Q3 2023 PotlatchDeltic Corp Earnings Call

Good morning, My name is Sarah and I will be a conference operator today at this time I would like to welcome everyone to the Potlatch Deltec third quarter 2023 conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question simply press Star one again.

I'd now like to turn the call over to Mr. Wayne waste check Vice President and Chief Financial Officer for opening remarks, Sir you May proceed.

Good morning, and welcome to Potlatch <unk> third quarter 2023 earnings Conference call.

Joining me on the call is Eric Cremers, Potlatch, <unk>, President and Chief Executive Officer.

This call will contain forward looking statements.

Please review the warning statements in our press release on our presentation slides and in our filings with the SEC regarding the risks associated with these forward looking statements.

Also please note that a reconciliation of non-GAAP measures can be found on our website at www Dot potlatch don't take dotcom.

I will turn the call over to Eric for some comments and then it will review our third quarter results and outlook. Thank.

Thank you Wayne.

Looking at our third quarter results, we reported total adjusted EBITDA of $56 million after the market closed yesterday.

These solid results reflect improved financial performance across all of our business segments compared to the second quarter.

Our wood products segment's adjusted EBITDA was $15 million in the third quarter compared to $12 million in the second quarter.

Slightly higher average lumber prices were the primary driver of the improved results.

We have seen a steady decline in the composite lumber price since peaking in late July driven by several ongoing headwinds, including higher interest rates housing affordability challenges and declining consumer confidence.

We believe lumber prices are starting to bottom out as the lumber composite price hovers in the upper $300 per thousand board foot range.

We continue to remain optimistic about long term housing fundamentals that drive demand for our business, but overall macroeconomic concerns remain.

For the third quarter, we shipped 276 million board feet of lumber, which was slightly below the volume we shipped in Q2, but 11 million feet more than we shipped in Q3 of last year.

We remain focused on executing our capital project plan, including our $131 million project to modernize and expand our Waldo Arkansas sawmill.

We continue to hit our major milestones on the Waldo project, which is on track to be completed by the end of 2024.

The project will increase the mill's annual capacity by 85 million board feet and significantly reduced the mills cash costs the.

The existing mail will continue to operate during the project with approximately three weeks of downtime expected in 2024 to tie in the new equipment.

Our timberlands segment generated adjusted EBITDA of $42 million in the third quarter compared to $29 million in the second quarter.

We harvested 2 million tons in the third quarter, achieving the high end of our Q3 forecast harvest range.

Dryer logging conditions combined with good execution by our team resulted in setting a record for quarterly volume in our southern Timberlands business.

Southern saw log and pulpwood markets remained stable during the third quarter.

Our real estate segment contributed $14 million and adjusted EBITDA to our third quarter results.

On the rural side of the business, we sold 3300 acres at over $3500 per acre.

We continue to see strong demand for rural properties at significant premiums to core timberland values.

Additionally, our real estate team capitalized on a recent stratification of the ketch Mark timberlands as nearly half of our world businesses quarterly performance was attributable to the acquired Ketchmark portfolio.

On the development side of our real estate business, we sold 32 residential lots in our small valley Master planned community at an average price of $89000 per lot and completed a commercial land sale for $1 $4 million.

We have had good absorption on our lot offerings for the majority of this year, but we're starting to see modest signs of slowing by regional builders and Chanel Valley on the take up of our new lot offerings.

Turning to natural climate solution opportunities, we continue to build momentum in this area. Our team is making good progress on our carbon credit project on approximately 50000 acres of low lying hardwood timberlands in the south.

We are currently working through the certification process with a very reputable firm to establish high quality carbon credits.

We anticipate completing the process around the end of the first quarter of next year with submission to the market immediately following the certification and envision having the credit sold by mid year.

We are also exploring other NCS opportunities to supply mill residuals, and pulpwood to pellet manufacturers bioenergy providers and biofuel producers.

As for solar deals, we continue to see strong interest from solar farm developers in the south.

We now have nearly $200 million on a net present value basis of solar land sale and lease options under contract representing less than 2% of our timberland acreage.

<unk> since last quarter, we have executed four new solar option contracts with a net present value of $70 million in the aggregate.

We believe all of these natural climate solutions opportunities will increase the demand for our rural land and drive our timberland values higher.

Shifting to housing demand for new single family residential construction has remained resilient despite an elevated mortgage rate environment.

With a historically low level of existing home inventory for sale in the U S. Prospective homebuyers are looking at purchasing a new home versus an existing home.

Although down from last year's $1 6 million unit run rate housing starts have hovered around one 4 million units this year.

New residential home demand has been relatively stable over the course of this year persistently high mortgage rates are taking a toll on homebuilders confidence.

After increasing for seven months in a row beginning in January of this year homebuilder sentiment has reversed course and trended downward over the last couple of months.

Current housing headwinds, including higher mortgage rates, which are approaching 8% housing affordability and uncertainty on the overall direction of the U S economy are weighing on demand.

But we continue to remain positive on longer term housing fundamentals, which drive demand for our business. We believe in underlying shortage of housing stock, which some estimate to be between two and 4 million units and favorable demographics will provide positive tailwind to the housing market.

Turning to the repair and remodel segment.

And in this area has been strong and we expect it to remain solid.

We believe that in this higher interest rate environment, the repair and remodel market is being supported by homeowners that are staying in their existing homes and renovating versus moving into a new home and aging housing stock remote work and high home equity levels also support the R&R market.

No doubt high interest rates and falling existing home sales will temper repair and remodel spending over the coming year, but we remain optimistic in this market segment. In fact, our home center takeaway continues to remain strong and is up 15% year to date over last year.

Moving to capital allocation, we repurchased 283000 shares for $13 million during the third quarter and repurchased an additional 264000 shares for $12 million since the end of September.

All of these shares were repurchased for an average of $45 per share under our <unk> one plan.

Have an additional $125 million remaining on our existing repurchase authorization.

We follow a disciplined capital allocation strategy, including when we issue shares to acquire strategic assets and when we repurchase shares.

For example, when we entered into the catch Mark merger in May of 2022, we utilized our shares valued at 60 $56 per share to fund the acquisition.

Since we announced the merger we have repurchased one 8 million shares for $80 million at an average price of $45 per share, which we believe is well below our estimated net asset value.

We continually evaluate all of our capital allocation opportunities to grow shareholder value over time, and we will not act hastily towards any of our options and we will continue to remain disciplined and opportunistic in our approach.

Regarding environmental social and governance reporting in addition to the publication of our fourth annual ESG report in May we issued our second annual carbon and climate report in early October our carbon and climate report highlights among other items the potential impact of various climate change scenarios on our southeast timberlands in our late stage sourcing areas.

Potlatch Delta is committed to social and environmental responsibility and strong governance practices and we are proud of our progress and the initiatives we have underway in these areas.

To wrap up my comments Potlatch Delta continues to be very well positioned with an investment grade balance sheet and a portfolio of high quality assets.

We'll continue to maintain a disciplined and opportunistic capital allocation strategy as we seek to maximize shareholder value over the long term.

I will now turn it over to Wayne to discuss our third quarter results and our outlook.

Thank you Eric.

Starting with page four of the slides adjusted EBITDA was $56 million in the third quarter compared to $46 million in the second quarter.

Quarter over quarter increase in EBITDA was primarily driven by seasonally higher harvest volumes and improved index, Idaho saw log prices.

I will now review each of our operating segments and provide more color on our third quarter results.

Information for our Timberland segment is displayed on slides five through seven the.

The segment's adjusted EBITDA increased from $29 million in the second quarter to $42 million in the third quarter.

We harvested 377000 tons of saw logs in Idaho in the third quarter. This volume is seasonally higher than the 319000 tons that we harvested in the second quarter.

Our Idaho solid prices increased 12% on a per ton basis in the third quarter compared to the second quarter. The increase in saw log prices was the result of higher prices for index saw logs are index prices reset on a one month lag, which means the third quarter index prices reflect slightly higher lumber.

<unk>, primarily in June and July.

In the South we harvested $1 6 million tons in the third quarter compared to $1 3 million tons in the second quarter.

Our southern saw log prices in the third quarter were flat compared to the second quarter.

Turning to wood products on slides eight and nine adjusted EBITDA increased to $15 million in the third quarter from $12 million in the second quarter.

Our average lumber price realizations increased 1% from 476 per thousand board feet in the second quarter to 481 per thousand board feet in the third quarter.

Our average lumber prices were consistent the first two months of the third quarter before declining approximately 3% in September.

Our average lumber price realizations per thousand board feet or 486 in July 4% and 86 in August and $4 72 in September.

Lumber shipments were 276 million board feet in the third quarter compared to 280 million board feet in the second quarter.

Our shipments were slightly lower in the third quarter, primarily as a result of the timing of in transit shipments versus the second quarter.

Higher lumber realizations and lower log cost on a per unit basis drove improved margins.

Shifting to real estate on slides 10, and 11 seconds.

The segment's adjusted EBITDA was $14 million in the third quarter compared to $12 million in the second quarter.

The increase was due to the sale of more rural acres compared to the prior quarter.

Our real estate team did a good job of bringing ketchmark properties to market. Following the recent completion of a stratification of the portfolio.

The sale of Ketchmark parcels contributed nearly half of our rural businesses performance this quarter.

EBITDA generated by our real estate development business was lower in the third quarter compared to the second quarter due to a decrease in residential lot sales and fewer commercial acres sold at our <unk> Valley Master planned community.

During the third quarter, we closed on the sale of 32 residential lots at a lower average price than in the second quarter due to a different mix of lot price points.

Also we recorded over $1 million in commercial revenue in the third quarter compared to almost $5 million in the second quarter.

Turning to capital structure, which is summarized on slide 12.

Our total liquidity at the end of September was $602 million.

This amount includes $303 million of cash on our balance sheet as well as availability on our undrawn revolver.

We plan to refinance the $40 million of debt that is scheduled to mature in December of this year, we have effectively locked in refinance rate at approximately two 5% after patronage credits from lenders and using a portion of our existing forward starting interest rate swaps.

Utilization of our forward starting interest rate swaps allows us to refinance this debt and well below current market rates and lower our annual cash interest by approximately 500000 beginning in December.

Sarah: Good morning, my name is Sarah, and I will be your conference operator today.

Sarah: At this time I would like to welcome everyone to the PotlatchDeltic Third Quarter 2023 conference call. All lines have been placed on mute to prevent any background noise.

After this refinancing we will still have 200 million notional forward swaps to deploy to keep our future borrowing costs low.

Sarah: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

We repurchased 283000 shares at $45 per share for a total of $13 million in the third quarter. Additionally, we continued to repurchase shares under our <unk> one share repurchase plan. After the quarter ended so far in the fourth quarter, we have repurchased 264000 shares at 45.

Wayne Wasechek: I would now like to turn the call over to Mr. Wayne Wasechek by President and Chief Financial Officer for opening remarks. Sir, you may proceed. Good morning, and welcome to PotlatchDeltics Third Quarter 2023 earnings conference call. Joining me on the call is Eric Cremers, PotlatchDeltics President and Chief Executive Officer. This call will contain forward-looking statements. Please review the warning statements in our press release on our presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-gap measures can be found on our website at www.potlatchdeltic.com.

<unk> per share for a total of $12 million.

Therefore year to date, we have repurchased 556000 shares for a total of $25 million, which leaves us with $125 million remaining on our 200 million repurchase authorization.

Capital expenditures were $27 million in the third quarter that amount includes real estate development expenditures, which are included in cash from operations and our cash flow statement and excludes timberland acquisitions.

For the full year we.

We are planning to spend $135 million to $140 million, excluding any potential acquisitions or capex estimate includes approximately $74 million for the Waldo, Arkansas sawmill modernization and expansion project.

Eric Cremers: I'll turn the call over to Eric for some comments and then it will review our third quarter results and outlook. Thank you, Wayne. Looking at our third quarter results, we reported total adjusted EBITDA of $56 million after the market close yesterday. These solid results reflect improved financial performance across all of our business segments compared to the second quarter. Our wood product segments adjusted EBITDA was $15 million in the third quarter compared to 12 million in the second quarter.

During the third quarter, we finalized our Ola sawmill fire insurance claim with our insurance carriers for a total of $89 million net of a $2 million deductible.

Our insurance claim covered both property replacement and business interruption at the saw mill.

Finalization of the claim resulted in the recognition of the remaining $16 million of insurance recoveries. During the third quarter. As a reminder, we recognized $50 million of the settlement prior to 2023 with the remaining 35 $39 million reported this year.

Eric Cremers: Slightly higher average lumber prices were the primary driver of the improved results. We have seen a steady decline in the composite lumber price since peaking in late July, driven by several ongoing headwinds including higher interest rates, housing affordability challenges, and declining consumer confidence. We believe lumber prices are starting to bottom out as the lumber composite price hovers in the upper $300 per thousand boardfoot range. We continue to remain optimistic about long-term housing fundamentals that drive demand for our business but overall macroeconomic concerns remain. For the third quarter, we shipped 276 million board feet of lumber which was slightly below the volume we shipped in Q2 but 11 million feet more than we shipped in Q3 of last year.

I will now provide some high level outlook comments. The details are presented on slide 13.

We expect to harvest $1 8 million to $1 9 million tonnes in our timberlands segment in the fourth quarter.

Harvest volumes in the north are planned to be lower in the fourth quarter compared to the third quarter as our team was able to pull forward a portion of our planned annual harvest volumes to earlier in the year.

We expect northern saw log prices to decline about 10% to 15% in the fourth quarter, reflecting lower index saw log prices and seasonally heavier logs.

In the South we plan to harvest approximately one 5 million tons in the fourth quarter.

Eric Cremers: We remain focused on executing our capital project plan including our $131 million project to modernize and expand our Waldo Arkansas saw mill. We continue to hit our major milestones on the Waldo project which is on track to be completed by the end of 2024. The project will increase the mill's annual capacity by 85 million board feet and significantly reduce the mill's cash costs. The existing mill will continue to operate during the project with approximately three weeks of downtime expected in 2024 to tie in the new equipment.

We expect our southern saw log prices in the fourth quarter to be flat to the third quarter.

In our wood products segment, we plan to ship 270 to 280 million board feet of lumber in the fourth quarter.

Benchmark prices for lumber have continued to trend downwards since the end of the third quarter, our average lumber price thus far in the fourth quarter is approximately 12% lower than our third quarter average lumber price.

This is based on shipments of approximately 105 million board feet of lumber.

Moving to real estate, we expect to sell approximately 6800 acres of rural land in the fourth quarter.

Eric Cremers: Our Timberlands segment generated adjusted EBITDAV $42 million in the third quarter compared to $29 million in the second quarter. We harvested 2 million tons in the third quarter, achieving the high end of our Q3 forecast harvest range. Dryer logging conditions, combined with good execution by our team, resulted in setting a record for quarterly volume in our Southern Timberlands business. Southern saw log and pulpit markets remained stable during the third quarter.

As for residential lot sales, we are seeing indications of softening in the new residential construction market install valley, we are reducing our anticipated number of lots approximately 37% in the fourth quarter and approximately 135 for the full year of 2023.

Additional real estate details are provided on the slide.

Overall, we anticipate our total adjusted EBITDA will be lower in the fourth quarter compared to the third quarter. This is based on the expectations of lower lumber and index, Idaho saw log prices.

Eric Cremers: Our real estate segment contributed $14 million in adjusted EBITDA to our third quarter results. On the rural side of the business, we sold 3,300 acres at over $3,500 per acre. We continue to see strong demand for rural properties at significant premiums to core Timberland values. Additionally, our real estate team capitalized on our recent stratification of the Ketchmark Timberlands as nearly half of our rural businesses quarterly performance was attributable to the acquired Ketchmark portfolio.

Looking forward <unk>.

Hi, mortgage rates and macroeconomic uncertainty, we will continue to challenge the housing market in the near term. However, we remain bullish on longer term housing fundamentals and believe we are well positioned to continue growing shareholder value over the long term.

That concludes our prepared remarks, Sarah I would now like to open the call to Q&A.

Thank you if you would like to ask a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.

Eric Cremers: On the development side of our real estate business, we sold 32 residential lots in our Sinale Valley master plan committee at an average price of $89,000 per lot and completed a commercial land sale for $1.4 million. We have had good absorption on our lot offerings for the majority of this year, but we are starting to see modest signs of slowing by regional builders in Sinale Valley on the take-up of our new lot offerings.

One moment. Please for your first question.

Your first question comes from the line of Anthony Pettinari with Citi Research. Your line is open.

Hi, good morning.

Hi.

It looks like southern saw log realizations were flat from <unk> to <unk> and I think you expect kind of the same in <unk>.

Was this like fairly consistent across the southern portfolio or did you see.

Eric Cremers: Turning to natural climate solution opportunities, we continue to build momentum in this area. Our team is making good progress on our carbon credit project on approximately 50,000 acres of low-lying hardwood Timberlands in the south. We are currently working through the certification process with a very reputable firm to establish high-quality carbon credits. We anticipate completing the process around the end of the first quarter of next year with submission to the market immediately following the certification and envision having the credits sold by mid-year.

Relative strengths in Arkansas versus Ketchmark regions or is there any kind of submarkets, where you'd flag any.

Supply differences, maybe saw mill capacity adds reductions or any other kind of drivers.

No I think it was from.

From region to region and was generally pretty consistent quarter over quarter.

We saw.

Going back to earlier in the year, we did see a little bit of a difference between our coal stoller southeast market, where that tends to be lots of more tension market and with that we saw prices.

Eric Cremers: We are also exploring other NCS opportunities to supply mill residuals and pulpwood developed manufacturers, bioenergy providers, and biofuel producers. As for solar deals, we continue to see strong interest from solar farm developers in the south. We now have nearly $200 million on a net present-value basis of solar land sale and lease options under contract, representing less than 2% of our Timberland acreage. In fact, since last quarter, we have executed four new solar-option contracts with a net present-value of $70 million in the aggregate. We believe all of these natural climate solutions opportunities will increase the demand for our roll land and drive our Timberland values higher.

Decline a little bit more earlier in the year compared to our Gulf South region, but since earlier in the year those are really kind of flattened out and remain fairly consistent.

Okay.

And then just shifting to wood products.

Lumber has been under $400 for maybe over a months now I'm. Just wondering if you could talk about maybe dealer inventory levels, maybe willingness to restock. It at these prices and any.

Capacity response that may be you're seeing from competitors.

In regions that you operate in.

Eric Cremers: Shifting to housing, demand for new single-family residential construction has remained resilient despite an elevated mortgage rate environment. With the historically low level of existing home inventory for sale in the U.S., prospective home buyers are looking at purchasing a new home versus an existing home. Though down from last year's 1.6 million-unit run rate, housing starts have hovered around 1.4 million units this year. While new residential home demand has been relatively stable over the course of this year, persistently high mortgage rates are taking a toll on home builder's confidence, after increasing for seven months in a row, beginning in January of this year, homebuilder sentiment has reversed course and trended downward over the last couple of months.

Yes, Anthony I'll take that one this is Eric.

I think the way I would describe inventories is that they're they continue to be at really low levels.

I think dealers are very nervous in this environment when <unk> seen interest rates shoot up the way that they have have.

Shot up over the past month or two Youll see award in Ukraine, continuing to linger and how you see this middle east flare up.

I think people are just really nervous about this macroeconomic environment and consequently, they don't they don't want to have high levels of inventory. So I think inventory levels are relatively low levels.

Now the answer to your second question, which is are we seeing a capacity response.

We saw capacity come out of the market earlier. This year. There is probably a 1 billion board feet that were permanent closures early this year and then maybe another 1 billion and a half that we're like temporary curtailments.

Eric Cremers: Current housing headwins, including higher mortgage rates, which are approaching 8%, housing affordability and uncertainty on the overall direction of the U.S, economy are weighing on demand. But we continue to remain positive on longer-term housing fundamentals, which drive demand for our business. We believe an underlying shortage of housing stock, which some estimate to be between two and four million units, and favorable demographics will provide positive tailwinds to the housing market.

I think there was a pause as lumber markets recovered through the summer.

And now we're back below 400, as you noted and there is a lot of a lot of abundant served.

Forecasting or estimating that BC mills are losing a lot of money at these price levels, especially given the duty to have to pay to get the lumber into the U S market I have not seen any announcements of late.

Eric Cremers: Turning to the repair and remodel segment, demand in this area has been strong, and we expect it to remain solid. We believe that in this higher interest rate environment, the repair and the model market is being supported by homeowners that are staying in their existing homes and renovating versus moving into a new home. And aging housing stock, remote work, and high-home equity levels also support the R&R market. No doubt, high interest rates and falling existing home sales will temper repair and remodel spending over the coming year, but we remain optimistic in this market segment. In fact, our home center takeaway continues to remain strong and is up 15% year-to-date over last year.

But we're starting to enter the slow season I am guessing the pressure is.

Building.

And most people think the mills in BC are underwater. So we'll see how it plays out.

Okay. Okay. That's very helpful I'll turn it over.

Mhm.

Your next question comes from the line of kitchen, Matar Montara of BMO capital markets. Your line is open.

Thank you Hi, Eric Hi, Wayne.

Good morning, maybe first question just segue off the last question in terms of inventory.

Eric Cremers: Moving to capital allocation, we repurchase 283,000 shares for $13 million during the third quarter, and repurchase an additional 264,000 shares for $12 million since the end of September. All of these shares were repurchased for an average of $45 per share under our 10B51 plan. We have an additional $125 million remaining on our existing repurchase authorization. We follow a discipline capital allocation strategy including when we issue shares to acquire strategic assets and when we repurchase shares.

What are you seeing in terms of.

The European lumber inventories.

Setting out there on the other.

On the eastern Seaboard, and do you have a sense in terms of.

The level of imports, we might see in the coming months, given where lumber prices are.

Yes, yes.

We don't have direct insight into what those European import inventories look like.

And the data is always a little bit stale, but I do look at it very closely in fact, because I think lumber prices wonder enormous pressure early this year when we saw a surge of European imports back in January.

Eric Cremers: For example, when we entered into the Ketchmark merger in May of 2022, we utilized our shares valued at $56 per share to fund the acquisition. Since we announced the merger, we have repurchased $1.8 million shares for $80 million at an average price of $45 per share, which we believe is well below our estimated net asset value. We continually evaluate all of our capital allocation opportunities to grow shareholder value over time, and we will not act hastily towards any of our options and will continue to remain disciplined and opportunistic in our approach.

But what I what I can tell you is that year to date through August imports are down 2%.

Comparing Q2 of this year to Q1 this year imports are now down 23% and.

And if I look at Q2 this year versus Q2 last year imports are down 12%.

So I think it's pretty clear that at these prices.

European imports are set to decline.

I'm guessing that Theyre down a <unk> 5 billion board feet full year 'twenty three versus full year 'twenty two.

And then I would expect that we will see even fewer imports next year.

Eric Cremers: Regarding environmental social and governance reporting, in addition to the publication of our fourth annual ESG report in May, we issued our second annual carbon and climate report in early October. Our carbon and climate report highlights among other items the potential impact of various climate change scenarios on our Southeast Timberlands and our Lake State sourcing areas. Pollatch Delta is committed to social and environmental responsibility and strong governance practices, and we are proud of our progress and the initiatives we have underway in these areas.

The whole idea of less Russian Belarusan Ukrainian wouldn't flowing into Europe that was by the way roughly 10% of Europe's lumber supply was from those three countries.

And that those those.

Those exports out of those three countries to Europe restrictions really went into place in kind of the back half of 2022.

And so.

There is going to continue to be.

Fewer imports into the U S. Because more of European production is going to stay within Europe as we get into next year.

Eric Cremers: To wrap up my comments, Pollatch Delta continues to be very well positioned with an investment grade balance sheet and a portfolio of high quality assets. We will continue to maintain a disciplined and opportunistic capital allocation strategy as we seek to maximize shareholder value over the long term.

I think the outlook for European imports is on the downside.

Got it that's helpful Eric.

Just one more on that do you think the work through the inventory that was sitting there are reports of these still have some ways to go there.

Wayne Wasechek: I will now turn it over to Wayne to discuss our third quarter results and our outlook.

Yes, I would I think we have worked through those inventories keeton I don't again, I don't have direct insight, but the way SPF prices spiked. This.

Wayne Wasechek: Thank you, Eric. Starting with page four of the slides, adjusted EBITDA was 56 million in the third quarter compared to 46 million in the second quarter. The quarter over quarter increase in EBITDA was primarily driven by seasonally higher harvest volumes and improved index Idaho sawlock prices. I will now review each of our operating segments and provide more color on our third quarter results. Information for our Timberland segment is displayed in slides five through seven.

This past summer when the wildfires really hit Canada, and I think those European imports their primary competition was.

Canadian SPF.

I think that would that would cause me to think that those imports have been pulled down and we're not not.

As plentiful to compete with Canadian Canadian lumber.

It's just kind of trying to connect some dots here.

Got it that's helpful and then just switching to <unk>.

Wayne Wasechek: The segments adjusted EBITDA increased from 29 million in the second quarter to 42 million in the third quarter. We harvested 377,000 tons of sawlocks and Idaho in the third quarter. This volume is seasonally higher than the 319,000 tons that we harvested in the second quarter. Our Idaho sawlock prices increased 12% on a per ton basis in the third quarter compared to the second quarter. The increase in sawlock prices was the result of higher prices for index sawlocks.

Timberland and.

When I look at your southern.

Southern.

Pulpwood prices is.

Relatively kind of stable yet.

Some of the data that's been reported clients are pretty sharp crops in recent quarters can you talk about.

Kind of what you guys are seeing out there and obviously, we've heard kind of weakness on the packaging side.

But as you kind of look at you all wood baskets.

Can you talk about what trends you are saying.

Wayne Wasechek: Our index prices reset on a one-month lag, which means the third quarter index prices reflect slightly higher lumber prices primarily in June and July. In the south, we harvested 1.6 million tons in the third quarter compared to 1.3 million tons in the second quarter. Our sawlock prices in the third quarter were flat compared to the second quarter. Turning to wood products on slides eight and nine, adjusted EBITDA increased to 15 million in the third quarter from 12 million in the second quarter.

Yes, Keith I think the swing on the trending side certainly between.

Saw log and pulpwood I think certainly a little more softness softness on the pulpwood with the pulp and paper markets just where they are.

We've seen some economic downtime and mills are taking having quotas.

But.

That's.

That trend is I think that softness is we're still seeing that in the market but.

Having said that we're able to move.

Wayne Wasechek: Our average lumber price realization increased 1% from 476 per thousand boardfeet in the second quarter to 481 per thousand boardfeet in the third quarter. Our average lumber prices were consistent the first two months of the third quarter before declining approximately 3% in September. Our average lumber price realization per thousand boardfeet were 4.86 in July, 4.86 in August, and 4.72 in September. Blumber shipments were 276 million boardfeet in the third quarter compared to 280 million boardfeet in the second quarter.

Funds and still find the demand.

We're expecting on the pulpwood side, probably pricing our outlook is flat to maybe slightly down for us and part of that is the mix a little bit of that as hardwood. So we seasonally we typically have more hardwood in the mix in Q3 versus Q4. So you may see a very slight mix impact.

In Q4, but.

Really prices, we think are holding.

We'd say.

Slightly a little more optimistic on the pulp side just from what we saw earlier in the year, but and I think that that still is just keeping pricing probably fairly flat.

Wayne Wasechek: Our shipments were slightly lower in the third quarter, primarily as a result of the timing of in transit shipments versus the second quarter. Higher lumber realizations and lower log costs on a per unit basis drove improved margins. Shifting to real estate on slides 10 and 11, the second suggest EBITDA was 14 million in the third quarter compared to 12 million in the second quarter. The increase was due to the sale of more rural acres compared to the prior quarter.

Yeah.

Got it now that's very helpful. I'll jump back in the queue. Good luck.

Thanks.

Your next question comes from the line of Mike <unk> with <unk> Securities. Your line is open.

Thank you Jerry and waiting for taking my questions.

Yes.

Jerry just one quick question for you on lumber prices you mentioned I believe I heard you correctly, you said that what you've got your confidence that lumber prices may be bottoming here.

Are there any particular metric that you used.

Wayne Wasechek: Our real estate team did a good job of bringing catchmark properties to market following the recent completion of a stratification of the portfolio. The sale of catchmark parcels contributed to nearly half our rural businesses performance this quarter. EBITDA generated by a real estate development business was lower in the third quarter compared to the second quarter due to a decrease in residential lot sales and fewer commercial acres sold at our Shenol Valley master plan community.

Are you following you look at that give you that confidence.

Prices of trust.

Yes. This is this is Eric Mike I don't think Theres any one metric that we look at.

This is like a mosaic and I'm trying to put all the pieces of the puzzle together and in my mind.

There's a lot of mills in BC that are losing money there is likely to be a supply response, who knows if that will happen it's up to them to decide but that's one factor I think another factor is <unk>.

Wayne Wasechek: 3. During the 3rd quarter, we closed on the sale of 32 residential lots at a lower average price than in the 2nd quarter due to a different mix of a lot price points. Also, we recorded over 1 million in commercial revenue in the 3rd quarter, compared to almost 5 million in the 2nd quarter. Turning to capital structure, which is summarized in slide 12, our total liquidity at the end of September was 602 million.

Late the housing market.

It's not completely collapsed, we've gone down from $1 6 million to $1 4 million, which is not a precipitous drop. This is not in 2009. That's 200000 starts and we're also seeing a bit of a mix shift here over towards single family, which as you know single family uses a lot more lumber than multifamily so I think about that.

I also don't think R&R markets are going to collapse either.

Wayne Wasechek: This amount includes 303 million of cash on a balance sheet, as well as availability on our undrawn revolver. We plan to refinance the 40 million of debt that is scheduled to mature in December of this year. We have effectively locked in the refinance rate at approximately 2.5% after patronage credits from lenders and using a portion of our existing forward starting interest rate swaps. Utilization of our forward starting interest rate swaps allows us to refinance this debt at well below current market rates and lower our annual cash interest by approximately 500,000 beginning in December.

When we were in Covid, everybody was buying lots of stuff lots of stuff in boxes by the way, but after COVID-19 theres been a swing back to services and I think that's now starting to play itself out and.

And people are now going to go back and look at their house and say they've got an enormous amount of home equity. They can't go buy a new home because theres very early and existing home because there's very little inventory out there.

<unk> got good balance sheets that they got good good labor market prospects I, just think it's natural that R&R is going to hang in there. It may not be so much on the pro side. It may be more on the DIY side with these higher interest rates.

But I think our R&R markets are hanging in there just fine. So so getting back to your question. There is not any one metric that I look at it we look at many many different factors.

Wayne Wasechek: After this refinancing, we will still have 200 million additional forward swaps to deploy to keep our fewer two borrowing costs low. We repurchase 283,000 shares at $45 per share for a total of 13 million in the 3rd quarter. Additionally, we continue to repurchase shares under our 10B51 share repurchase plan after the quarter ended. So far in the 4th quarter, we have repurchased 264,000 shares at $45 per share for a total of 12 million.

Imbalance I think next year is shaping up to be an okay year it won't be it won't be great, but it'll it'll be it'll be it'll be better than this year.

Got it thank you and my apologies for referencing the incorrect name because obviously someone called earnings season, we're already so I apologize for the idea correct me there.

No worries.

But I also I appreciate the color and then just one quick question on <unk>.

Follow up on.

Now and you mentioned, how there's been smaller takeout from from builders, obviously that would be.

Wayne Wasechek: Therefore, here today, we have repurchased 556,000 shares for a total of 25 million, which leaves us with 125 million remaining on our 200 million repurchase authorization. Capital expenditures were 27 million in the 3rd quarter. That amount includes real estate development expenditures, which are included in cash from operations in a cash flow statement, and excludes timberland acquisitions. For the full year, we are planning to spend 135 to 140 million excluding any potential acquisitions.

Due to the slower housing environment.

What's your line of sight, you have in that business and whether it is it just one quarter is it two quarters and so it maybe a little bit of a small tick up right now in <unk>, but could this be something that could reverse or do you see it reversing.

Q2 early next year.

Yes, Mike This is Wayne a couple of things I would say look we've had good take up this far thus far this year.

We start to go through a process, where we released the next round of lots and so we're seeing a little bit of softness.

Wayne Wasechek: Our catback estimate includes approximately 74 million for the Waldo Arkansas Somal Modernization expansion project. During the 3rd quarter, we finalized our Ola Somal fire insurance claim with our insurance carriers for a total of 89 million net of a 2 million deductible. Our insurance claim covered both property replacement and business interruption at the Sawmill. Finalization of the claim resulted in the recognition of the remaining 16 million of insurance recoveries during the 3rd quarter. As a reminder, we recognized 50 million of the settlement prior to 2023 with the remaining 35 39 million recorded this year.

In in the new lot releases now.

What does that mean.

Keep in mind. These are these are regional builders, we're not talking large natural national builders. So they have compared to a national builder. They don't have the same type of balance sheets. They definitely don't have the multiple tools available to provide incentives to prospective homebuyers. So perhaps these regional builders instead of <unk>.

<unk> 10 houses they are only going to do eight or nine.

But I think these are we're in the early innings.

On what we're seeing but this is just because we look into Q4, we're seeing a little bit of softness.

Wayne Wasechek: We will now provide some high-level outlet comments. The details are presented on slide 13. We expect to harvest 1.8 million to 1.9 million tons in our timberland segment in the 4th quarter. Harvest volumes in the north are planned to be lower in the 4th quarter compared to the 3rd, as our team was able to pull forward a portion of our planned annual harvest volumes to earlier in the year. We expect Northern Sallock prices to decline about 10 to 15% in the fourth quarter, reflecting lower index Sallock prices and seasonally heavier logs.

Got it thank you very much.

Yes.

Your next question comes from the line of George Staphos with Bank of America. Your line is open.

Hi, everyone. Good morning.

Eric I just wanted to.

Good morning to you I just wanted to come back to.

What you are saying earlier on Mike's question. So.

Are you looking towards a better housing market next year, and specifically are you expecting single family construction to be up and then you mentioned in your remarks that home center takeaways up 15%, but no doubt its going to be tempered into 'twenty four if I, if I'm paraphrasing correctly. So what do you ultimately want us to.

Wayne Wasechek: In the south, we plan to harvest approximately 1.5 million tons in the fourth quarter. We expect our Southern Sallock prices in the fourth quarter to be flat to the third quarter. In our wood product segment, we plan to ship 270 to 280 million board feet of lumber in the fourth quarter. Benchmark prices for lumber have continued to trend downwards since the end of the third quarter. Our average lumber price thus far in the fourth quarter is approximately 12% lower than our third quarter average lumber price.

Dial in think about whatever the metaphor for repair model as it relates to you for 24 versus 23.

So there's two different parts to your question George So the first one single family.

If I had to guess right now I'd say single family is going to be up a little bit next year versus this year, not a lot, but a little and I think we're starting to see signs of the housing market like I said has not collapsed. The latest data was was actually was actually okay. If you step back and you look at starts were up 3%.

Wayne Wasechek: This is based on shipments of approximately 105 million board feet of lumber. Moving to real estate, we expect to sell approximately 6,000 800 acres of rural land in the fourth quarter. As for residential lot sales, we are seeing indications of softening in the new residential construction market in Schnau Valley. We are reducing our anticipated number of lots approximately 37 in the fourth quarter and approximately 135 for the full year of 2023.

Over month of new home sales were up 12% month over month, we're going to get to the middle of next year and it's I think most people believe the fed is going to pivot and start start cutting rates.

You still got an incredibly tight labor market you've still got.

And under built earn few existing homes for sale I don't think those factors are going away. So I do expect starts to be up a little bit next year and I expect there to be a skew over to single family.

Wayne Wasechek: Additional real estate details are provided on the slide. Overall, we anticipate our total adjusted even to be lower in the fourth quarter compared to the third quarter. This is based on the expectations of lower lumber and indexed Idaho Sallock prices. Looking forward, high mortgage rates and macro economic uncertainty will continue to challenge the housing market in the near term. However, we remain bullish on longer term housing fundamentals and believe we are well positioned to continue growing shareholder value over the long term.

Multifamily has got a lot of actions over the last couple of years.

So switching gears and talking about repair and remodel.

So I can talk about the market segment in general I cannot talk about our shipments what percent of our shipments go into repair and remodel simply because when we sell it to.

Dealer distributor, we kind of lose track of it I can't talk specifically about our home center demand, which is going by and large into the R&R market.

Wayne Wasechek: That concludes our prepared remarks.

So what what I think is going to happen is that R&R is going to stay reasonably strong it's not going to fall out of bed I've seen some of the forecasts out there that call for an eight or 9% decline.

Sarah: Sarah, I would now like to open the call to Q&A. Thank you. If you would like to ask a question, please press star one on your telephone keypad to withdraw your questions and please press star one again. One moment please for your first question.

No thats the FCA Risi says R&R is going up 3% layer has got a different number.

The housing that's the Harvard study.

Anthony Pettinari: Your first question comes from the line of Anthony Petonari with City Research. Your line is open.

But I think intuitively I would argue that it's going to stay strong or even go up slightly next year.

Eric Cremers: Good morning. It looks like Southern Sallock realizations were flat from 2Q to 3Q and I think you expect kind of the same in 4Q. Was this like fairly consistent across the Southern portfolio or did you see relative strength in Arkansas versus the catch mark regions or is there any kind of some markets where you'd flag any supply differences, maybe salt mill capacity ads, reductions or any other kind of drivers? No, I think it was from region to region.

We'll start to pivot away from.

Services back to goods they invest in what is probably their favorite asset right now their own house.

The work from home trend, that's not going away remote work wherever you want to call it.

I just think there's a lot of reasons that people are going to want to put money back into their house and so I don't see R&R falling out of bed.

Understood.

I appreciate the color on that and then.

Can you talk us a little bit and maybe you mentioned it what you expect for manufacturing cost in the fourth quarter.

Eric Cremers: It was generally pretty consistent quarter over quarter. You know, we saw going back to earlier in the year, we did see a little bit of a difference between our coastal or southeast market where that tends to be that's a more tension market. And with that, we saw prices decline a little bit more earlier in the year compared to our Gulf South region. But, you know, since earlier in the year, those have really kind of flattened out Okay.

For wood products relative to what we saw in the third quarter should it continue to be getting a bit better as you've been seeing progress this year.

Well, we have been seeing progress this year and I would I would tell you that our total cash costs are there going to be down just a bit in the fourth quarter compared to the third quarter.

But I think in this inflationary environment, having cash costs be a flat is as of when they will be lower year over year on a on a rate basis per thousand.

But.

I expect cost to be just a little bit lower in the fourth quarter compared to the third quarter.

Eric Cremers: And then just shifting to wood products, you know, lumber has been under $400 for maybe over a month now. I'm just wondering if you could talk about maybe dealer inventory levels, maybe willingness to restock at these prices and any, you know, capacity response that maybe you're seeing from competitors in regions that you operate in.

And.

One last question I'll turn it over hopefully this isn't the case and actually I'll ask a quick follow on to this but let's say housing.

There is a lot slower next year and demand a lot slower than what you would've expected do you have the opportunity.

To bring Waldo up more quickly.

Frontloaded as a way of managing against that and then.

Hey differently, let's say instead of $1 4 million starts, let's say are up a little bit.

Eric Cremers: Yeah, I'll take that one. This is Eric. You know, I think the way I would describe inventories is that they're, they continue to be at really low levels. I think dealers are very nervous in this environment when you've seen interest rates shoot up the way that they have, have shot up over the, you know, the past month or two. You know, you see a war in Ukraine continuing to linger and how you see this Middle East flare up. I think people are just really nervous about this macroeconomic environment. And that consequently they don't, they don't want to have high levels of inventory.

Eric Cremers: So I think inventory levels are relatively low levels.

It's a boomer year for whatever reason.

What do you do in that kind of environment, how do you manage your operating stance what would you do differently. Thanks guys.

Yes, so George so can we bring waldo up faster.

This is a very complex project with enormous gantt charts involved.

We met with the mid group just last week.

They are running ahead of schedule, which I think is great news. So we expect to finish the project in a timely manner, which is by mid next year as we spoke about.

And then ramp up production after that I don't think it's going to be possible for us to be to beat the schedule. There's enormous work streams involved with each part of the of the processing process different pieces of processing equipment that we're putting into the into the mill.

Eric Cremers: Now the answer to your second question, which is a recent capacity response. We saw capacity come out of the market earlier this year. There's probably a billion and a half were like temporary curtailments. I think there was then a pause as little markets recovered through this summer. And now we're, we're back below 400 as you noted. And there's a lot of, a lot of pundits are forecasting or estimating that BC mills are losing a lot of money at these price levels, especially given the duty they have to pay to get their lumber into the US market.

Whether it's the plane or the saw mill or the kilns, just a lot going on and we're out there pouring concrete right now.

And we're making great progress, but I do not think we can ramp up that project faster.

And then the second part of your question if it's a boom here what would we do differently.

I think we would we would put on as many hours as we possibly could at our saw mills.

Eric Cremers: I have not seen any announcements of late, but we're starting to enter the slow season. I'm guessing the pressure is building. And most people think the mills and BC are underwater. So we'll see how it plays out.

There is a breaking point for people and there is a breaking point for.

You need to do your preventative maintenance. So you run your equipment into the ground.

Anthony Pettinari: Okay, that's very helpful. I'll turn it over.

So I think what we would do is just try to get every last piece of lumber out the mill that we possibly can in that in that kind of an environment.

Okay. Thanks, very much guys I'll turn it over.

Ketan Mamtora: Your next question comes from the line of Kitan Mametora of BMO capital markets. Your line is open. Thank you. Hi, Eric. Hi, Wayne. Morning.

Okay. Thanks George.

Your next question comes from the line of Kurt Yinger with D. A Davidson your line is open.

Great. Thanks, and good morning, guys.

Hey, Kurt.

Eric Cremers: Maybe the first question is segment of the last question in terms of inventory. What are you seeing in terms of the European lumber inventories that are still sitting out there on the, along the eastern sea board? And do you have a sense in terms of the level of imports you might see in the coming months given the lumber prices are? Yeah. Yeah, Kitan. So we don't have direct insight into what those European import inventories look like and that the data is always a little bit stale, but I do look at it very closely, in fact, as I think, you know, lumber prices are under enormous pressure early this year when we saw a surge of European imports back in January.

Just wanted to start off on timberlands the cost structure in the north at least here in Q3 was a bit higher than I expected.

No contractor availability was one factor that had been a challenge a couple of quarters ago, but curious if there is anything else.

Kind of noteworthy on the cost front that might have hit this quarter.

Were just off.

Yes, Curt this Wayne I think.

Generally speaking in the <unk>.

Nor seasonally that tends to be our our higher cost quarter from a log and haul standpoint, and that's really driven by two factors.

One on the logging side, we're further in the back country, where in steeper train so based on that that results in a higher higher logging costs and then when you further back than you have longer haul distances. So then that also increases your.

Eric Cremers: But what I, what I can tell you is that year-to-date through August imports are down 2%, comparing Q2 of this year to Q1 this year imports are now down 23%. And if I look at Q2 this year versus Q2 last year imports are down 12%. I think it's pretty clear that at these prices, European imports are set to decline. I'm guessing that they're down a half a billion board fee, full year 23 versus full year 22.

Hull costs, but the other factor I would say compared to last quarter is we also had slightly higher diesel fuel prices. So we saw an uptick in Q3 compared to Q2. So that was also a component that we experienced this quarter.

Got it okay. Thanks for that and then.

Eric Cremers: And then I would expect that we'll see even fewer imports next year, as the whole idea of less Russian, Belarus, than Ukrainian would flowing into Europe. That was, by the way, roughly 10% of Europe's lumber supply was from those three countries. And those exports out of those three countries to Europe, restrictions really went into place in kind of the back half of 2022. And so I think there's going to continue to be fewer imports into the US because more European production is going to stay within Europe as we get into next year. So I think the outlook for European imports is on the downside. Got it, that's helpful.

Eric I mean, you touched on how in the past you guys have been very nimble on the capital allocation front and I think you built.

Terrific track record there.

I guess when you look at kind of the current balance sheet and cash generation in light of kind of the current lumber market. How do you think about the capacity.

To be more aggressive with share repurchases, if kind of this discount persists.

Yeah. So good point, Curt we still have a fair bit of capacity, we've got $125 million outstanding on our existing $200 million authorization that number was set at 200 million for a reason and it's because we thought we.

Had the capacity to go to that level.

Eric Cremers: And Eric, just one more on that. Do you think we've worked through the inventory that was sitting there at the ports, so we still have some ways to go there? Yeah, I think we have worked through those inventories, Keaton. I don't, again, I don't have direct insight, but the way SPF prices spiked this past summer when the wildfires really hit Canada. And I think those European imports, their primary competition, was Canadian SPF.

I would tell you what influences the thinking probably more than anything is M&A activity.

What other projects do we have ongoing that may use up some of that capital now certainly we have our Waldo expansion, which is going to we're not done with paying for that project yet so that's going to work off some cash off the balance sheet.

But yes to get back to your question, we still have more capacity or new stuff, but all in all I'll reiterate what I said in my prepared remarks, which is we.

Eric Cremers: I think that would cause me to think that those imports have been pulled down, and we're not as plentiful to compete with Canadian lumber. Again, I don't know if it's right, it's just kind of trying to connect some dots here. Got it, now that's helpful.

We're going to be very careful very cautious word uncertain territories here, what's going to happen in the middle East is I don't know Israel drop a nuclear bomb and ran who knows but you can you can see you can see markets really dislocate really fast in this in this kind of an environment. So it will be slow and patient careful and we'll buy back of what we think are deep discounts to.

Ketan Mamtora: And then just switching to timberlands.

Eric Cremers: And when I look at your southern fall put prices as well, relatively kind of stable yet, some of the data that's been reported going to pretty sharp crops in recent quarters, can you talk about what you guys are seeing out there? And obviously, we've heard of weakness on the packaging side, but as you look at your wood baskets, can you talk to what trends you are seeing? Yeah, Keaton, I think this way.

And certainly we have the room to do more.

Got it okay, well I appreciate the color and good luck here in Q4 guys.

Thanks.

Your next question comes from the line of Mark Weintraub with Seaport Research Partners. Your line is open.

Thank you Eric.

You referenced stock trading at a steep discount to NAV certainly using metrics, we tend to all use it certainly looks that way.

And then you also talked about use of capital and either go into share repurchase, but also considering M&A activity. So maybe sort of putting those two things together one what are you seeing out there.

Eric Cremers: On the trending side, certainly between salt log and pulp wood, I think certainly a little more softness on the pulp wood with the pulp and paper markets, just where they are. We've seen some economic downtime, and Ed Mills are taking, having quotas, but that trend is, I think that softness is, we're still seeing that in the market. But having said that, we're able to move tons and still find the demand. We're expecting on the pulp wood side, probably pricing, our outlook is flat to maybe slightly down for us.

In the timber markets and with timberland pricing and sort of Relatedly if.

Let's start there and then I have a follow up.

Yeah. So so the Tim the timberland M&A market, it's it's relatively quiet right now.

We suspect sellers are holding off with their properties, perhaps waiting for lumber prices to improve or interest rates to come down or carbon deals become more more mainstream is probably a host of factors there.

Still want to grow our timberland footprint through through M&A, but we're only going to do it. If we think we can do it in a shareholder friendly value, creating sort of way.

Eric Cremers: And part of that is a mix. A little bit of that is hardwood. So we, seasonally, we typically have more hardwood in the mix in Q3 versus Q4. So you may see a very slight mix impact in Q4, but really prices we think are holding. And I would say we're slightly a little more optimistic on the pulp side, just from what we saw earlier in the year. But, and I think that that still is just keeping pricing probably fairly flat. No, that's very helpful. I'll jump back in the queue. Good luck. Thanks.

Buying timber with IRR is at or above our cost of capital.

And given how hard and fast our cost of capital has run up it is very hard for us to find deals that are going to are going to create that value.

So our opportunity Mark is to.

Find opportunities that are that are off the beaten path that are not being broadly auctioned.

And.

We've shown that we can do that we did that with Luder. If you recall, we did that a couple of years ago.

Michael Roxland: Your next question comes from the line of Mike Roxland with truest securities. Your line is open. Thank you, Jerry, anyway, for taking my questions.

And so we might be looking at things like that now.

So that's in my mind, that's the only way you can create value in this environment because timberland prices. They go to broad auction there are sky high.

Eric Cremers: Jerry, just a moment of question for you on Lumberprices. You mentioned, I believe I heard you said that you've got your confidence that Lumberprices may be bottoming here. Are there any particular metrics that you follow that you look at that give you that confidence that Lumberprices have crossed? Yeah, this is Eric Mike. I don't think there's any one metric that we look at. This is like a mosaic and I'm trying to put all the pieces of the puzzle together in my mind.

And so I'm just kind of following up on that so do.

Do you just look at it.

Is the acquisition better than your cost of capital and therefore green light going forward or given the fact that you are trading at a very very large discount to NAV.

That would seem to make the decision to acquire timberlands rather than buy back your stock even that much more difficult.

So maybe kind of just your philosophy on on that and then second would be.

Eric Cremers: I know there's a lot of bills and BC that are losing money. There's likely to be a supply response who knows if that'll happen. It's up to them to decide, but that's one factor. I think another factor is of late. The housing market has not completely collapsed. We've gone down from 1.6 million to 1.4 million, which is not a precipitous drop. This is not 2009. That's 200,000 starts. We're also seeing a bit of a mixed shift here over towards single family, which is, you know, single family uses a lot more lumber than multi-family.

Are there Conversely opportunities.

To potentially sell timberlands and arbitrage.

<unk> spreads or does that not makes sense for a number of different factors.

Yes, Mark.

No doubt the buying back stock has become more attractive to us and buying buying timberland.

Look at how quiet we've been in the market here this year.

In the market in terms of buying timberland and look at how active we've been here buying back stock. There is no doubt the pendulum has swung back towards towards buying stock.

Eric Cremers: So I think about that. I also don't think our in our markets are going to collapse either. When we were in COVID, everybody was buying lots of stuff, lots of stuff in boxes, by the way. But after COVID, there's been a swing back to services. And I think that's now starting to play itself out. And people are now going to go back and look at their house and say they've got enormous amount of home equity.

Now that said, we do want to grow our timberland footprint.

The outlook for timberland values is fantastic.

And so we're always going to be looking at trying to add to our timberland portfolio, but you're right right now it's got a it's got to compete with with share repurchases.

Eric Cremers: They can't go buy a new home because there's very or an existing home because there's very little inventory out there. You know, they got good balance sheets. They got good, good labor market prospects. I just think it's natural that R and R is going to hang in there. It may not be so much on the pros side. It may be more on the DIY side with these higher interest rates. But I think R and R markets are hanging there just fine.

And right now share repurchases they've been winning out now your second question would be consider selling timberland to raise cash to fund the buyback.

I think as a public company trying to maximize shareholder value.

All options are on the table.

Portfolio managers that sometimes means selling assets opportunistically at what we think are very attractive premiums.

Eric Cremers: So getting back to your question, there's not anyone metric that I look at. We look at many, many different factors and imbalance. So I think next year's shaping up to be an okay year. It won't be, it won't be great, but it'll be, it'll be, it'll be, it'll be better than this year. Thank you, Eric. And my apologies for referencing the incorrect name because obviously it's been one hell of an early season already. So I apologize for the correct name there. No worries. But I also appreciate the color.

And we do engage in those types of discussions from from time to time.

So we'll see how things play out, but yeah, we would look at selling timberland core timberland in fact, if it was at a really attractive price.

To fund even more repurchases so we will see.

And is it true to say that.

If there's no development activity on the lands et cetera. There is no tax leakage if you do that.

Wayne Wasechek: And then just, you know, one quick question on is to follow up on, on, on Chanel and mentioning the, you know, how there's been smaller take up from, from builders. Obviously that that would be due to the display housing environment. But what, what's the line of sight you have in that business? And whether, you know, is it just one quarter is two quarters. And so maybe a little bit of a small take up right now and four key, but could this be something to reverse or do you, you see reversing, you know, one key to your early next year.

Can you ask that question again.

If you.

When when selling core timberlands, if theres been no development activity or anything of that nature on those lands.

Is there is no tax leakage as well obviously one of the big issues for companies selling assets, if theres often big tax bills against that sale, but is it true in the case of timber Reits there wouldn't be.

Wayne Wasechek: Yeah, like this is Wayne. A couple of things I would say. Look, we've had good take up this far, this far this year. You know, we, we start to go through a process where we release the next round of lots. And so we're seeing a little bit of softness in, in the new lot releases. Now, what does that mean, you know, keeping mind, these are, these are regional builders. We're not talking large natural build, national builders.

No.

So these types of sales would be REIT.

That's right.

REIT income REIT income so yes, there isn't any tax arbitrage.

Got it okay, and just wanted to confirm that thank you.

Thanks Mark.

Once again, ladies and gentlemen, if you have a question it is star one.

Next question comes from the line of Paul Quinn of RBC capital markets. Your line is open.

Wayne Wasechek: So they have, you know, compared to a national builder, they don't have the same type of balance sheets. They definitely don't have the multiple tools available to provide incentives to prospective home buyers. So, you know, perhaps these regional builders instead of building 10 houses, they're only going to do eight or nine. But I think these are, we're in the early innings on what we're seeing, but this is just, you know, cause we look in the queue for or we're seeing a little bit, of the softness. Thank you very much.

Yes, thanks, very much good morning, guys.

Natural climate solutions.

Opportunities it sounds like Youre, making decent progress on the first one that 50000 acres in the south what else have you got in the Hopper and what's the timeline of those.

Well on the carbon credit front, specifically Mark are you talking about broader and seize opportunities or excuse me Paul.

Just on the carbon credits and it is Paul yes, yes, so we.

We are making really good progress on our first deal.

George Staphos: Your next question comes from the line of George Staphos with Bank of America. Your line is open. Everyone good morning. I just wanted to come back to what you're saying earlier on my question. So are you looking towards a better housing market next year and specifically are you expecting single family construction to be up and then you mentioned in your remarks that you know home center takeaways up 15% but no data is going to be tempered into 24 if I'm paraphrasing correctly.

And we're learning a lot from that transaction.

We've got more acres that we are looking at that we might potentially put into a carbon play.

But we're going to before we execute on those we're going to see how the first one comes out because it is a it's a relatively sizable transaction 50 50000 acres.

George Staphos: So what do you ultimately want us to you know dial in think about whatever the metaphor for repair model as related to you for 24 of versus 23. So there's two different parts to your your question George. So the first one single family. If I had to guess right now, I'd say single family is going to be up a little bit next year versus this year, not a lot but a little and I think we're starting to see signs of, you know, the housing market like I said is not collapsed.

Okay, and then just moving onto I guess wood products.

Look at that softwood lumber duties right now sort of down in the 8% Mark don't seem to be changing sort of the amount of wood that flows from Canada and the U S.

And it looks like that duty rates going to stay the same in.

24.

What do you what's your take on that file going forward.

Do you see a solution and what's the path to getting that solution.

Yes.

Your thoughts on softwood lumber.

Yeah, I think the conversations have been have been incredibly quiet.

I don't know what its going to take to get to an agreement I don't know that there even any discussions taking place at this point.

George Staphos: The latest data was was actually was actually okay. If you step back and you look at starts were up 3% month over month. The new home sales were up 12% month. We're going to get to the middle of next year. And it's I think most people believe the Fed is going to pivot and start start cutting rates. You still got an incredibly tight labor market. You've still got. You know an underbuilt or you know few existing homes for sale.

I think when when lumber prices dropped.

I think I start to hear chatter that some of the Canadian producers are willing to engage to try to find a solution.

But then as lumber prices come back up those conversations seem to come to a halt.

This thing has been ongoing for many many years and I don't see an end to it anytime soon.

Okay, and then just moving on to just real estate and I know you haven't come out with your 2014 guidance, yet, but just at a high level I mean, just for the comments you've made about strength in the market.

George Staphos: I don't think those factors are going away. So I do expect starts to be up a little bit next year and I expect there to be a skew over to single family. It's multi families got a lot of action over the last couple of years.

On single family.

Just wondering what.

What are your expectation at 424 on <unk>.

Eric Cremers: So switching gears and talking about repair and a model. So I can talk about the market segment in general. I cannot talk about you know our shipments what percent of our shipments go into repair and models simply because when we sell it to a dealer distributor, we kind of lose track of it. I can talk specifically about our home center demand, which is going by and large into the R and R market.

Valley lifestyle, that'd be flat or down or up next year.

Yes bonds Wayne, Yes, I think we're it's still a little bit early we will we'll put out our 24 outlook here.

Q1 next year I think.

But like we said earlier.

Eric Cremers: So you know what what I think is going to happen is that R and R is going to stay reasonably strong. It's not going to fall out of bed. I've seen some of the forecasts out there that call for an eight or 9% decline. No, that's FDA. Reese says R and R is going up 3%. Lear's got a different number. That's the housing. That's the Harvard study. But I think intuitively I would argue that it's going to stay strong or even go up slightly next year as people start to pivot away from services back to goods.

Pretty in the early innings of what we're seeing on the market and our take up rate. So we will get more insight into that.

Over the next couple of months and have a better sense of where 20.

<unk> 24 will come out, but we still think there is.

We still think there's pretty good take up.

Like I said earlier instead.

Instead of these regional builders doing 10 homes a year, maybe they do eight or nine so its not we don't think its going to just drop off its just a slight maybe.

Eric Cremers: They invest in what is probably their favorite asset right now their own house. You know the work from home trend that's not going away or more work, whatever you want to call it. I just think there's a lot of reasons that people are going to want to put money back into their house. So I don't see R and R falling out of bed. Understood. Appreciate the color on that. And then can you talk us a little bit and maybe you mention it what you expect for manufacturing costs in the fourth quarter for what products relative to what we saw in the third quarter should continue to be getting a bit better as you've been seeing progress, this year.

Maybe a slight reduction or a little softness there and I would also say that from a pricing standpoint, we have good pricing power, we've increased our lot prices, 5% to 10% since last year, and we're holding those and still moving those prices.

We continue to see solid pricing it's just.

Eric Cremers: Well, we have been seeing progress this year, and I would tell you at our total cash cost, they're going to be down just a bit in the fourth quarter compared to the third quarter, but I think in this inflationary environment, having cash costs be flat is a win. They will be lower year over year on a rate basis per thousand, but I expect costs to be just a little bit lower in the fourth quarter compared to the third quarter.

What is the regional builders, how much they want to take on and we'll see what happens over the next couple of months.

Okay. That's all I had best of luck.

Thanks, Paul Paul.

Your next question comes from is a follow up question from the line of kitchen <unk> of BMO capital markets. Your line is open.

Thank you Hey, just coming back to the real estate question that Paul was asking.

This is not a plenty plenty full question, but with this the stratification done on the catch Mark Lyons.

How should we think about sort of just normalized.

Through alliances on ongoing basis, what's the right number.

George Staphos: And one last question I'll turn over, hopefully this isn't the case, and actually I'll ask a quick follow on to this, but let's say housing is a lot slower next year and demands a lot slower than what you would have expected. Do you have the opportunity to bring Waldo up more quickly and frontload it as a way of managing against that and then say differently, let's say instead of 1.4 million starts, let's say you're up a little bit, it's a boomerier for whatever reason.

Yeah, I mean from a from a acreage standpoint.

We've looked at.

Target around 1% of our portfolio. This year were around 18000 acres, so kind of slightly below that 1% threshold, but kind.

Kind of over time, that's the that's the target we look at from a real estate standpoint on the rural side pricing yes.

Real estate sales or it can be very lumpy and it depends on the size of the the tracks that youre selling in the end use from recreational to conservation so that can really vary quarter to quarter period to period.

George Staphos: What do you do in that kind of environment and how do you manage your operating stance? What would you do differently? Thanks guys. Yeah, so George, so can we bring Waldo up faster? This is a very complex project with enormous Gantt charts involved. We met with the bid group just last week and they are running ahead of schedule, which I think is great news, so we expect to finish the project in a timely manner, which is by mid next year as we spoke about, and then ramp up production after that.

Year to year, So I think yes.

When we look at an outlook, we're looking at that 1%.

Yeah.

Got it that's helpful. Thank you very much.

At this time I'm showing there are no further questions I will now turn the call back over to Wayne with Jack.

George Staphos: I don't think it's going to be possible for us to be to beat the schedule. There's enormous work streams involved with each part of the processing and different pieces of processing equipment that we're putting into the mill, whether it's the plan or the sawmill or the kilns, just a lot going on. We're out there pouring concrete right now and we're making great progress, but I do not think we can ramp up that project faster.

Thank you for your questions and your interest in Potlatch Delta that concludes our call.

This concludes today's conference call. Thank you for joining you may now disconnect your lines.

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George Staphos: Then the second part of your question, if it's a boomer, what would we do differently? Well, I think we would put on as many hours as we possibly could at our sawmills, there is a breaking point for people and there is a breaking point for you need to do your preventative maintenance, so you run your equipment into the ground. So I think what we would do is just try to get every last piece of lumber out the mill that we possibly can in that kind of an environment. Okay, thanks very much guys, I'll turn it over. Okay, thanks George. Thanks.

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Wayne Wasechek: Your next question comes from the line of Kurt Yinger with DA Davidson. Your line is open. Great, thanks and good morning guys. Hey Kurt, I just want to start off on timberlands that the cost structure in the north, at least here in Q3 was a bit higher than I expected. I know contractor availability was one factor that had been a challenge a couple quarters ago, but curious if there's anything else kind of noteworthy on the cost front that might have hit this quarter, maybe we were just off.

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Wayne Wasechek: Yeah, Kurt this way. I think generally speaking in the north seasonally, that tends to be our higher cost quarter from a log and haul standpoint, and that's really driven by two factors. One, on the logging side, we're further in the backcountry, we're in steeper terrain, so based on that, that results in a higher, higher logging cost. And then when you're further back, then you have longer haul distances than that also increases your haul costs.

Wayne Wasechek: But the other factor I would say compared to last quarter is we also had slightly higher diesel fuel prices, so we saw an uptick in Q3 compared to Q2, so that was also a component that we experienced, in the corner.

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Eric Cremers: Okay, thanks for that. And then, Eric, I mean, you touched on how in the past, you guys have been very nimble on the capital allocation front, and I think you built a terrific track record there. I guess when you look at kind of the current balance sheet and cast generation and light of kind of the current lumber market, how do you think about the capacity to be more aggressive with what Sherry purchases, if it's kind of this discount process?

Eric Cremers: Yeah, so a good point, Kurt, we still have a fair bit of capacity. We've got $125 million outstanding on our existing $200 million authorization. That number was set at $200 million for a reason, and it's because we thought we had the capacity to go to that level. I would tell you what influence is the thinking probably more than anything is M&A activity. What other projects do we have ongoing that may use up some of that capital?

Eric Cremers: Now, certainly, we have our Waldo expansion, which is going to, we're not done with paying for that project yet, so that's going to work off some cash off the balance sheet. But yeah, to get back to your question, we still have more capacity to do stuff, but I'll reiterate what I said in my prepare remarks, which is, we're going to be very careful, very cautious, we're in uncertain territories here. What's going to happen in the Middle East?

Eric Cremers: I don't know, Israel dropped a nuclear bomb in Iran, who knows? But you could see, you can see markets really dislocate really fast in this kind of an environment. So we'll be slow and patiently careful and we'll buy back what we think are deep discounts to NEV, and certainly, we have the room to do more.

Kurt Yinger: Okay, well, appreciate color and good luck here at Q4, guys. Thanks.

Mark Weintraub: Your next question comes from the line of Mark Wyndrop with C-Port Research Partners. Your line is open. Thank you. Eric, you know, you referenced stock trading at a steep discount to NEV, certainly, using metrics. We tend to all use, it certainly looks that way. And then you also talked about, you know, use of capital and either going to Sherry Purchase, but also considering M&A activity. So maybe sort of putting those two things together.

Mark Weintraub: One, what are you seeing out there in the timber markets and with timberland pricing? And sort of relatedly, if, well, let's start there and then I'll have a follow-up. Yeah, so the timberland M&A market, it's relatively quiet right now. You know, we suspect sellers are holding off with their properties, you know, perhaps waiting for lumber prices to improve or interest rates to come down or carbon deals and become more more mainstream is probably a host of factors there.

Mark Weintraub: We still want to grow our timberland footprint through M&A, but we're only going to do it if we think we can do it in a shareholder-friendly value creating sort of a way, basically buying timber with IRRs that are above our cost of capital. And given how hard and fast our cost of capital has run up, it is very hard for us to find deals that are going to create that value. So our opportunity, Mark, is to find opportunities that are off the beaten path that are not being broadly auctioned.

Mark Weintraub: And, you know, we've shown that we can do that. We did that with Looter, if you recall, we did that a couple of years ago. And so we might be looking at things like that now. So that's in my mind, that's the only way you can create value in this environment because timberland prices, you know, they go to broad auction, they're sky high. Right, and Senator's kind of just falling up on that.

Mark Weintraub: So do you just look at it? Is the acquisition better than your cost of capital and therefore green light go forward or given the fact that you are trading at a very large discount to NAV, that would seem to make the decision to acquire Timberlands rather than buy back your stock, even that much more difficult? So on that, and then second would be, I mean, are there conversely opportunities to potentially sell Timberlands and arbitrage the value spreads or does that not make sense for a number of different factors?

Mark Weintraub: Yeah, Mark, there's no doubt the buying back stock has become more attractive to us than buying Timberland. Look at how quiet we've been in the market here this year. In the market in terms of buying Timberland and look at how active we've been here buying back stock. There's no doubt the pendulum is swung back towards buying stock. Now that's said, we do want to grow our Timberland footprint. I think the outlook for Timberland values is fantastic.

Mark Weintraub: And so we're always going to be looking at trying to add to our Timberland portfolio, but you're right. Right now it's got to compete with with share repurchases. And right now share repurchases, they've been winning out. Now your second question would we consider selling Timberland to raise cash to fund to buy back? You know, I think as a public company trying to maximize shareholder value, all options are on the table. You know, as portfolio managers, that that sometimes means selling assets opportunistically at what we think are very attractive premiums.

Mark Weintraub: And we do engage in those types of discussions from time to time. So we'll see how things play out, but yeah, we would look at selling Timberland, core Timberland in fact, if it was at a really attractive price to fund even more repurchases. So we'll see. And is it true to say that there's no development activity on the land, et cetera? There's no tax leakage if you do that. Can you ask that question again?

Mark Weintraub: If you, when selling core Timberland, if there's been no development activity or anything of that nature on those lands, is there no tax leakage as well? You know, obviously one of the big issues for companies selling piecemeal assets is there's often big tax bills against that sale, but is it true in the case of Timber REITs that there wouldn't be? No, I mean, those, these types of sales would be, you know, REIT.

Mark Weintraub: That's REIT income. REIT income. So yeah, there isn't any tax arbitrage with it. Got it. Okay, I just wanted to confirm that. Thank you. Thanks, Mark. Once again, ladies and gentlemen, if you have a question, it is star one.

Paul Quinn: Your next question comes from the line of Paul Quinn of RBC Capital Markets. Your line is open. Yeah, thanks for much more, guys.

Eric Cremers: Just on your natural climate. Paul Quinn, Eric Cremers, Matthew McKellar, Wayne Wasechek, PotlatchDeltic Corp We're learning a lot from that transaction. We've got more acres that we are looking at that we might potentially put into a carbon play, but we're going to before we execute on those we're going to see how the first one comes out because it is relatively sizable transaction 50,000 acres. Okay, and then just moving on to I guess wood products, just looking at softwood lumber duties right now, you know, sort of down to the 8% mark, don't seem to be, you know, changing sort of the the amount of wood that flows from Canada and the U.S. And it looks like that duty rate is going to stay the same, you know, in 24.

Eric Cremers: What do you, what's your take on that file going forward? You know, do you see a solution and what's a path to getting that solution and, you know, just your thoughts on softwood lumber? Yeah, I think, you know, the conversations have been have been incredibly quiet. You know, I don't know what it's going to take to get to an agreement. I don't know that there even any discussions taking place at this point.

Eric Cremers: You know, I think when when lumber prices drop, I think I start to hear chatter that some of the Canadian producers are going to engage to try to find a solution. You know, but then as lumber prices come back up, you know, those conversations seem to come to up to a halt.

Eric Cremers: This thing's been ongoing for many, many years and I don't see an end to it anytime soon.

Wayne Wasechek: Okay, and then just move it on to just real estate, and I know you haven't come out with your 24 guidance yet, but just at a high level. I mean, just for the comments you've made about, you know, strengthen the market on single family. Just just wonder what, you know, what your expectation at port 24 on, you know, valley, lots, there's that be flat or down or up next year. Yeah, I think, you know, we're, it's still a little bit early.

Wayne Wasechek: We'll put out our 24 outlook here, you know, Q1 next year. I think, but like we said earlier, you know, it's pretty in the early innings of what we're seeing on the market and our take up rates. So, you know, we'll get more insight into that and, you know, over the next couple months and have a better sense of where 24 will come out. But we, you know, we still think there is, you know, we still think there's, you know, pretty good take up.

Wayne Wasechek: You know, like I said earlier, you know, instead of these regional builders doing, you know, 10 homes a year, maybe they do eight or nine. So, it's not, we don't think it's going to just drop off. It's, it's just a slight, maybe a slight reduction or a little softness there. And I would also say that from a pricing standpoint, you know, we have good pricing power. You know, we've increased our law prices, is just, you know, what is the regional builders, you know, how much do they want to take on? And, you know, we'll see what happens over the next couple of months.

Paul Quinn: Okay, that's all I had, that's all I had, thanks Paul.

Ketan Mamtora: Your next question comes from the, is there a follow-up question from the line of Ketan Mamtora of BMO Capital Market? Your line is open. Thank you. So, he's just coming back to the real estate question that Paul was asking, this is not a 2024 question, but, you know, with this, the stratification done on the Ketchmark land, how should we think about sort of just normalized, you know, rural land sales on an ongoing basis, what's the nightrike number now?

Ketan Mamtora: Yeah, I mean, from a, from an acreage standpoint, you know, we've looked at, we kind of target around 1% of our portfolio, you know, this year we're, you know, around 18,000 acres, so, you know, kind of slightly below that 1% threshold, but, you know, kind of over time, that's the, that's the target we look at from a real estate standpoint on the rural side. You know, pricing, yeah, it's, you know, real estate sales can be very lumpy and it depends on the size of the, the tracks that you're selling and the end use, you know, from recreational to conservation, so that can, you know, really vary quarter to quarter, period to period in, period to year or so. I think, yeah, that that's, when we look at an outlook, we're, we're looking at that 1% kind of a portfolio. Got it. Now, that's helpful. Thank you very much.

Wayne Wasechek: At this time, I'm showing there are no further questions. I'll now turn the call back over to Wayne Weistrex. Thank you for your questions and your interest in potlatch delta.

Sarah: That concludes our call. This concludes today's conference call. Thank you for joining.

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