competitors mentioned that they.
Our expectation for 2023 Timberland sales was more muted than what we saw in 'twenty. Two do you have the same expectation or what is your view of the future on M&A.
You know I wouldn't I'm not sure I agree with that.
But having said that it is a hard it's a hard thing to peg in and so.
You have.
Increasingly you have situations, where a lot of the a lot of the T Mo.
Downstream investment clients are controlling the exits of sales and forcing that to occur.
Through separate accounts and as that as that occurs you really have to kind of get into the the mindset of those ultimate owners of those properties and they're all over the board you've got some people that that have had a desire to sell during COVID-19 that werent able to because you really couldn't do much due diligence and I think that the.
That contributed to some of the outsized.
Volume that we saw last year and I suspect, there's still maybe some of that.
At play I think another thing to keep in mind is as we've seen.
As we've seen stronger pricing, we've seen ne Kris the NAREIT index is now over $2000 an acre in the south and certainly.
On the higher quality properties like the one that we that we completed in Q4, where youre seeing really outsized cash flow generation.
Those are generating large values and I think that's going to have the potential of spurring additional.
Volume on the market as as the the ultimate owners of those properties decide they want to cash in the flip side of that I think is is there's a greater recognition that you've got.
Optionality around ESG and carbon related values and I think some there'll be some owners that want to stick around and see if they can see that translate into their properties as we look across the three geographies that we're in.
I think we see more potential for strong.
Stronger activity in the U S south than we do in the northwest and New Zealand I think I think we've seen much.
Much more.
Tepid volume of offerings in those two geographies and we expect that to.
To continue.
Alright, that's all I had thanks.
Yes.
Thank you our last question will come from <unk> <unk> with Raymond James Your line is open.
Hey, guys. Thanks for taking my questions and Martin Doug Congratulations on the new roles.
The.
For the 2023 outlooks in the southern timber segment I was hoping you could provide.
Some additional color as to what your demand picture kind of looks like right now and how much of an impact you are expecting that to have a log pricing and also if there been any changes to the assumptions for the recent acquisition.
Yeah, they're they're always moving pieces in terms of our geographic mix and other factors and we're looking at it you know kind of year over year comparisons.
And we have seen some decline for them for demand and particularly along the east coast here of of the U S.
And a lot of that where we're in a drought situation right now so there's there's plentiful of of what out there, but also I think given the kind of macroeconomic uncertainty at the end of 2022 whenever customers, we're trying to manage inventories quite closely.
And they were reluctant to secure long volume by locking in pricing gone Q1, but as we progress through the months of January and we see more positive news on lumber pricing and homebuilder sentiment and things like that.
We start to see increased interest by mills to secure for volume. So I think we're you know we're we're cautiously optimistic that things are starting to move around and turnaround in the market and those things but.
We did factor that in as we thought about our guidance with respect to project D. I'm, the new acquisitions that we talked about.
Now we take the combined acquisitions with our overall harvest plans and then there's always some changes we'd look to stay nimble at the operations based on how we see the current market conditions and so we're working those in as we think about them and basically taken account, how we think about the markets and where we should where we should harvests and where we should be able to pull back and allow markets to regain strength.
But overall I'd say our R S.
Estimates for that acquisition are largely intact I don't think anything has changed in terms of our our 10 year outlook or certainly our harvest flows that we provided.
Provided when we announced that acquisition absolutely correct.
Okay. Thank you.
And just to follow up on that you noted that you are seeing increases in cost I'm, just trying to get a little better gauge as to how significant increases may be should we expect something similar to year over year growth in 2022, or do you think it's incremental higher.
We've actually seeing costs moderates.
Over the last last couple of quarters, so really well they're.
Really more folks around diesel now labor seems to have settled down and equipment starting to work through the process through the chain supply chain things like that so I would say that we're still still see increased costs, but they're not near as what they were kind of going from 'twenty one into 'twenty two.
Okay, great. Thank you guys.
Okay.
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