Q4 2023 PotlatchDeltic Corporation Earnings Call
Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the Potlatch Deltec fourth 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'd 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 press. The star one again. Thank you I would 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.
Wayne Wastcheck: Good morning, and welcome to Potlatch <unk> fourth quarter 2023 earnings Conference call.
Wayne Wastcheck: Joining me on the call is Eric Cremers, Potlatch Delta <unk>, President and Chief Executive Officer.
Wayne Wastcheck: This call will contain forward looking statements.
Wayne Wastcheck: Please review the warning statements in our press release on the presentation slides and in our filings with the SEC regarding the risks associated with these forward looking statements.
Wayne Wastcheck: Also please note that a reconciliation of non-GAAP measures can be found on our website at www Dot Potlatch Delta Dot com.
Wayne Wastcheck: I will turn the call over to Eric for some comments and then I will review, our fourth quarter results and our 2024 outlook.
Eric J. Cremers: Well, thank you Wayne good morning, everyone.
Eric J. Cremers: We reported total adjusted EBITDA of $200 million for 2023 after the market closed yesterday.
Eric J. Cremers: That is our fifth highest level of annual EBITDA.
Eric J. Cremers: On record since electing REIT status in 2006.
We accomplished this despite a relatively weak lumber pricing environment, which reflects our strength as a company created to our past accretive acquisitions and ability to identify and monetize rural acres that have a significant premium to timberland values.
Our timberlands segment generated adjusted EBITDA of $151 million in 2023 <unk>.
Eric J. Cremers: We harvested seven 7 million tonnes, which is a record annual harvest volume.
This volume also reflects our first full year of operations with our Ketchmark Timberlands that we acquired in September 2022.
Speaking of ketch, Mark one of our operational highlights was the completion of the process of in sourcing the management of catch marks timberlands earlier in 2023.
Eric J. Cremers: Enabling us to realize the final piece in our $21 million of annual CAD synergies from the merger.
Our wood products segment contributed $20 million of adjusted EBITDA in 2023.
We shipped just over 1.1 billion board feet of lumber, which established a new record for the company and annual shipment volume.
Eric J. Cremers: Our wood products team had another strong year in terms of safety performance and successfully completed its capital project plan for the year.
Eric J. Cremers: Speaking of our capital plan.
Eric J. Cremers: We continue to remain on track with our $131 million project to modernize and expand our Waldo Arkansas sawmill site.
Site preparation and civil work is well underway with the first phase of equipment installation scheduled to commence later in Q1.
Eric J. Cremers: The project will increase the mill's annual capacity by 85 million board feet and significantly reduced cash processing costs.
Eric J. Cremers: The existing mill will continue to operate during the project with approximately three weeks of downtime expected in the mid part of the year to tie in the new equipment.
Eric J. Cremers: Followed by the anticipated completion of the project well before the end of 2024.
Eric J. Cremers: Our real estate segment had a strong year contributing adjusted EBITDA of $68 million.
Eric J. Cremers: On the rural side of the business, we sold 18000 acres at nearly $3100 an acre.
Eric J. Cremers: Our real estate team had a strong finish to 2023 by taking advantage of our in depth stratification of catch marks timberlands earlier in the year.
Eric J. Cremers: For 2023, nearly half of our rural business performance was attributable to the acquired Ketchmark portfolio, which is located in excellent real estate markets.
Our real estate development business sold 128 residential lots in the <unk> Valley Master planned community at an average price of $104000 per lot in 2023.
Eric J. Cremers: We also closed on multiple commercial sales, resulting in over $7 million in revenue at an average price of nearly $575000 per acre.
Eric J. Cremers: We had good absorption on a residential lot offerings for much of the year, but we have started to see modest signs of slowing in the take up of our <unk> offerings by regional builders and Chanel Valley in the fourth quarter.
Our team also made good progress on natural climate solutions opportunities this year.
Eric J. Cremers: We are working through the final stages of the certification process on our nearly 50000 acres southern timberland carbon credit project.
We expect to begin pre marketing efforts in the coming months with placement and sale of the credits in the marketplace. The second half of the year.
Eric J. Cremers: Regarding solar at <unk>.
Eric J. Cremers: Developers have shown a strong interest in solar opportunities and we have continued to add to our inventory of solar options under contract.
Eric J. Cremers: We signed up an additional solar option in Q4 and maintain a robust pipeline of potential additional solar deals.
Eric J. Cremers: As a reminder, we have nearly $200 million on a net present value basis worth of solar land sale and lease options under contract representing less than 1% of our timberland acreage ownership.
We are focused on assessing additional natural climate solutions opportunities and are optimistic about the growth potential in this area.
Eric J. Cremers: Though it may take some time for these efforts to bear fruit, we believe that they will lead to an increase in demand for our rural land and drive up timberland values.
Eric J. Cremers: Moving to capital allocation, we returned $169 million of cash to shareholders in 2023.
That amount included $25 million of share repurchases at an average price of $45 per share, which is well below our estimated net asset value.
Eric J. Cremers: We have an additional $125 million remaining on our existing share repurchase authorization.
Eric J. Cremers: We follow a disciplined capital allocation strategy.
Eric J. Cremers: Genuinely evaluate all of our capital allocation opportunities to grow shareholder value over time.
Eric J. Cremers: Over the course of the year, we have remained very patient and very disciplined surrounding M&A activity only pursuing opportunities that meet our stringent criteria and that we believe would increase shareholder value.
Eric J. Cremers: To that end, we just acquired 16000 acres in Arkansas for $31 million or about 19 $500 per acre through a privately negotiated one on one transaction.
Eric J. Cremers: These high quality timberlands are well stocked with an average age of approximately 25 years.
Eric J. Cremers: Wired Timberland portfolio also has strong rural real estate potential, including solar land sale or lease opportunities.
Eric J. Cremers: Our disciplined opportunistic and nimble approach with capital allocation also applies to identifying opportunities to capitalize on higher timberland valuations. As a result, we have entered into an agreement with forest investment associates to sell approximately 34000 acres of plantation timberlands located in <unk>.
Consol in Alabama with.
Eric J. Cremers: With an average age of less than four years for approximately $58 million or $2700 an acre.
This transaction is at a significant premium to our underlying timberland value and is non dilutive given the young nature of these trees.
Eric J. Cremers: This transaction is subject to customary closing conditions is expected to close in the second quarter of 2024.
Eric J. Cremers: At the end of the year, we had $230 million of cash on the balance sheet and total liquidity of $529 million in December.
<unk>, we refinanced our $40 million debt maturity at well below market rates utilizing our existing forward starting interest rate swaps and maintained our weighted average cost of debt at two 3% the lowest of the timber Reits.
Eric J. Cremers: Our strong balance sheet and significant liquidity provides us with flexibility and a solid platform to continue growing shareholder value.
Eric J. Cremers: Shifting to the housing market demand for new single family residential construction continues to remain resilient as single family starts eclipsed over 1 million starts for the second consecutive months, while the multifamily sector has contracted driven by new supply coming into the market and the ongoing elevate.
Eric J. Cremers: The interest rate environment.
Eric J. Cremers: A higher proportion of new single family residential construction is an important lumber demand driver a single family starts typically consume three times the amount of wood versus multifamily.
Eric J. Cremers: Single family starts have been fueled by momentum the consumer consumer confidence is solid labor market and recently declining interest rates. These factors coupled with a historically low level of existing home inventory for sale in the U S. As prospective homebuyers looking to purchase a new home versus an existing home.
Eric J. Cremers: That said housing affordability continues to remain a headwind for the housing market, while 30 year fixed mortgage rates have fallen over 100 basis points after hitting a two decade high in October breathing some more life back into the housing market further declines in interest rates are needed to spur incremental demand. Thanks.
Many economists are predicting that the fed will trigger multiple rate cuts in 2024, which would help alleviate affordability challenges.
Our longer term outlook on housing fundamentals remains positive we believe an underlying shortage of housing stock due largely to the combination of under building after the great financial crisis and favorable demographics in the form of millennials will provide positive tailwind to the housing market we.
Eric J. Cremers: We continue to expect that U S housing starts will return to levels above the long term average of one point million units per year once homes become more affordable.
Eric J. Cremers: Turning to the repair and remodel segment demand in this market has remained steady backed by strong consumer balance sheets and existing homeowners staying in their homes and fixing up versus moving up to a new home under the backdrop of a higher interest rate environment.
Anecdotally, we also continue to experience strong home center takeaway with our activity up 12% year over year.
Operator: Good morning. My name is Rob, and I'll be your conference operator. At this time, I would like to welcome everyone to the Potlatch Deltec fourth quarter 2023 conference. All lines have been placed on mute to prevent
Eric J. Cremers: Looking at the longer term horizon, and repair and remodel market fundamentals continued to remain favorable our optimism is supported by an aging housing stock the remote work evolution and high home equity levels.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this... Star, then the number. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 38, 39, 40, 40, 41, 41, 42, 43, 43, 44, 44, 45, 46, 47, 48, 48, 49, 50, 50, 51, 52, 55, 56, 56, 57, 56, 57 I would now like to turn the call over to Mr. Wayne Wacecek, Vice President and Chief Financial Officer of OPEC. Sir, you may proceed.
Eric J. Cremers: And so in summary, the company performed well in a challenging year and made substantial progress on its strategic goals, while continuing to remain disciplined on deploying capital we delivered.
Eric J. Cremers: <unk> solid financial results in spite of an economic environment with elevated inflation and high interest rates, which impacted lumber demand and prices.
Good morning, and welcome to Potlatch Deltics' fourth quarter 2023 earnings conference call. Joining me on the call is Eric Cremers, Potlatch Deltics President and Chief Executive Officer.
Potlatch Delta continues to be very well positioned with an investment grade balance sheet and a portfolio of high quality assets.
Eric J. Cremers: We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in high return capital projects acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase program.
This call will contain forward-looking statements. Please review the warning statements in our press release, on the 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.potlatchdeltic.com. I'll turn the call over to Eric for some comments, and then I will review our fourth quarter results and our 2024 outlook. Well, thank you, Wayne. Good morning, everyone.
Eric J. Cremers: I will turn it over to Wayne to discuss our fourth quarter results and our 2020 for outlook.
Thank you Eric.
Wayne: Starting with page four of the slides.
Wayne: Adjusted EBITDA was $41 million in the fourth quarter compared to $56 million in the third quarter.
Wayne: The quarter over quarter decline in EBITDA was primarily due to lower lumber prices lower index saw log prices and seasonally lower harvest volumes in Idaho.
Eric J. Cremers: We reported total adjusted EBITDA of $200 million for 2023 after the market closed yesterday. That is our fifth highest level of annual EBITDA on record since electing REIT status in 2006. We accomplish this despite a relatively weak lumber pricing environment, which reflects our strength as a company created through our past accretive acquisitions and ability to identify and monetize rural acres that have a significant premium to timberland value. Our Timberlands segment generated adjusted EBITDA of $151 million in 2023. We harvested 7.7 million tons, which is a record annual harvest volume.
Wayne: These declines were offset in part by strong rural real estate sales.
Speaker Change: I will now review each of our operating segments and provide more color on our fourth quarter results.
Speaker Change: Information for our Timberland segment is displayed on slides five through seven.
Speaker Change: The segment's adjusted EBITDA decreased from $42 million in the third quarter to $33 million in the fourth quarter.
Operationally, our timberlands team harvested 2 million tonnes, establishing a record for a fourth quarter harvest volume.
Speaker Change: Our saw log harvest in Idaho was 328 million tons in the fourth quarter.
This is down seasonally from 377000 tons that we harvested in the third quarter.
Eric J. Cremers: This volume also reflects our first full year of operations with our Catchmark Timberlands that we acquired in September of 2022. Speaking of Ketchmark, one of our operational highlights was the completion of the process of insourcing the management of Ketchmark's timberlands earlier in 2023, enabling us to realize the final piece in our $21 million of annual CAD synergies from the merger. Our wood product segment contributed $20 million of adjusted EBITDA in 2023. We shipped just over 1.1 billion board feet of lumber, which established a new record for the company in annual shipment volumes.
Speaker Change: Our Idaho saw log prices were 15% lower on a per ton basis in the fourth quarter compared to the third quarter.
Speaker Change: The decline in saw log prices, primarily reflects lower prices for index saw logs.
Speaker Change: In the South we harvested $1 7 million tons in the fourth quarter <unk>.
Speaker Change: Favorable weather conditions and good execution by our seller southern Timberlands team were key to achieving our harvest level.
Speaker Change: Our southern saw log prices were 2% higher than the fourth quarter compared to the third quarter.
Speaker Change: The increase was primarily driven by a higher mix of.
Speaker Change: Larger diameter saw logs and slightly higher hardwood saw log pricing.
Eric J. Cremers: Our wood products team had another strong year in terms of safety performance and successfully completed its capital project plan for the year. Speaking of our capital plan, we continue to remain on track with our $131 million project to modernize and expand our Waldo, Arkansas sawmill. Site preparation and civil work are well underway, with the first phase of equipment installation scheduled to commence later in Q1.
Speaker Change: The wood product segment, which is covered on slides eight and nine had negative adjusted EBITDA of $6 million.
Speaker Change: <unk> to the third quarter lumber prices were lower and the charge to write down lumber inventories to net realizable value was $4 million higher.
Our average lumber price realizations decreased $66 per thousand board feet or 14% in the quarter.
Eric J. Cremers: The project will increase the mill's annual capacity by 85 million board feet and significantly reduce cash processing costs. The existing mill will continue to operate during the project with approximately three weeks of downtime expected in the mid-part of the year to tie in the new equipment, followed by the anticipated completion of the project well before the end of 2024. Our real estate segment had a strong year, contributing a just-a-dip-a-dot of $68 million. On the rural side of the business, we sold 18,000 acres at nearly $3,100 an acre. Our real estate team had a strong finish to 2023 by taking advantage of our in-depth stratification of Ketchmark's timberlands earlier in the year. For 2023, nearly half of our rural business performance was attributable to the acquired Catchmark portfolio, which is located in excellent real estate markets. Our real estate development business sold 128 residential lots in the Chenal Valley Master Plan community at an average price of $104,000 per lot in 2023. We also closed on multiple commercial sales, resulting in over $7 million in revenue at an average price of nearly $575,000 per acre.
This price decrease is comparable to the random lengths framing lumber composite on a percentage basis.
Speaker Change: Our average lumber price realizations per thousand board feet were $427 in October $401 in November and $417 in December.
Lumber shipments increased 9 million board feet from 276 million board feet in the third quarter to 285 million board feet in the fourth quarter.
Speaker Change: Shifting to real estate on slides 10 and 11.
Speaker Change: The segment's adjusted EBITDA was $22 million in the fourth quarter compared to $14 million in the third quarter.
Speaker Change: EBIT generated by our rural sales increased sequentially due to the sale of more acres at a lower average price in the fourth quarter.
Speaker Change: Our rural real estate performance. This quarter is a testament to the robust real estate markets, where the Ketchmark properties are located and that were stratified earlier in 2023.
Speaker Change: EBIT generated by our Chanel Valley Master planned community declined slightly in the fourth quarter. We closed the sale of 30 residential lots in the fourth quarter at a higher average price compared to 32 lots in the third quarter.
Speaker Change: Also in the fourth quarter, we generated nearly $1 million in commercial revenue, which was comparable to the third quarter.
Eric J. Cremers: We had good absorption on our residential lot offerings for much of the year, but we have started to see modest signs of slowing in the take-up of our lot offerings by regional builders in Chennault Valley in the fourth quarter. Our team also made good progress on natural climate solutions opportunities this year. We are working through the final stages of the certification process on our nearly 50,000 acre Southern Timberland Carbon Credit Project.
Speaker Change: Turning to capital structure, which is summarized on slide 12, our total liquidity was $529 million. This amount includes $230 million of cash on our balance sheet as well as availability on our undrawn revolver.
We refinanced our $40 million of debt that matured in December at an interest rate of approximately two 5% after patronage credits from lenders.
Eric J. Cremers: We expect to begin pre-marketing efforts in the coming months with placement and sale of the credits in the marketplace in the second half of the year. Regarding solar activity, developers have shown a strong interest in solar opportunities, and we have continued to add to our inventory of solar options under contract. We signed up an additional solar option in Q4 and maintain a robust pipeline of potential additional solar deals. As a reminder, we have nearly $200 million in net present value worth of solar land sale and lease options under contract, representing less than 1% of our timberland acreage ownership. We are focused on assessing additional natural climate solutions opportunities and are optimistic about the growth potential in this area.
Speaker Change: To achieve the below market rate, we utilized a portion of our outstanding forward starting interest rate swaps.
Speaker Change: Which lowers our annual interest cost by approximately $500000, we still have $200 million notional.
Speaker Change: Notional of forward swaps to deploy which.
Which will help us keep our future borrowing costs low.
As we previously highlighted in the third quarter call, we repurchased $12 million of our shares in the fourth quarter at an average price of $45 per share for the full year, we repurchased 556000 shares at an average price of $45 per share or $25 million in the aggregate.
Speaker Change: This leaves us with $125 million remaining on our $200 million share repurchase authorization.
Speaker Change: Capital expenditures were 70 by $79 million in the fourth quarter, which includes $59 million for our Waldo, Arkansas modernization project.
Eric J. Cremers: Although it may take some time for these efforts to bear fruit, we believe that they will lead to an increase in demand for our rural land and drive up timberland values. Moving to capital allocation, we returned $169 million of cash to shareholders in 2023. That amount included $25 million of share repurchases at an average price of $45 per share, which is well below our estimated net asset value. We have an additional $125 million remaining on our existing share repurchase authorization.
These total expenditures also include real estate development expenditures, which are included in cash from operations and our cash flow statement.
Speaker Change: I will now provide some high level outlook comments. The details are presented on slide 13.
Speaker Change: We plan to harvest approximately seven 6 million tons in our timberlands segment in 2024 with approximately 80% of the volume in the south.
Eric J. Cremers: We follow a disciplined capital allocation strategy and continually evaluate all of our capital allocation opportunities to grow shareholder value over time. During the course of the year, we have remained very patient and very disciplined in our M&A activity, only pursuing opportunities that meet our stringent criteria and that we believe would increase shareholder value. To that end, we just acquired 16,000 acres in Arkansas for $31 million, or about $1,900 per acre, through a privately negotiated one-on-one transaction.
Speaker Change: Harvest volumes in the north are planned to be comparable in the first quarter relative to the fourth quarter of 2023.
Speaker Change: We expect northern saw log prices to decline about 5% in the first quarter compared to the fourth quarter.
Speaker Change: In the South we plan to harvest approximately one 5 million tons in the first quarter.
Speaker Change: We expect our southern saw log prices to decrease modestly primarily due to seasonally fewer hardwood saw logs in the mix.
Speaker Change: We plan to ship $1 1 billion board feet of lumber in 2020 for this level of expected shipments includes the impact of downtime at our Waldo, Arkansas sawmill for the modernization and expansion project.
Eric J. Cremers: These high-quality timberlands are well-stocked with an average age of approximately 25 years. The Acquired Timberland Portfolio also has strong rural real estate potential, including solar land sale or lease opportunities. Our disciplined, opportunistic, and nimble approach to capital allocation also applies to identifying opportunities to capitalize on higher timberland valuations. As a result, we have entered into an agreement with Forest Investment Associates to sell approximately 34,000 acres of plantation timberlands located in Arkansas and Alabama with an average age of less than four years for approximately $58 million or $1,700 an acre. This transaction is at a significant premium to our underlying timberland value and is non-dilutive given the young nature of these trees. This transaction is subject to customary closing conditions and is expected to close in the second quarter of 2024. At the end of the year, we had $230 million of cash on the balance sheet and total liquidity of $529 million.
Speaker Change: In the first quarter, we plan to ship 260 to 270 million board feet of lumber, which incorporates the effect of seasonally lower cap rates and our northern saw mills.
Speaker Change: Our average lumber price thus far in the first quarter is just slightly higher than our fourth quarter average lumber price.
Speaker Change: This is based on approximately 100 million board feet of lumber.
Speaker Change: As a reminder.
Speaker Change: $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis.
Speaker Change: Shifting to real estate, we expect to sell approximately 51000 acres of rural land, which includes approximately 34000 and southern acres to forest investment Associates as Eric previously discussed also we expect to sell 130 Chanel Valley residential lots in 2024 additional.
Speaker Change: Real estate details are provided on the slide.
Speaker Change: We estimate that interest expense will be approximately $1 million in the first quarter and approximately $9 million per quarter for the second third and fourth quarters of 2020 for.
Eric J. Cremers: In December, we refinanced our $40 million debt maturity at well-below market rates utilizing our existing forward-starting interest rate swaps and maintained our weighted average cost of debt at 2.3 percent, the lowest of the timber rates. Our strong balance sheet and significant liquidity provide us with flexibility and a solid platform to continue growing shareholder value. Shifting to the housing market, demand for new single-family residential construction continues to remain resilient as single-family starts eclipsed over one million starts for the second consecutive month, while the multifamily sector has contracted, driven by new supply coming into the market and the ongoing elevated interest rate environment. A higher proportion of new single-family residential construction is an important lumber demand driver as single-family starts typically consume three times the amount of wood versus multifamily.
Speaker Change: Interest expense is lower in the first quarter than the other quarters because that is when we receive our annual patronage payments from the farm credit banks.
Speaker Change: Also these amounts are net of estimated interest income, which we expect to be lower in 2024 based on an estimated average cash balance over the course of the year.
Speaker Change: Turning to capital expenditures, we are planning to spend $100 million to $110 million in 2024, excluding timberland acquisitions.
Speaker Change: That estimate includes approximately $44 million for the final installments on the Waldo, Arkansas sawmill modernization and expansion project.
Speaker Change: So as Eric mentioned, we already successfully completed an attractive bolt on timberland acquisition in Arkansas for $31 million. This year, we used cash on hand to close this transaction.
Eric J. Cremers: Single-family starts have been fueled by momentum and consumer confidence, a solid labor market, and recently declining interest rates. These factors, coupled with a historically low level of existing home inventory for sale in the U.S., have prospective homebuyers looking to purchase a new home versus an existing home. That said, housing affordability continues to remain a headwind for the housing market. While 30-year fixed mortgage rates have fallen over 100 basis points after hitting a two-decade high in October, breathing some more life back into the housing market, further declines in interest rates are needed to spur incremental demand. Thankfully, many economists are predicting that the Fed will trigger multiple rate cuts in 2024, which would help alleviate affordability challenges.
Speaker Change: Overall, we expect our total adjusted EBITDA will be moderately lower than the first quarter relative to the fourth quarter. This is based on the overall expectation of slightly higher average lumber solid prices moderated by fewer rural real estate sales.
Speaker Change: We continue to remain bullish on industry fundamentals that drive demand in our business, our integrated operating model and leverage to lumber prices are aligned with those fundamentals and we are well positioned to continue growing shareholder value over the long term.
Speaker Change: That concludes our prepared remarks, Rob I would now like to open the call to Q&A.
Rob: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Rob: Your first question comes from the line of George Staphos from Bank of America. Your line is open.
Eric J. Cremers: Our longer-term outlook on housing fundamentals remains positive. We believe an underlying shortage of housing stock, due largely to the combination of underbuilding after the Great Financial crisis and favorable demographics in the form of millennials, will provide positive tailwinds to the housing market. We continue to expect that U.S. housing starts will return to levels above the long-term average of 1 million units per year once homes become more affordable.
George Leon Staphos: Hi, everyone. Good morning, Thanks for the details.
George Leon Staphos: I guess first question I had is as we look towards resources in the <unk>.
Somewhat I guess reduction in harvest levels <unk> versus two <unk> is that purely seasonality and tough comps or is there anything else that we should be mindful of relative to all the other detail that you shared with US and then I just want to make sure I understood.
Eric J. Cremers: Turning to the repair and remodel segment, demand for this market has remained steady, backed by strong consumer balance sheets and existing homeowners staying in their homes and fixing them up versus moving up to a new home under the backdrop of a higher interest rate environment. Anecdotally, we also continue to experience strong home center takeaway, with our activity up 12% year over year. Looking at the longer-term horizon, repair and model market fundamentals continue to remain favorable. Our optimism is supported by an aging housing stock, the remote work evolution, and high home equity levels.
George Leon Staphos: From the slide deck, I think you have solid pricing down both in the north and the south and <unk> <unk> from <unk>.
George Leon Staphos: If that is the consideration with harvest slower should we expect that timberland also is looking at.
George Leon Staphos: Lower EBITDA sequentially from <unk>.
George Leon Staphos: Yes.
George Leon Staphos: This is Wayne yes, we are it is seasonal on the volume side, both in the north and the south keep in mind in the North we have spring breakup, which definitely drops the harvest volume in the first quarter and that also impact second quarter, but Q4 to Q1 Thats the main draw.
Eric J. Cremers: In summary, the company performed well in a challenging year and made substantial progress on its strategic goals, while continuing to remain disciplined on deploying capital. We delivered solid financial results in spite of an economic environment with elevated inflation and high interest rates, which impacted lumber demand and prices. Potlatch Delta continues to be very well positioned with an investment grade balance sheet and a portfolio of high-quality assets. We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in high-return capital projects, acquisition opportunities, and returning capital to our shareholders through our quarterly dividend and share repurchase program. I will turn it over to Wayne to discuss our fourth quarter results and our 2024 outlook. Thank you, Eric.
George Leon Staphos: <unk> and then also the same thing in the South are just seasonal seasonal differences there as well I think it's.
We're looking to harvest volumes that are consistent with.
Seasonal norms on the on the volume side on the pricing side, yes, when you look to the north.
George Leon Staphos: Got a couple of factors there one index saw log pricing is down you.
George Leon Staphos: You got to keep in mind that you have a one month lag there. So we're picking up pricing from December through February so thats impacting the north plus combined with we have a season seasonally heavier logs. So that's also bringing down the average price.
George Leon Staphos: For the north in the South.
George Leon Staphos: We have it's mostly a mix issue less hardwood saw logs in the mix, it's really driving that decrease.
Starting with page four of the slides, Adjusted EBITDA was $41 million in the fourth quarter compared to $56 million in the third quarter. The quarter-over-quarter decline in EBITDA was primarily due to lower lumber prices, lower index saw log prices, and seasonally lower harvest volumes in Idaho. However, these declines were offset in part by strong rural real estate sales. I will now review each of our operating segments and provide more color on our fourth quarter results.
George Leon Staphos: Comparably I would say prices are generally flat.
Speaker Change: Okay, I appreciate that way and so it wouldn't be unreasonable to expect.
Speaker Change: Real estate will be lower we know timberland will be lower wood products at current levels of pricing recognizing there are no guarantees in obviously.
Speaker Change: Hopefully you will have an inventory charge this quarter.
Are you breakeven or better from what you can see given where prices are right now given where production will be or might that still be at a bit of a loss in the first quarter from what you can see right now.
Information for our Timberland segment is displayed on slides 5 through 7. The segment's suggested EBITDA decreased from $42 million in the third quarter to $33 million in the fourth quarter. Operationally, our Timberlands team harvested 2 million tons, establishing a record for a fourth quarter harvest volume. Our saw log harvest in Idaho was 328 million tons in the fourth quarter.
Speaker Change: No George this is Eric I, our expectation is that our mills fact every one of them is profitable out in Q1.
Okay. Thanks for that Eric and then.
Speaker Change: Last question I had for you.
Certainly seasonality lower pricing there are a lot of things that were headwinds that a lot of the wood product companies, we're facing in the fourth quarter.
This is down seasonally from 377,000 tons that we harvested in the third quarter. Our Idaho saw log prices were 15% lower on a per ton basis in the fourth quarter compared to the third quarter. The decline in SAWLOG prices primarily reflects lower prices for indexed SAWLOG. In the South, we harvested 1.7 million tons of SAWLOG in the fourth quarter. Favorable weather conditions and good execution by a Southern Timberlands team were key to achieving our harvest level.
Speaker Change: Your results warrant.
Speaker Change: That different than what we've seen elsewhere, so far but nonetheless, it was a bit of a bracket number in the quarter are there any other things aside from the current project and Waldo that you are considering in terms of improving.
Speaker Change: Your cost performance in your normalized earnings outlook no matter the environment in terms of demand and pricing and if so what sorts of things might we be seeing from from potlatch on that front in the next year or two thank you.
Our southern saw log prices were 2% higher in the fourth quarter compared to the third quarter. The increase was primarily driven by a higher mix of larger diameter saw logs and slightly higher hardwood saw log prices. The wood product segment, which is covered on slides 8 and 9, had negative adjusted EBITDA of $6 million. Compared to the third quarter, lumber prices were lower, and the charge to write down lumber inventories to net realizable value was $4 million higher. Our average lumber price realization decreased $66 per 1,000 board feet, or 14%, in the quarter. This price decrease is comparable to the Random Lengths Framing Lumber Composite on a percentage basis. Our average lumber price realizations per 1,000 board feet were $427 in October, $401 in November, and $417 in December.
Speaker Change: Yes, I think so George this is Eric I'll speak first and then Wayne can chime in after me, but I think if you look across the business units. So you start with timberlands, we are expecting lower log and haul costs for the year.
Eric J. Cremers: We have seen we have seen rates moderate, particularly in our northern region up in up in Idaho. So.
Speaker Change: So that will help provide a little bit of tailwind in <unk>.
Speaker Change: Wood products, we think that the outlook for pricing is favorable.
Speaker Change: First given the supply and demand dynamic where youre seeing no closures, we've seen almost gosh $2 3 billion board feet leave the industry in the past 13 14 months.
Speaker Change: Closures up in BC, the Pacific Northwest and also down in the down in the South.
Speaker Change: And we think the demand backdrop is improving as well we talked about the shift towards single family. We also see I wouldn't say growth in repair and remodel, but I see I see stability and repair and remodel and I see less European imports this year.
Lumber shipments increased 9 million board feet from 276 million board feet in the third quarter to 285 million board feet in the fourth quarter. Moving to real estate on slides 10 and 11. The segment's adjusted EBITDA was $22 million in the fourth quarter compared to $14 million in the third quarter. EBITDA generated by rural sales increased sequentially due to the sale of more acres at a lower average price in the fourth quarter. Our rural real estate performance this quarter is a testament to the robust real estate market.
Speaker Change: And if we can see interest rates come down in the back half of the year.
I think again that supply demand backdrop is going to be is going to be favorable.
On the real estate side, Yes, Q1 is going to be a little bit weak real estate sales are always lumpy Q2 is going to be huge with our our FIA sale and just just to comment on that real fast.
Speaker Change: We're selling those acres that we think somewhere between the three five and 4% IRR to the buyer.
Speaker Change: And we're redeploying that capital into some of it any way into the Ridgewood acquisition, that's got an 8% IRR.
So that's going to favorably impact the P&L as well so some minor puts and takes along the way, but I think the big picture in my mind is that the backdrop.
For our business, which is really lumber demand.
Speaker Change: As favorable.
Speaker Change: So on that front and just to finish up you don't see a need for.
Or sort of any structural or more probably.
Specific cost outs within wood was really where I was going with that question given what you can see given capacity coming out the the backdrop and so and Thats really where I was going with that question. Thank you. Yes, yes. So we've really we really got its not just our Waldo project. We've also got a new.
Long train going in and are worn saw mill.
Speaker Change: We're putting in a new sawmill trim and short line in our warrant mill.
Those projects are 15% to 20% kind of IRR projects, but they're going to take a year or two to get to get completed. So we're constantly looking for projects frankly capital projects in our mills offers us some of the highest returns for our capital allocation. So we're constantly looking at things and we do have a few projects underway, but they're going to they're going to.
Speaker Change: Some time.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from the line of Anthony Pettinari from Citigroup. Your line is open.
Anthony Pettinari: Hi, good morning.
Anthony Pettinari: Good morning.
Anthony Pettinari: Hey, when you look at the log prices in <unk> and your expectations for <unk> I was just wondering if youre seeing in the southern region any differential trends beats.
Anthony Pettinari: Between Arkansas, and then sort of the Georgia, South Carolina, Alabama footprint from Ketch Mark.
Anthony Pettinari: And then I guess, maybe related question can you just remind us in terms of hardwood lumber or sorry, hardwood logs like what percentage of the harvest that would be or it seemed like that.
Anthony Pettinari: <unk> prices are mix can you just kind of maybe dimensionalize that a little bit.
Yes, I think from a regional standpoint on the timberland side.
Anthony Pettinari: We have the markets are tend to be more tension in the Georgia, South Carolina markets.
Anthony Pettinari: And with that we saw earlier in the year prices drop a little more there earlier in the year with.
Mills, taking economic downtime delivery quotas, but we've seen that stabilize.
Anthony Pettinari: All of our markets throughout the year and continuing to improve so purely on volume.
Volume standpoint, we're able to move volume I think on a pricing standpoint, that's been relatively flat as we progress through the year and as we head into Q1.
Anthony Pettinari: Now with that as demand as we as demand improves we would see I think pricing improve in those more attention markets in the southeast.
Anthony Pettinari: Where we've historically seen them.
Not as tension for us in and a lot of the wood baskets in Arkansas and Alabama.
Anthony Pettinari: Mississippi, So pricing may take a little more time to move there but.
Anthony Pettinari: When we do see demand pick up I think that's where we'll see bigger price increases in that region.
Got it and then yeah on the mix side.
Anthony Pettinari: Sure.
Speaker Change: Oh, sorry go ahead.
Speaker Change: Hardwood mix, yes, the hardwood mix.
Speaker Change: Yeah.
Speaker Change: Yes on the hardwood mix that's.
Speaker Change: I mean thats probably in the neighborhood, it's only gone up a couple percentage points maybe.
No.
Five to 10 here in the quarter.
Speaker Change: Got it got it.
Speaker Change: And then just shifting gears you talked about I think monetization of the credit project I think in the second half of the year. Just wondering if you could talk about sort of the activities that.
Speaker Change: It need to be completed.
Speaker Change: In order to make that happen and are you working with third parties or marketers registries, just sort of anything you can kind of share on.
The kind of timeline and the steps.
Speaker Change: Yes, so so we're deep into the process now Anthony that the first step really is to.
Speaker Change: Bringing in order that will do the math and prove out to the investing public if you will that the credits are for real.
Speaker Change: That's a rather lengthy process.
Speaker Change: And as you can imagine in this kind of net zero environment that we're in the demand for these auditors is sky high and it's not just for timberland projects. It runs a gamut.
Speaker Change: Of how you get carbon out of the atmosphere. So these these folks these consulting firms are in very high demand.
Speaker Change: But if you want to have quality credits you got to have monitored by an independent third party that has got a good reputation and so that's the process that we're going through.
Speaker Change: We expect to have that process done.
Speaker Change: I would say, perhaps early in the third quarter.
Speaker Change: And shortly after we get them.
<unk>.
Speaker Change: We're going to we're going to put them out to bid.
And we've lined up <unk>, which is one of the two.
Speaker Change: Large firms that sell carbon credits around the world, great reputation and they're well entrenched in the European market, which is where we think our credits are going to have the most value and so we expect to monetize those those credits shortly after.
Speaker Change: They get they get the audit comes through and so that's probably going to be in the third quarter as well.
Speaker Change: Okay. That's super helpful I'll turn it over.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of <unk> from BMO capital markets. Your line is open.
<unk>: Thank you.
<unk>: First question.
Speaker Change: Can you talk a little bit about.
Speaker Change: Some of the capacity curtailments that we've seen in the U S. South on the comments I am surprised that we are seeing capacity curtailments in the U S South.
Speaker Change: And related to that any impact on your wood basket from the recent Arkansas shutdown announcements.
Speaker Change: No.
Speaker Change: I wouldn't say.
Speaker Change: I'm modestly surprised about the curtailments in the South I mean, everybody talks about cheap fibers in the south that's a great place to make lumber much better than up in BC and whatnot civic northwest.
Speaker Change: But when you get into some of these some of these specific wood baskets like.
Speaker Change: West Fraser for example, they close the mill down in Florida that was a really tight wood basket and that's a relatively small mill.
Speaker Change: And same thing when you look at I think Boise Cascade closed a mill in Alabama West Fraser closed another one in hunting, Arkansas those are smaller mills with tougher cost structures.
That capital investment.
It may not have happened over the years, because the owners recognize that long term the mills couldnt be competitive.
Speaker Change: So, yes, I'm not surprised I guess at the at the end of the day that some mills have closed in the south.
Speaker Change: To answer the second part of your question did the West Fraser Millen Hurtig impact us no not not not at all.
Speaker Change: One of our competitors has got a large block of timberland near that mill and they are the primary supplier to hunting so no impact us.
Speaker Change: Understood.
Speaker Change: And then can you talk a little bit about sort of.
The M&A pipeline on the Timberland side, obviously, you did kind of.
Speaker Change: Small bolt on but in general kind of how does the pipeline look right now.
Speaker Change: Yes, I would tell you that the M&A market is really tight.
Speaker Change: I would say typically $3 billion to $4 billion of timberland trades hands, each year, and I think something like last year, maybe $1 billion five traded hands.
And I think sellers, they're basically holding off.
Speaker Change: Waiting for maybe housing in lumber prices to improve.
Speaker Change: Haps interest rates to come down.
Speaker Change: Or frankly, maybe more importantly for carbon deals become more mainstream.
And carbon is having a bigger and bigger deal.
Speaker Change: That's one of the takeaways for this call. When you look at the transaction that we had with FIA was with the ultimate was a European investor not FIA, it's going to own those trees.
Speaker Change: We sold trees that were I think three eight years old for $700 an acre.
Speaker Change: What was it five years ago, you'd buy average age timberland in the south for <unk> thousand $700 an acre.
Speaker Change: Carbon is having a bigger and bigger deal and especially if you look at the large sums of capital that have been raised.
Speaker Change: To pursue timberland for a carbon outcome.
Speaker Change: I can reference a bunch of Oak Hill raised $1 8 billion. They bought one 7 million acres from forest land Manulife that it was raising $500 million timber carbon offsets J P. Morgan acquired Campbell Global with T. Mo and then subsequently bought 250000 acres for $500 million in the South Goldman Sachs.
Speaker Change: And Apple just raised $200 million for carbon offset fund so.
Speaker Change: I think people are holding off bringing their timberland to market waiting for this capital to get raised and then waiting for it to desperately look for a home.
Speaker Change: Because that ultimately is going to push up timberland values.
Speaker Change: Got it now that's very helpful identical or good luck.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Michael <unk> from tourists Securities. Your line is open.
Michael: Thank you Eric when you for taking my questions.
Michael: My first question just can you help me just understand what's happening with respect to margins in wood products. Just following up on what George was asking earlier, because when I look back historically when there were periods of time when you had lower prices lower volumes you still managed to generate mid single digit high single digit EBITDA margins.
I'm just wondering is there something going on from a cost vantage point.
Michael: That's negatively impacting your performance in wood products.
Speaker Change: Well, Yeah, certainly Michael there is in the inflationary environment, we've seen over the past year or two cost of running saw mills.
Speaker Change: Moved up meaningfully.
Speaker Change: And what you what you saw this past year and particularly in the fourth quarter is with the higher interest rates demand.
Speaker Change: Has dropped.
And it dropped to the point where capacity utilization in the industry.
Speaker Change: Is that the lowest it's been I think since going back to 2013 is what I read the other day.
Speaker Change: Whenever you get into a situation or in a commodity industry where capacity utilization.
Speaker Change: The rock bottom levels youre going to see prices collapsed as everybody tries to keep their mills running full.
Speaker Change: And subsequently prices come down and I am happy that our lumber margins in Q4, while our negative I'm certainly not happy about that by strip out plywood, we were something like minus 1% in lumber.
Speaker Change: I think I've only seen one of our peers report so far and we did I would say meaningfully better than our peers. So it's a tough environment right now, but I think the backdrop is for things to get much better.
Got it. Thank you so thats actually the essentially the comment you made so when you strip out plywood actually lumber is only minus the margin was minus 1% for the quarter.
Speaker Change: Correct got.
Speaker Change: Got it okay. Thank you for that.
Speaker Change: On.
Speaker Change: <unk> you mentioned also just.
Seeing a slower take up quite a large builders in <unk>.
Speaker Change: What are you seeing now from them is that accelerated because those rates have come down some of the builders that have been reporting have been showing pretty pretty good demand in <unk> in there Alex you've been pretty strong with 24. So I'm wondering if you've seen that reverse thus far in the quarter.
Speaker Change: Yes, Michael this is Wayne.
We did have good absorption through most of the year Q4, that's when we started to see modest signs of slowing there I think as we have an outlook into 2020 for right. Now. We're we're looking at about the same level of sales as we had in 2003. So we're.
Speaker Change: We are heading into the year with kind of the same.
Speaker Change: Same view is coming out of Q4 keep in mind.
Speaker Change: All of this is one smaller market in little rock, Arkansas.
Speaker Change: It's not a robust.
Speaker Change: Real estate market for single family residential as compared to other kind of broader metro metropolitan areas in the south and.
And Additionally, I think also keep in mind that.
Speaker Change: <unk> market or regional builders. They don't have the same balance sheet or tools available to offer incentives to homebuilders compared to large national builders. So these these regional builders instead of maybe building eight homes they might build six five and then like large national homebuilders and theyre not going to build it.
Speaker Change: Many spec homes anticipating the sale upon completion, so I think that those kind of market dynamics play into it I think.
Given that they're not.
The same balance sheets as large homebuilders that theyre going to be a little cautious until rates start to move more.
Speaker Change: Got it. Thank you and then just one.
Speaker Change: One last question more of a strategic question.
Speaker Change: Last 18 months or so we've seen a number of mill closures.
Speaker Change: Line closures you have in Veeva events contending with.
Speaker Change: All of its own problems theyre structuring and impact on the demand for pulpwood. So im just when you think about pulpwood in general with some mill closures line closures and Veeva I realize that's less valuable and saw timber, but it. Nevertheless, nevertheless helps with cash flow.
Speaker Change: Do you think about irritation, you harvest planning with pulpwood facing this hybrid secular demand decline subsidiary.
Yes, certainly that's an area we're focused on I think with these announced closures.
As Eric mentioned earlier, we haven't we haven't had a direct impact to us.
Speaker Change: To break that down between volume and price I think from a volume perspective, we continue to move volume and we have strong relationships with our customers, especially our large customers and then also with our size and scale, we can move volume to alternative customers.
Speaker Change: From a volume.
Volume perspective.
Speaker Change: We can move it I think from a pricing dynamic clearly less demand with mill closures creates less demand in that that has an overall impact on the pricing environment and that's what we've seen very.
Speaker Change: And we've kind of been flat there on the pulpwood side heading into Q1 relatively flat still so I think thats the near term.
Speaker Change: Longer term were.
Speaker Change: We are very active in the market about what are some longer term opportunities.
Speaker Change: Right now there is we're in discussions with a lot of different producers biomass producers.
Speaker Change: From bio powered of pellets to Biofuels bioplastics.
Would utilize pulpwood.
Speaker Change: And I think those will create opportunities now this investment will take a bit of time, but we do believe that this will bring more demand intention to.
Speaker Change: Certain wood baskets in the south.
Speaker Change: Got it thank you very much and good luck in 'twenty four.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Matthew Mckellar from RBC capital markets. Your line is open.
Matthew Mckellar: Hi, good morning, Thanks for taking my questions.
Matthew Mckellar: Good morning are you able to comment on what your floor is kind of a development pipeline looks like beyond this first project developing in the south.
Matthew Mckellar: And maybe comment on how we should be thinking about the pace of project development deliveries looking out beyond 'twenty four.
Speaker Change: Yes. So we do we do have this first project well underway. It's just under 50000 acres, we're pretty excited about it because we've built up like three years of carbon credits in inventory. So the first sale.
Speaker Change: Probably going to be close to half a million credits.
We are building our pipeline.
Speaker Change: We've got a number of acres that we think.
Speaker Change: The highest value the best value for those acres.
Speaker Change: It's going to be in a carbon outcome.
Speaker Change: But we want to see how this first project plays out.
Speaker Change: Right now I think we're maybe another 100000 acres.
Speaker Change: Could be well suited for our carbon outcome, but of course, it all depends on the carbon price and the outlook for the carbon price. So the higher we see those prices go the more acres, we're going to think about.
Speaker Change: Have a have a better outcome for carbon versus traditional timber. So we'll have to see how that develops.
Speaker Change: Okay, great. Thanks for that and then just one more for me.
Speaker Change: What's your sense here today.
Speaker Change: Channel inventory levels sit for wood products as we ramp into the building season.
Speaker Change: I think there are just rock bottom levels.
Speaker Change: I think what's changed over the past couple of years as you know, especially with the price run up so we saw back in 'twenty, one and 'twenty two.
Speaker Change: The dealers just don't want to carry inventories they want just in time deliveries.
Which is generally why southern pine carries a premium over over SPF.
Speaker Change: And I think what's happened here recently is with the cold weather Thats come across the U S. A lot of job sites were shut down.
Speaker Change: There is no activity so dealers went to even lower levels. So I think where we're at right now is just at rock bottom levels.
Speaker Change: So hopefully with this warmer weather, that's showing up we will see some some some buying activity here.
Speaker Change: Thanks, very much I'll turn it back.
Speaker Change: Thanks.
Speaker Change: And again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Kurt Yinger from D. A Davidson your line is open.
Great, Thanks, and good morning, Eric and win.
Kurt Yinger: Good morning.
Kurt Yinger: I know that John.
Kurt Yinger: The 34000 acre disposition, you talked about the young age class profile, but just curious if you could provide any details on a harvest levels in any EBITDA contribution from that acreage over the past year or maybe what you were expecting.
Kurt Yinger: In terms of a five year plan or anything like that.
Speaker Change: Yeah, so that so that sale, which was 34000 acres in total.
Was split roughly 80% of Arkansas, 20%, Alabama.
Speaker Change: I mentioned the trees were less than four years old I think three eight years old.
Speaker Change: And they were in a traditional southern yellow pine plantation type type forestry.
They're gonna have virtually had we kept those trees. They would have virtually no impact to our harvest profile for the next 22 years, there would've been some thinning along the way it aged 14 or 15, but given where pulpwood prices are I don't think theres much much margin to it so virtually.
Speaker Change: No impact for 22 years.
Speaker Change: And then if you look out to when those trees would reach maturity. The impact is about three to 400000 tons per year for about six years.
Speaker Change: So no impact really for 22 years.
Speaker Change: And then it is $3 to 400000 tons per year for about six years, and then it drops to zero.
Speaker Change: So that was that was the trade off here that makes sense.
Yes that makes sense, thanks for that and then.
Speaker Change: My second question.
Speaker Change: We've talked about kind of the solar opportunities for a couple of quarters now you had.
Speaker Change: One decent sized sale around that just sort of curious.
Speaker Change: You think about that opportunity with some of these deals in the pipeline in terms of timing and whether you think 2024 could be the year, where the rubber really hits the road and we see some more material impacts from that.
Speaker Change: Yes.
Speaker Change: That's a great question Kurt.
Speaker Change: We did get another solar deal just signed up here as we mentioned earlier.
Speaker Change: Our pipeline is big the <unk>.
Speaker Change: Outlook for solar has never been greater.
Speaker Change: If you look at what Nextera energy says, which is a huge solar developer or R. W. E. Big German solar developer everybody is talking about solar tripling between now and the end of the decade now that being said.
Speaker Change: Put together a solar farm is a very complicated process.
Speaker Change: And Thats why you you when you go to enter into an agreement with one of these developers the first step for them is getting getting land under option.
I need to know that they've got a home for their for their farm and it needs to meet the certain attributes like close to high power transmission lines and whatnot, but they've got to then go find the equipment they've got to find the panels, which you know that now you've got supply chain issues coming from China, you have got to negotiate offtake agreements that takes time from utilities.
Just a lot of work goes into it I don't expect 2024 is going to be the year for.
Speaker Change: A lot of solar farms to have those options get exercised in our portfolio. I think 2025 is going to be a great year for us.
Speaker Change: But we will see where things are at as we get to the end of the year and we'll give guidance and but I think our view is that those developers are going to pull the trigger starting in 'twenty five.
Speaker Change: Got it and is it fair to say that.
Speaker Change: Your preference would still be primarily lease and those deals as opposed to sell or.
Speaker Change: I guess as you kind of look across the agreements and what that might entail.
Speaker Change: Which way would you lean or which way I guess, what the economics point of view.
Yes, we would we would definitely prefer to lease we like the long term income stream, we like those.
Those things are index back to inflation, CPI, what kind or whatnot.
But I will tell you that there are some of those developers that refuse to enter into leases they have to buy.
And certainly given the prices $10000 an acre what have you.
We're happy to be to be a seller if they refuse to lease so either way, it's a great outcome for us, but our preferences to lease.
Speaker Change: Got it Okay makes sense I appreciate the color. Good luck here in Q1 guys.
Yes. Thank you.
Your next question comes from the line of Mark Weintraub from Seaport Global Your line is open.
Thank you couple of follow ups.
Mark Weintraub: First on the solar since we're just talking on that.
You can kind of throw out find equipment offtake is there a permitting process that needs to happen and does that tend to happen first and then I would imagine you do the offtake second and then find the equipment third is that sort of the order things would normally take.
Yes, I can't I can't answer that Mark we're not in the development business, but I think certainly getting a permit as part of the part of the process.
So do you know if it's on any of the situations, where you've got options in place.
Where things might stand on the permitting side is that our first window.
Yes, I don't I don't know where they're at with their permits they tend to be a little quiet with that stuff.
What I do know is that when they when they get it when they get a property under option, let's say they get under option for four years.
As they get closer and closer to the end of the four years now bear in mind that they've been making option payments all along the way right that they're having to write a check every year to have the property under option.
And what they don't want to have happen is they lose that that option.
Because somebody else might pick it up and in fact at a higher price in fact that that happened. This past year, we have one expire.
And we went out and found another partner for the tract and they they put the land under option.
A meaningfully higher price.
So I think what happens as the pressure builds as you get to the end of the option period.
And that's when they want to get all their ducks lined up to pull the trigger.
That's typically how it works, but we don't have great insight as to what their what their plans are.
Fair enough and since we're kind of on the carbon.
Type of topic here do you guys have anything on the Ccs side, which obviously, both weyerhaeuser and rain.
<unk> talked about a fair bet or a bit because of the location and the such like is it likely a less bigger factor for you.
No well it may be a little bit of a less bigger factor for us given where were at in Arkansas as opposed to Weyerhaeuser has got ground down in Louisiana, Texas whatnot.
But we definitely have projects underway in Ccs, but we're under an NDA. So we can't really talk about them.
But theres certainly a lot of work going on in that area.
I would expect over the coming quarters, we will have we'll have more to say as things things come to fruition.
Super and then.
Products you'd made the comment about being profitable in one can you just wanted to clarify.
That EBITDA was that operating profit end and does that build in the expectation, which you laid out why you would have that but that lumber prices would probably be going higher or is that where prices are today.
Yes, no I wouldn't I would say, it's it's an EBITDA kind of a number.
And yes, I think it's primarily driven by by by improved lumber prices.
Okay and then.
And I guess kind of well maybe one more on lumber if I could and then you talked about the significant reduction in cash costs related to Waldo.
And I think you've talked about the specifics before but can you remind us how much of that might show up this year and then how much additional.
BP still in the in the hat for for next year.
Well I would I would say.
Our shipments are going to be down.
At Waldo this year.
Have way too much work going on and I think it's something like 30 million feet, we're going to lose at Waldo because of the project. So we're not going to see those benefits. This year, it's going to be it's going to be next year.
And really it's going to be Q2, and Q3 that take the hit on shipments.
We'll start the year out just to give you a sense of if we're going to start the year out with 51 million feet. We expect in Q1 dropping to 41 in Q2, and then 19 million feet in Q3, and then up to 54 million feet in Q4.
But by the end of the year, we're only we only expect to be at about 80% of where the mill is going to get to eventually and it's going to take us until probably Q3 of 25.
To where we've got the mill running at 100% of capacity.
And the bid group Who's our contractor for this project they've done a number of mills as you know in the south.
And they've got a lot of data on the ramp curve for for mills with projects like this brownfield expansions.
And it's fairly well documented and surprisingly the range is pretty tight.
On on like first quartile versus fourth quartile mill expansions like this so we expect to be improving but it's going to take a good a good year to get it fully ironed out.
Okay, and then lastly, maybe if you can just help us a little bit.
So you're you sold some line at 1700 explained why the price was low given the H class you bought land at 1900 with a more even type age class.
And at the same time, you've been talking about how you've been buying back stock and in part its a big discount to NAV.
Yes sort of those 700 1900 dollar type numbers.
Not necessarily correspond to kind of how most of us are thinking on NAV.
So you sort of explain the 1700, maybe you could talk a little bit about the 1900, and then maybe where you talked about three years ago. Maybe 700 was represented of an average age.
Class U S. Timberland holding do you have a perspective on where that would be today.
Well I would I would tell you I would not characterize the acquisition that we made to 16000 acres in Arkansas for $31 million or 1900 acre that was not an even as forest that was a mature force average age 25.
So we will be harvesting those trees for them over the next four to five years.
That was a privately negotiated transaction 101, and we think we're going to earn an.
An 8% IRR on that project.
Which is unheard of in timberland M&A circles and.
And we got that return because it was a privately negotiated transaction just like we did with looter pretty much like we did with Ketchmark pretty much like we did with Delta way back when.
So mark I think to answer the second part of your question, where do I think timberland values are today, if we brought in even aged.
Track to the market what do I think we could get and I think it depends upon the individual area, but I'd say, probably somewhere between 2500 to 3000 an acre.
Depending upon where it might sit.
So somewhere in that Zip code.
Right well, thank you for all the insights.
Yep you're welcome.
At this time I'm showing there are no more questions I'll now turn the call back over to Wayne waste check.
Thank you for your questions and your interest in Potlatch Delta that concludes our call.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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