Rayonier Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 6, 2025
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Operator

Welcome and thank you for joining Rainier's Fourth Quarter and Full Year twenty twenty four Conference Call. At this time, all participants are in a listen only mode. During the question and answer session, please press star one on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Operator

Now, I will turn the meeting over to Mr. Colin Ming, Vice President, Capital Markets and Strategic Planning.

Collin Mings
Collin Mings
Vice President of Capital Markets & Strategic Planning at Rayonier

Thank you, and good morning. Welcome to Rayonier's Investor Teleconference covering fourth quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and Forms 10 K and 10 Q filed with the SEC list some of the factors that may cause actual results to differ materially from the forward looking statements we may make.

Collin Mings
Collin Mings
Vice President of Capital Markets & Strategic Planning at Rayonier

They are also referenced on Page two of our financial supplement. Throughout these presentations, we will also discuss non GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental material. With that, let's start our teleconference with opening comments from Mark McHugh, our President and CEO. Mark?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Thanks, Colin. Good morning, everyone. First, I'll make some high level comments before turning it over to April Theis, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. Then Doug Long, Executive Vice President and Chief Resource Officer, will comment on our U. S.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

And New Zealand Timber results. And following a review of our Timber segments, April will discuss our real estate results and our outlook for 2025. We were pleased to finish 2024 with better than expected fourth quarter financial results, which allowed us to deliver full year adjusted EBITDA of $299,000,000 roughly 3% above the high end of our prior guidance range and slightly above the prior year. Full year pro form a net income was $70,000,000 or $0.47 per share. These full year results demonstrate our resilience and nimble execution amid persistent market headwinds.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

In the fourth quarter, we generated adjusted EBITDA of $115,000,000 and pro form a net income of $41,000,000 or $0.27 per share. The 23% increase in adjusted EBITDA versus the prior year quarter was driven primarily by significantly improved results in our Real Estate and New Zealand Timber segment. Our Real Estate segment delivered adjusted EBITDA of $63,000,000 up $10,000,000 from the prior year period. The increased contribution from our real estate business was bolstered by an extraordinarily strong weighted average price per acre of roughly $7,200 excluding improved development and large dispositions, generating significant HPU premiums above Timberland value. Shifting to our Timber segment operating results.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Our Southern Timber Segment generated fourth quarter adjusted EBITDA of $35,000,000 up modestly from the prior year period. A significantly higher non timber income was largely offset by a 3% decline in harvest volumes and 15% lower weighted average net stumpage realizations. The decline in stumpage prices was driven in large part by the impact of salvage volume on the market throughout the quarter following Hurricane Helene. In our Pacific Northwest Timber segment, fourth quarter adjusted EBITDA of $6,000,000 was flat versus the prior year quarter as a 3% decrease in harvest volumes and a 9% decrease in average delivered log prices were largely offset by lower cost and higher non timber income. Turning to our New Zealand Timber segment, fourth quarter adjusted EBITDA of $20,000,000 increased $8,000,000 versus the prior year quarter.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

The increase in adjusted EBITDA was driven by favorable foreign exchange impacts, higher volume, higher net stumpage dispositions totaling approximately 200,000 acres during the fourth quarter. As discussed on our November earnings calls, these transactions have allowed us to reduce leverage and return capital to shareholders while also generating accretion to CAD per share. To date, we've now closed on roughly $737,000,000 of dispositions, approximately 74% of our original $1,000,000,000 target, which has allowed us to reduce net leverage to below three times and return over $110,000,000 of capital to shareholders in the form of cash, special dividends and share repurchases, including $15,000,000 of share repurchases in the fourth quarter. Turning to our outlook for 2025. As April will discuss in greater detail later in the call, we're providing full year adjusted EBITDA guidance of February to $300,000,000 The slight decline at the midpoint relative to 2024 adjusted EBITDA reflects the dispositions completed in the fourth quarter as well as modestly lower expectations in our Real Estate segment following extraordinarily strong results realized last year.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Overall, as we move into the new year, we are cautiously optimistic that timber prices will gradually improve along with end market demand. In addition, we expect another strong contribution from our Real Estate platform this year given the continued favorable demand trends for our rural HBU and development properties. Lastly, we remain encouraged by the pipeline of opportunities that continue to build on the land based solutions front, especially as it relates to solar and carbon capture and storage, which we expect will drive meaningful cash flow growth in the coming years. With that, let me turn it over to April for more details on our fourth quarter financial results.

April Tice
Senior VP & CFO at Rayonier

Thanks, Mark. Moving to the financial highlights on Page five of supplement. For the fourth quarter, sales totaled $726,000,000 while operating income was $346,000,000 and net income attributable to Rainier was $327,000,000 or $2.15 per share. On a pro form a basis, net income was $41,000,000 or $0.27 per share. Pro form a items in the fourth quarter included $291,000,000 of income from large dispositions, a $1,600,000 gain from a terminated cash flow hedge, $1,600,000 of costs associated with legal settlements and $1,100,000 of restructuring charges.

April Tice
Senior VP & CFO at Rayonier

Our adjusted EBITDA was $115,000,000 in the fourth quarter, up from $94,000,000 in the prior year period. Moving on to capital resources and liquidity at the bottom of Page five. Our cash available for distribution or CAD for the year was $184,000,000 versus $164,000,000 in the prior year period. The increase was driven by higher adjusted EBITDA, lower net cash interest paid and lower capital expenditures, partially offset by slightly higher cash taxes paid. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page eight of the financial supplement.

April Tice
Senior VP & CFO at Rayonier

As a result of the taxable gains arising from the Timberland dispositions completed during the fourth quarter, we declared a $1.8 per share special dividend in early December, which was paid on January 30 in a combination of cash and shares. In aggregate, the special dividend resulted in $68,000,000 of cash and 7,700,000.0 common shares and OP units being distributed following year end. For modeling purposes, we now have approximately 156,100,000.0 shares and 2,100,000.0 OP units outstanding following the special dividend. By issuing shares to meet part of our REIT taxable income distribution requirement, we have retained significant flexibility to further reduce debt, execute on share repurchases or fund other future capital allocation priorities. To this end, we continue to believe that share repurchases represent a compelling use of capital at the current stock price.

April Tice
Senior VP & CFO at Rayonier

During the fourth quarter, we repurchased 488,000 shares at an average price of roughly $30 per share. Notably, our fourth quarter share repurchases occurred prior to the ex dividend date with respect to the $1.8 per share special dividend. In December, our Board approved a new $300,000,000 share repurchase program, which affords us significant capacity to act opportunistically as it relates to share repurchases moving forward. Proceeds from our disposition plan have also allowed us to meaningfully reduce leverage. After paying off a total of $190,000,000 of debt during the quarter, we closed the fourth quarter with $323,000,000 of cash and roughly $1,100,000,000 of debt.

April Tice
Senior VP & CFO at Rayonier

Our net debt to trailing twelve months adjusted EBITDA was approximately 2.6 times at quarter end or two two point nine times pro form a for the cash component of the special dividend that we paid last week. At quarter end, our weighted average cost of debt was approximately 2.7% and the weighted average maturity on our debt portfolio was approximately four years with no significant debt maturities until 2026. Our net debt to enterprise value based on our closing stock price at the end of the quarter was 17%. I will also note that we declared our first quarter dividend yesterday after the market closed. The 4.4% adjustment in the quarterly dividend to $0.2725 per share from $0.285 per share reflects the 5.1% increase in shares and units outstanding as a result of the recent special dividend and is consistent with our previous communications regarding its anticipated impact on our regarding its anticipated impact on our ordinarily quarterly dividend.

April Tice
Senior VP & CFO at Rayonier

I'll turn now the call over to Doug to provide a more detailed review of our timber results.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Thanks, April. Let's start on Page nine with our Southern Timber segment. Adjusted EBITDA in the fourth quarter of $35,000,000 was above the prior year quarter as higher non timber revenue and lower costs more than offset lower harvest volumes and net stumpage realizations. Total harvest volumes fell 3% versus the prior year quarter due to the disposition of our Oklahoma acreage as well as production constraints resulting from some contractors temporarily shifting to salvage operations on properties impacted by Hurricane Helene. Meanwhile, non timber revenue increased $7,000,000 versus prior year period, driven by growth in our land based solutions business and higher pipeline easement revenues.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Average sawlog stumpage pricing was $25 per ton, a 14% decrease compared to the prior year period due to a less favorable geographic mix and the availability of low priced salvage timber in the Atlantic Region. Pulpwood net stumpage pricing was 9% lower in the prior year quarter at roughly $16 per ton, also due to geographic mix and availability of salvage volume. Overall, weighted average salvage prices in the fourth quarter decreased 15% versus the prior year quarter to roughly $19 per ton. In gray markets, green log demand was relatively soft in the Atlantic region during the quarter with mills shifting their procurement to salvage logs. In our Gulf markets, dry weather conditions led to ample supply, which also weighed on pricing.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Encouragingly, Southern Yellow Pine lumber prices ended the fourth quarter on an upward trend and currently sit near their highest levels in three quarters. Overall, we believe the outlook for gray markets will improve as Southern yellow pine lumber continues to gain share in the overall North American market and the availability of salvage volume declines in the Atlantic Region. Shifting to pulpwood, while we have been encouraged by sustained improvements in end market demand for our pulp customers, ample supply from hurricane salvage operations in the Atlantic Region and dry ground conditions in the Gulf Region led to elevated mill inventories and quota implementations during the quarter, which weighed on pulpwood prices. As it relates to salvage operations, the direct impact to our portfolio from the most recent hurricane season was relatively minor and our salvage operations are now largely complete. However, the availability of salvage volume in our Atlantic markets has certainly been a headwind over the last several months and we expect that this dynamic will likely persist through the first half twenty twenty five, which may continue to weigh on pricing.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Moving to our Pacific Northwest Timber segment on Page 10. Fourth quarter adjusted EBITDA of $6,000,000 was in line with the prior year quarter as lower net stump materializations and harvest volumes were largely offset by lower costs and higher non timber income. Total harvest volumes decreased 3% in the fourth quarter as compared to the prior year period, reflecting the impact of our recent dispositions in Washington. At $89 per ton, average delivered domestic sawtim pricing in the fourth quarter decreased 5% from the prior year period due to a combination of weaker demand from lumber mills and an unfavorable product mix as a higher proportion of chip and salt was harvested in the current year period. Meanwhile, at $30 per ton, pulpwood pricing was up 4% versus the prior year quarter.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

While demand from both domestic lumber mills and export markets remained soft in the Midwest during the fourth quarter, as we look toward 2025, there are indications that market conditions are gradually improving. To this end, lumber prices have begun to show positive momentum with producers in the region well positioned to benefit from potential further reductions in Western SPF supply from Canadian producers. In addition, we are cautiously optimistic that tension from the export market will gradually reemerge in response to signs of stabilization in the Chinese property market and an anticipated recovery in demand for Douglas fir logs in Japan. Moving to New Zealand. Page 11 shows our results and key operating metrics for the segment.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Adjusted EBITDA in the fourth quarter of $20,000,000 was $8,000,000 above the prior year quarter. The increase in adjusted EBITDA compared to the prior year period was driven by favorable foreign exchange impacts, higher volumes, higher net stumpage realizations and lower costs, partially offset by lower carbon credit income. Average delivered export saltwater prices of $108 per ton increased 7% compared to prior year quarter. However, these pricing gains were largely offset by higher port and freight costs with net stumpage realizations increasing only 1% versus the prior year quarter. In December, offtake from Chinese ports was approximately 57,000 cubic meters per day.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Although up slightly from prior year levels, log demand remains relatively soft. Inventory levels have generally adjusted to the weaker demand environment as China's property sector remains sluggish. At the December, softwood log inventories at Chinese ports stood at approximately 2,600,000 cubic meters, slightly higher than they were a year ago. Shifting to the New Zealand domestic market. Fourth quarter average delivered sawlog prices increased 6% from the prior year period.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

While economic headwinds in New Zealand persist, we are encouraged by signs of property market stabilization and increased consumer confidence as the Reserve Bank of New Zealand has lowered its official cash rate by 125 basis points since August of last year. The lower interest rate environment is anticipated to contribute to improved demand in the domestic market in 2025. Fourth quarter non timber income in New Zealand of $6,000,000 decreased $2,000,000 relative to the prior year period. The year over year decrease primarily reflects a lower volume of carbon credits sold as well as modestly lower pricing as compared to the prior year period. Positively, carbon prices in New Zealand have generally stabilized following policy decisions announced in August.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Lastly, in our trading segment, we registered a slight operating loss in the fourth quarter. As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our feed timber export business. I'll now turn it back over to April to cover our real estate results.

April Tice
Senior VP & CFO at Rayonier

Thanks, Doug. As detailed on Page 12, the contribution from our Real Estate segment during the fourth quarter was considerably above the prior year period. Real Estate revenue totaled $567,000,000 on roughly 207,300 acres sold, which included roughly 200,000 acres of large dispositions completed during the quarter. Excluding these transactions, fourth quarter sales totaled $72,000,000 on roughly 7,800 acres sold at an average price of $8,900 per acre. The strong average price per acre reflects both a higher proportion of development sales closed during the period as well as the significant premiums above Timberland value that our team achieved on rural land sales.

April Tice
Senior VP & CFO at Rayonier

Real Estate segment adjusted EBITDA in the fourth quarter was $63,000,000 the strongest quarterly contribution in over three years. Drilling down, sales in the improved development category totaled $14,000,000 with activity primarily focused in our Hartwood development project south of Savannah, Georgia. The largest transaction was a 37 acre built for rent residential parcel that sold for $9,100,000 or $244,000 per acre. This project will bring more homes to the Village Center and will enhance Hartwood's diverse mix of industrial, commercial, and residential uses. In addition, we also closed a 37 acre residential pod for $2,000,000 or $54,000 per acre as well as a seven acre industrial parcel for $1,700,000 or $240,000 per acre.

April Tice
Senior VP & CFO at Rayonier

In our wildlife development project, we closed the sale of a 0.9 acre commercial parcel for the development of a credit union for roughly $900,000 Entering 2025, there continues to be healthy interest from homebuilders in both our Wildlight and Hartwood projects as the pace of residential sales continues to trend favorably. While the timeline for some commercial deals have extended as developers contend with the current interest rate environment, we continue to be pleased with the overall momentum at both projects. In our unimproved development category, sales totaled $12,400,000 as we sold a 1,100 acre property directly east of Exit 1 off Interstate 95 in St. Marys, Georgia. The buyer plans to construct a highly amenitized master plan community, including a golf course, totaling about 1,300 residential units.

April Tice
Senior VP & CFO at Rayonier

Similar to many of our land sales to homebuilders, we will also benefit from true up payments based on the final selling price of the homes in the community as they are sold. We expect that this master plan community will catalyze demand for our adjacent land holdings, including over 300 acres nearby with improved entitlements for a mix of commercial and residential uses. Turning to the rural category. Fourth quarter sales totaled $43,000,000 consisting of approximately 6,600 acres at an average price of roughly $6,500 per acre. We had an exceptionally strong finish to the year as the conversion of our rural transaction pipeline exceeded our expectations heading into year end.

April Tice
Senior VP & CFO at Rayonier

Despite interest rates remaining relatively elevated, we have been encouraged by increased buyer interest over the last several months and continue to see favorable demand and pricing for our rural properties. In addition, we continue to see strong interest from conservation focused buyers, which contributed meaningfully to the sales activity during the fourth quarter. Moving forward, we remain optimistic about the long term outlook for our real estate business and expect that historically low unemployment, the housing supply shortage, favorable demographic and migration trends and the prospect of lower interest rates should spur further demand for both development and rural properties as we progress through 2025. Now moving on to our outlook for 2025. Page 14 of our supplement shows our financial guidance by segment and Schedule G of our earnings release provides a reconciliation of our guidance from net income attributable to Rainier to adjusted EBITDA.

April Tice
Senior VP & CFO at Rayonier

For full year 2025, we expect to achieve adjusted EBITDA of $270,000,000 to $300,000,000 net income attributable to Rayonier of $0.79 to $100,000,000 and earnings per share of $0.51 to $0.64 Our guidance excludes the potential impact of any additional asset sales as part of our previously announced $1,000,000,000 disposition plan. With respect to our individual segments, starting with our Southern Timber segment, we expect to achieve full year harvest volumes of 6,900,000 to 7,100,000 tons, a modest increase versus the prior year, primarily due to the carryover of some planned 2024 volume into 2025, partially offset by reduced volume from the Oklahoma disposition. As it relates to pricing, while we expect Pine stumpage realizations to trend higher as the year progresses, we anticipate that full year realizations will be slightly lower versus the prior year due in part to the continued impact of salvage volume into the market. Lastly, we expect a modest decrease in non timber income for full year 2025 as compared to the prior year, which benefited from significant pipeline easement activity. Overall, we expect full year adjusted EBITDA of $141,000,000 to $149,000,000 slightly below full year 2024 results.

April Tice
Senior VP & CFO at Rayonier

In our Pacific Northwest Timber segment, we expect to achieve full year harvest volumes of approximately 900,000 tons. The anticipated decrease relative to the prior year reflects the reduction in our Pacific Northwest sustainable yield resulting from the recent dispositions in Washington. Further, we expect that full year weighted average log pricing will increase modestly versus the prior year as a result of improving demand conditions. Based on these factors, we expect full year adjusted EBITDA of $21,000,000 million dollars to $26,000,000 comparable to the full year 2024 results. In our New Zealand segment, we expect full year harvest volumes of 2,500,000 to 2,700,000 tons.

April Tice
Senior VP & CFO at Rayonier

As it relates to pricing, we expect improving supplydemand dynamics to drive modest increases in both domestic and export salt timber pricing relative to the full year pricing achieved in 2024. We also anticipate a modest increase in carbon credit sales in 2025 as pricing has stabilized following a period of unusual market volatility. Overall, we expect full year adjusted EBITDA of $54,000,000 to $60,000,000 up modestly versus full year 2024 results. Turning to our Real Estate segment. We are encouraged by the continued strong demand and value realizations for our HBU properties.

April Tice
Senior VP & CFO at Rayonier

Our current pipeline suggests another solid year for both our rural land sales program as well as our improved development projects. However, similar to 2024, we anticipate very light closing activity in the first quarter with a correspondingly low adjusted EBITDA of less than $10,000,000 Overall, we expect full year adjusted EBITDA of $86,000,000 to $96,000,000 down modestly from the exceptionally strong full year 2024 results. Our 2025 guidance also reflects expected cost savings following recent actions we took to realign our organizational structure and reduce overhead costs in light of recent disposition activity. Since November 2023, we have completed dispositions totaling approximately 255,000 acres, roughly 11% of our total U. S.

April Tice
Senior VP & CFO at Rayonier

Acreage. This led us to make difficult but necessary adjustments to maintain an efficient overhead structure in light of the reduced scale of the company, while also reallocating resources to focus on important strategic growth initiatives. Overall, these actions translated to a roughly 10% reduction in our U. S. Workforce and resulted in 1,100,000 of restructuring charges in the fourth quarter for estimated severance related expenses.

April Tice
Senior VP & CFO at Rayonier

I'll now turn the call back to Mark for closing comments.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Thanks, April. Before concluding today's call, I'd like to recognize the exceptional effort displayed by our team in advancing several important strategic initiatives throughout 2024, while simultaneously navigating the difficult headwinds facing our timber businesses. On the land based solutions front, we were pleased to recently announce a new pore space easement agreement with an affiliate of Reliant Carbon Capture and Storage covering approximately 104,000 acres in Alabama. More broadly, our team continues to advance discussions with a number of high quality counterparties and build a strong pipeline of future opportunities given the favorable attributes of our portfolio. In total, as of year end, we had approximately 154,000 acres under carbon capture and storage lease and approximately 39,000 acres under option for solar development.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Continuing to grow our land based solutions business is a key strategic priority for Rayonier and we are encouraged by the financial contributions that are beginning to material as we build toward the 2027 and 02/1930 adjusted EBITDA targets that we communicated at our Investor Day last February. As I discussed earlier, we also made tremendous progress on our disposition and capital structure realignment plan in 2024. We've now closed on roughly $737,000,000 of dispositions, capitalizing on the disconnect between public and private Timberland values in a manner that has been accretive to both CAD and NAV per share. Looking forward, we continue to advance our evaluation of strategic alternatives with respect to our joint venture interest in New Zealand as well as other potential asset sales with a view toward further streamlining our portfolio, improving our balance sheet positioning and capitalizing on the public private disconnect. Throughout 2024, our team demonstrated remarkable agility adjusting to local market dynamics, severe weather events and an ever evolving macroeconomic environment.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Further, as April discussed, we've recently taken actions to realign our organizational structure for our smaller footprint. While such decisions were difficult, they will position us to operate more efficiently while remaining ready to advance our strategic priorities and capture emerging opportunities. Looking ahead, we remain optimistic that an undersupplied U. S. Housing market and an expected recovery in repair and remodel demand will translate into improving end market conditions.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Further, we anticipate the potential constraints on the supply of Canadian lumber into The U. S. Market from continued production cuts, higher duty rates and the prospect of new tariffs may likewise translate to improving operating conditions as more North American lumber production shifts into The U. S. Lastly, on the real estate front, as I detailed earlier, we finished the year with an exceptionally strong quarter in terms of both sales volume and premiums achieved to Timberland values.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Looking ahead, we believe that more favorable financing conditions could further bolster the demand we're seeing across our real estate categories and we are especially encouraged by the positive momentum that continues to build across our improved development platform. In sum, I'm proud of how our team was able to navigate challenging market conditions throughout the year to deliver strong financial results, while also maintaining a relentless focus on driving shareholder value creation. That concludes our prepared remarks, And I'll now turn the call back to the operator for questions.

Operator

Thank you, sir. Matthew McKellar from RBC, you may go ahead. Matthew McKellar, your line is open, sir.

Matt McKellar
Matt McKellar
Vice President at RBC Capital Markets

Thanks very much. Please correct me if I heard this wrong. It sounds like you're wrapping up your own salvage operations. Do you expect other salvage volumes in the market to continue to put pressure on price through maybe the first half of the year? Does this imply anything about your own volumes in the South through the year?

Matt McKellar
Matt McKellar
Vice President at RBC Capital Markets

And maybe specifically, should we also be expecting relatively stronger volumes from Rainy in the South in the second half of the year as the salvage operations wrap up?

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Sure. This is Doug. I'll start with that. So, yes, Hurricane Helene obviously was a large hurricane as a Cat four coming across from Florida's Big Bend and into Georgia and then all the way up to North Carolina. And so we really saw something that I haven't seen in my career.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

So it's had a significant impact. And to your point, it's definitely impacted the stumpage market in that area. So over 10,000,000 acres of porcelain were impacted in Florida and Georgia. And while we only had a couple thousand acres and we've pretty much cleaned that up, we're still seeing a lot of other people working through that backlog basically. And so we do expect that that's going to create some headwinds going into the first half of the year.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

You can imagine based on that scale, there's a lot of soft operations underway and most of crews pivoted that salvage of damaged timber from both within the path and then also neighboring wood baskets. So while the impact to us was small, we're really seeing this influx of unexpected volume that led to a steep drop from pricing in much of our Georgia wood basket as timberland owners were price takers in order to try to clean up their wood that was damaged. So, to reduce this higher for reforestation costs. So we contended with that, pricing dynamic for the entirety of Q4 and originally thought that it would be winding down sooner. But what we've seen is that there's a lot of wood on the market there from the length of that.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

And so people continue on with their salvage operations. And so we do see that, being a headwind going into at least the first half of twenty twenty five and think it should wrap up sometime in that first half. So to your point, we're staging our volumes and working around that. With the geographic diversity we have, we are able to harvest in other areas. So we're trying not to exacerbate the problem by putting more volume into particular areas.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

But we will continue to pretty much have a steady run rate as we go because we have the ability to flex across geographic areas as we go forward. But we do think this is going to weigh on our geographic pricing because we still do have volume that we're moving in that area to meet commitments we have with mills and things like that. So it's going to be some headwinds to start the year for us across our southern footprint, but we will move volume around geographically as we can.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Hey, Matt, I'd just add to that that, like Doug said, this was a pretty significant factor in the fourth quarter and really the biggest driver of that year over year or this quarter relative to the prior year quarter that decline in overall stumpage pricing. Unfortunately, we expected that it's going to be a transitory impact, but we're anticipating while we had one quarter of impact as it relates to 2024, we're anticipating two quarters of impact as it relates to 2025. So again, that's one of the major factors, if not the main factor that's straining our outlook for pricing gains in The U. S. South in 2025.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Hopefully, as the market works through that glut of stumpage volume, we'll start to see a pickup in pricing in the back half of the year. And really to the extent that coincides with the pickup in lumber production in the South due to increased duties on Canadian lumber, which I believe everybody is anticipating, we think we could see a pretty nice tailwind in the second half. But again, the ongoing impact that salvage volume has certainly muted our overall expectations for full year pricing gains in the South.

Matt McKellar
Matt McKellar
Vice President at RBC Capital Markets

Great. Thanks very much for that color. Next for me, just in terms of a general outlook, what are your expectations for what the Timberlands M and A market looks like in 2025?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes, this is Mark. I'll take that. Overall, I'd say that the demand in the M and A market has continued to outstrip supply, especially with respect to higher quality properties. We estimate that there is about $3,000,000,000 to $4,000,000,000 of capital available for Timberland acquisitions. And we think a significant portion of those funds are specifically targeting carbon or climate focused investments.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

With all that said, there hasn't been a whole lot of property on the market recently, but we're still seeing successful transaction outcomes and certainly very strong values being paid for the assets that we have seen come to market, particularly those higher quality assets. For example, there have been several smaller to medium sized deals over the past couple of years in The U. S. South where we've seen value per acre in excess of $3,000 So overall, we think the market is still quite competitive, especially for higher quality assets, as well as again assets with that unique carbon angle, but again relatively limited volume on the market right now. As it relates to our appetite for Timberland acquisitions, given our debt financing costs as well as our overall cost of capital, it's really tough to make the math work right now on buying Timberland assets.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Again, the Timberland M and A market is highly competitive, especially for those higher quality assets, which are generally the ones that we would be pursuing, and we continue to see those per acre values move up. For example, the Nacre Cove South, average acre per acre value in The U. S. South currently sits about 2,240 per acre, which is up roughly 5% from year end 2023. So with all that said, we haven't seen that same value momentum for Timberland assets reflected in our share price.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

So rather than buying assets, as you know, we've been selling assets over the past year with a view towards both improving our balance sheet positioning as well as putting ourselves in a position to take advantage of share buyback opportunities. So in short, I'd say that we think the best place and certainly the cheapest place for us to buy Timberland assets right now is in the public market by buying back our own stock.

Matt McKellar
Matt McKellar
Vice President at RBC Capital Markets

Thanks very much. I'll turn it back.

Operator

Thank you. Our next caller is Mark Weintraub with Seaport. Sir, you may go ahead.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Thank you. I was hoping to get a little bit more color on the very, very strong values you got on some of the rural land sales. How much of that was the specifics of the properties you were selling versus anything that you feel might be happening in the markets where you own these lands more generally?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes, Mark, this is Mark. I'd start by saying kudos to our real estate team for pulling together, what was really an exceptional quarter. We knew entering the year that our pipeline was going to be heavily back end loaded. The team worked very hard to close several major transactions in the fourth quarter, which contributed to those very strong results. So overall, we've been very pleased with the pricing we've been able to achieve, particularly in the fourth quarter.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

And we really think that that reflects the quality of our HBU portfolio. We continue to generate what we think are industry leading pricing and premiums on our HB real estate transactions. And we also think that this is a big part of our value creation story. It's also part of our story that we don't really think is fully appreciated by the market. Again for context, as you noted, we sold about 8,000 acres of rural HBU and unimproved development properties in the fourth quarter, achieved a weighted average price per acre of $7,200 So again, very pleased and impressed with what the team was able to accomplish there, And we continue to see that momentum build within our HBU portfolio.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

And Mark, was it a certain portion that was extremely high that took that average up? Or did you see that the averages across the swath of what you were selling tended to be higher?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Well, there were a number of major transactions. Again, as we've said in the past, those real estate results tend to be lumpy. They tend to be heavily driven by one or two transactions that can really move the dial. And that's why ultimately going into the quarter, we had more muted expectations for real estate in the fourth quarter. We ended up converting on more of those transactions that that were in the pipeline than we anticipated.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

There was one transaction in particular, an unimproved development transaction that was in excess of $10,000 per acre. I think that was just over 1,000 acres in total. So again, when you have those types of transactions, that's certainly going to skew the average and you don't get those every quarter. But again, overall very pleased with the results we're seeing in our rural HBU business.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Got you. Thank you. And then, appreciated the comments on alternative land and solar in particular. Do you anticipate that you're going to see any meaningful revenue pickup in solar this year? Or are we still thinking it's more a year or two years away?

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

If you could any update on expected timelines?

April Tice
Senior VP & CFO at Rayonier

Yes, Mark, I'll take that. So we were really pleased about the financial contribution from land based solutions in 2024. So as you saw on the supplement, it was almost $15,000,000 this year. And we're happy about the growth that we had in the acres under option for solar and under lease for CCS over the course of the year. We do expect the contribution to grow over time and that's why we broke that out in the supplement so you could provide the visibility and see how we're progressing.

April Tice
Senior VP & CFO at Rayonier

The bulk of our land sales, solution revenue is in the solar option payments and the base rents for CCS leases. And so we're growing those revenues right now off a small base. We still have a relatively limited number of counterparties and there's inherently going to be churn in the portfolio as it ramps up. So at this point, at least not yet, we're at a point where we'd be fair to assume a run rate for any quarter or year going forward, especially given some of the NDAs associated with the agreements. We really can't get into the impact of any particular lease or the individual moving pieces.

April Tice
Senior VP & CFO at Rayonier

But overall, I would say that we believe that we're on the trajectory that we communicated in the Investor Day of about $30,000,000 of EBITDA by 2027.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Again, Mark, I just reiterated that, as we discussed at Investor Day, we really anticipate that that pickup in contribution from land based solutions will occur beyond 2027. Recognize that, essentially all of the major contributors to our land based solutions pipeline right now, or most of them are certainly in that CCS and solar arena. Those tend to be, there tend to be fairly long permitting timetables associated with those projects. So call it three, four years in solar, probably more like four to six years in CCS. And so the last two years has been the bulk of activity and really building up that pipeline.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

And I think it's probably two years from now where you really start to see that converting over solar options into leases and CCS leases into injection royalties, converting over with some higher degree of regularity. But where we'd like to get to, is that you have kind of a stabilized base of options in the solar arena where there some portion of that is converting into leases annually and that becomes a more predictable source of cash flow growth. CCS is going to be more binary around those injection permits, which again can be fairly complex to achieve. But again, very happy with how that pipeline is building, but we really expect to see that ramp start to occur in a more significant way a couple of years out.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Okay. Thank you. I'll get back to you. I have a follow-up, but I'll let others jump on first. Thank you.

Operator

Thank you. Our next caller is Mike Roxland with Truist. You may go ahead, sir.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Yes. Thank you. Mark, April for taking my questions. Just are you at this point, are you finished with your corporate realignment or is there more to come? And are you continuing to pursue and I guess that's the first question.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Second question would be, are there other ways that you're looking to drive efficiency throughout your portfolio?

April Tice
Senior VP & CFO at Rayonier

Yes, I'll take that. So, at this point, we've done the realignment, but I would say from a corporate examination, we're always looking at ways to keep a close eye on expenses in general, particularly given our current operating environment. And so we do anticipate looking at that. I mean, recall that over the last eighteen months, the large dispositions have reduced our asset base by almost 11%. And so, of course, we took a fresh look at how we organized our op field operations in both The U.

April Tice
Senior VP & CFO at Rayonier

S. South and the Pacific Northwest. I would say that that's a continuous effort. We're always looking for ways to be efficient. We not only did that in our operations, but we also did that in the corporate, looked at ways to reduce our overhead cost and streamline our processes and really looking at how we were allocating our resources and making sure that we were putting it to the areas where we wanted to grow and particularly land based solutions.

April Tice
Senior VP & CFO at Rayonier

And so that's not a one and done. We're always looking for ways to be more efficient. But from this point that we've taken those actions and the impact for this year.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Got it. Thank you, April. And then just secondly, it looks like U. S. Gypsum is going to make use of IPs closed site in Orange, Texas.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

I think you had some Timberland acreage around there. So can you talk about any potential benefit from Rayonier as U. S. Gypsum takes over the property and starts to bring up operations?

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Sure. This is Doug. I'll answer that. Yes, we were happy to see that announcement about your ships in that mill. We're still waiting to learn more about their plans for that mill.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Understand that they intend to use some recycled fiber and we're not haven't been basically brought in the loop yet to understand what percent will be recycled fiber versus would be virgin fiber. So it's a

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

little too early yet to be able to

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

address that question. So we're anxiously waiting to find out once they've completed that and where this goes.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Got it. But Doug, you said there could be some upside. With regard to they probably will use some virgin fiber is your sense?

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Right now, it's just purely for me to know at this point in time.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

If they do use virgin fiber that would be definitely positive

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

for that market, but we're not sure yet what the plans are.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Got it. Thank you.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

And the last question, Scott, I'm with you. I appreciate that. And then one last question before turning over. Just on land based solutions, obviously, a lot of momentum. Kudos to you for driving that.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Just any concerns about the new administration and what they're looking to do in terms of curbing disbursements from the IRA? And obviously, you guys got that bump in the credits to $80 to $85 a ton from $50 a ton. So if the new administration curtails disbursements from the IRA, if they, let's say, suspend approvals for certain things like they've suspended approvals for wind, both onshore and offshore. I think New Jersey just stopped one project they were looking to do. So long story short, just any concerns, reservations you have about the new administration and what they're doing around ESG led land based solutions?

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Thank you.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Sure. This is Doug again. Yes, it's still early days for the new administration. And I think we all know every day there's a lot of unknowns as how it relates to how these executive orders are going to play out. Some go in, some come out within twenty four hours.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

So we're watching how it goes. But that said, it's been well documented that the initiatives you mentioned related to electric vehicles and offshore wind are not favored. That's been pretty clear. We continue to think that it would be very complex and unpopular to repeal the IRA in its entirety. We're going to really meaningfully roll back some of the key provisions that are driving growth in our Land Based Solutions business, particularly given the impact that this legislation has had on job creation and particularly in a lot of those rural Southern states.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

From what I've read recently, approximately 85% of the IRA investments and 68% of newly created jobs were in Republican congressional districts, based on the state we read about last year. So a lot of that money is flowing into the South and into the rural South in particular. And focusing on carbon capture and storage in particular, you mentioned about some of those credits. President Trump signed the Use It Act in the law during his first term that extended the 45 Q tax credits for carbon capture storage, including Class six wells and made CO2 pipelines eligible for streamlined permitting, via his FAST Act. And a lot of multinational oil and gas companies have made significant investments in this technology, under the IRA, but also going forward and look to promote the expansion of the fossil fuels, it does align with that.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

So the ability as you think about the multinationals that made commitments that are outside The U. S, it fits well with kind of the mantra we've heard from Drill Baby Drill. So by capturing carbon capture storage, it continues to allow the use of those fossil fuels. So we still think that carbon capture storage is still well positioned in the current political landscape. And we closed on the reliant one that Mark mentioned post the election.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

So we've had good comments and feedback from people we're working with. And on solar, there's no doubt that our incentives amplified solar development. As we laid out at our Investor Day last year, solar development was already on a steep growth curve even before the IRA. Particularly given the strong and growing demand we're seeing from clean energy, hungry tech industry, we see a lot of interest from them. So we expect Solar Energy will remain on favorable growth trajectory over the coming years.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Got it. Thank you, Doug. Appreciate all the color and good luck in 2025.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Thank you.

Operator

Thank you. And our next caller is Anthony Pettinari with Citi. You may go ahead, sir.

Anthony Pettinari
Anthony Pettinari
Analyst at Citigroup

Good morning. Just looking at the guide for Pacific Northwest, I think you're expecting kind of EBITDA to be relatively flattish to down a little bit despite kind of a much larger reduction in harvest and I think kind of modest price appreciation. Is there anything kind of bridging the gap there, whether it's non timber activity or something with costs or And then can you just talk about kind of plans to export out of the Pacific Northwest in 2025? And any kind of quantification of the impact of the Washington disposition on kind of the average Pacific Northwest soft timber pricing maybe that we'll see this year?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Hey, Anthony, we couldn't hear the first part of that question. So I'm sorry, could you repeat it? It was just really muted.

Anthony Pettinari
Anthony Pettinari
Analyst at Citigroup

Oh, sorry. Just in terms of Pacific Northwest, I think you're expecting EBITDA to be kind of flattish to down modestly year over year despite what looks like a pretty big reduction in harvest and maybe modest price appreciation. So just wanted to understand if there's anything else there that is bridging the gap?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

No, I really think it's a function of expectation of some improvement in pricing. I don't think that we're underwriting any material growth there in non timber income, which tends to be a relatively small contributor in the Pacific Northwest. So, yes, despite again, even though that guide is relatively flat to 2023, recognize that I'm sorry, 2024 recognized that we sold about 25% of our overall asset base there. So, that certainly implies expectation of higher pricing in 2025 relative to 2024.

Douglas Long
Douglas Long
Executive VP & Chief Resource Officer at Rayonier

Yes. The only thing I'd add to that is that based on the dispositions we have had, we do expect to have some lower costs with respect to our logging operations. So we sold some of the higher steeper ground and some of the farther out. So we will, in addition to seeing that price increase that Mark mentioned, we also are looking at cost savings based on the residual footprint that we had posted the dispositions.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes. So certainly, if you look at that on an EBITDA per acre basis, we're anticipating a pretty material pickup. Again on EBITDA per acre given the reduced acreage relative to last year.

Anthony Pettinari
Anthony Pettinari
Analyst at Citigroup

And the disposition in terms of sort of average sawtimber pricing versus the regional average, is it pretty close or how much of a mix impact is there?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

I mean those properties that we sold were a bit heavier to Hemlock than the portfolio average. And like Doug said, they generally had a higher operating cost, just given the topography. And so as we discussed at the time that we announced those dispositions, we felt as though those dispositions were improving the overall quality of our Pacific Northwest portfolio given both that percentage of Douglas fir, which is going to trade at a premium to Hemlock, as well as just the overall operating cost across the portfolio.

Anthony Pettinari
Anthony Pettinari
Analyst at Citigroup

Okay. Okay. That's helpful. And then, Mark, in your prepared remarks, I think you mentioned tariffs. I'm just wondering if you could any kind of finer point on maybe direct or maybe indirect impact of tariffs on your three regions?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

I mean, we're certainly not anticipating any direct impact, given that we're not manufacturing lumber. Look, like a lot of other companies, we're closely monitoring the tariff situation right now. Clearly, a 25% universal tariff on Canadian goods into The U. S. Would likely lead to higher lumber prices as well as incremental lumber production shifting to The U.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

S, at least in the short term. The prevailing view is that this would certainly be a positive for lumber producers and there would be a corollary to being a positive for Timberland owners. That said, it's worth noting that whether or not new tariffs come into play, the existing duty rates currently being assessed on lumber from Canada are expected to reset significantly higher in the latter half of this year. So assuming this occurs, we would expect that it would similarly translate, to both higher lumber prices as well as higher operating rates, at U. S.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Mills, which would likewise, benefit to all log pricing in The U. S. This dynamic is certainly a contributing factor to kind of how we think about that improvement in log prices as we move through the year, especially in the Pacific Northwest, which more directly competes with Western SPF from Canada. With all that said, I think we also need to be mindful of the potential knock on effects, that could counteract this phenomenon. For example, if increased prices for building products, or interest rate increases further strain housing affordability, this could potentially translate to a broader pullback of demand, both in new home construction, as well as repair and remodel.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

So, again, overall, we expect that there could be some puts and takes here as it relates to tariffs. But on balance kind of a net short term positive certainly for lumber producers as well as timberland owners like Rainier.

Anthony Pettinari
Anthony Pettinari
Analyst at Citigroup

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

Operator

Thank you. Our next caller is Ketan Mamtora with BMO Capital Markets. Sir, you may go ahead.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

Thank you. First question on the asset disposition program, clearly you've made a lot of progress on the balance sheet side with the net leverage. As we sit here today, do you think you need to do more from a balance sheet standpoint or any further sales will be focused more on kind of what kind of values you can capture on the disparity that you guys talked about?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes, Ketan, this is Mark. Yes, as we discussed on prior calls, we're very pleased with what we've been able to achieve on the disposition front to date. When we first announced the plan fifteen months ago, recall that we had two objectives. First was to reduce our net leverage to three times net debt to EBITDA or lower. And the second was to capitalize on this public private disconnect that we saw in the market by monetizing assets or private market values and returning a portion of that capital to shareholders.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Since then we've completed almost $740,000,000 dollars of Timberland dispositions at a weighted average EBITDA multiple of about 45 times. And our current pro form a net debt to EBITDA is around 2.9 times or pro form a for the recent special dividend I'm sorry, 2.6 times at year end pro form a for the special dividend, I believe it's about 2.9 times. So putting all that together, I'd say we've gone a very long way towards achieving what we set out to do with the plan. And we think we've generated significant value accretion for our shareholders along the way. In terms of where we go from here, I'd say that we're still focused on getting to that $1,000,000,000 disposition target.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

But I think we have the luxury of being very patient and opportunistic in our approach. We're sitting at a very advantageous position right now in terms of our capital structure and our debt profile. So again, we can afford to be patient here. Ultimately, we're only going to pursue additional dispositions if we think they enhance our strategic positioning and maximize value for our shareholders. We still think that that opportunity exists, but again, we're going to be opportunistic as we assess options going forward.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

Understood, Matt. That's helpful. But there's nothing in this where $1,000,000,000 is kind of a sort of cap, right? If you find something where you get exceptionally strong values, would you be open to overshooting that $1,000,000,000 number that you all have kind of targeted?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes. Look, again, we're not deliberately looking to overshoot the $1,000,000,000 target, but we're certainly not averse to doing so if we're able to achieve compelling values on the various assets that we're still considering. And if we were to exceed that target, we have some flexibility to redeploy those proceeds into other growth opportunities or Timberland acquisitions in particular, potentially through like kind exchange transactions, which would give us some more flexibility around the potential distribution. Alternatively, we could look to further delever and return capital to shareholders, especially if we see a compelling buyback opportunity, which I certainly think, that's how we feel right now, kind of get more of the stock is. We've always operated with that mindset of nimble capital allocation and active portfolio management, really with a view towards building long term value per share.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

And so we're going to continue to adhere to that mindset as we consider additional dispositions.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

Understood. And then one other question, and perhaps Doug can chime in here as well. If you look at U. S. South, over the last ten years, we've seen significant increase in lumber production in The U.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

S. South, right, call it from 15,000,000,000 board feet to 22,000,000,000 board feet roughly. Yet if you look at Southern log price and pulpwood prices during the same sort of ten year, they are actually down not just the Southern average, but also in some of the coastal markets like Florida and Georgia. So I'm curious as you look at that sort of ten year period and as we sit here today, what gives you confidence that as more lumber production comes in The U. S.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

South that we will see increase in Southern log prices?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes, there's a lot to unpack in that question Ketan. Look, I think there have been a lot of dynamics and shifting dynamics over the last several years that have caused lumber sorry, timber prices in the South to not move higher as much as had been anticipated. One of those dynamics right now and certainly over the last call it eighteen months has been this disconnect that we've seen develop between Southern Yellow Pine lumber prices and SPF lumber prices. Again, I think that there's been a fair amount of discussion around, why that exists and why that's persisted here recently. Some of that is driven by just the preferred end use for those different types of lumber.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

So, for example, SPF tends to have a preferred use in single family construction, Southern Yellow Pine tends to have a preferred use in repair and remodel. And so with the pullback in repair and remodel activity, we think that that's really been one of the big drivers of that disconnect that's developed between SPF lumber, and SYP lumber. So, yes, the thesis had been historically that as we continue to see capacity come out of Canada and more of that production, shifted to The U. S. South or the thought was that more of that production would, shift to The U.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

S. South that that would translate to higher prices for sawlogs. But the issue that we have right now or that I'd say the market has right now is that given that disconnect between SPF and SYP, Southern Mills just haven't been as profitable as would have been expected, in this type of demand environment. Again, we think that some of these issues are transitory. I do think that we expect or the market expects that repair and remodel should pick up.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

We've kind of been suffering from this lock in effect of the following the rapid rise in mortgage rates where essentially people couldn't afford to move. And really it's that resale activity that drives R and R spending. People tend to remodel a home, either right before they sell it or right after they buy it. And again, that resale activity has been pretty limited. So, we think the market is starting to normalize.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

We think we're going to see a pickup in R and R activity. We think we should see, some more normalization of SYP lumber prices relative to SPF. And on balance, we think that that should drive both SYP lumber prices as well as Southern sawlog prices higher. And again, I think if you couple that with what's anticipated to be a pretty meaningful uptick in lumber duties, after mid year kind of irrespective of any new tariffs that could come into play, Again, we think that that could create a pretty meaningful tailwind for solid pricing in the South. But here your point that it hasn't materialized on the timetable that many would have expected at different points in time over the last five, ten years.

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

But it does feel as though we're kind of entering an inflection point here in the coming years.

Ketan Mamtora
Ketan Mamtora
Director - Building Products Equity Research at BMO Capital Markets

Thanks, Mark. That's very helpful. I appreciate the perspective. Thank you.

Operator

Thank you. And our last question comes from Mark Weintraub with Seaport. Please go ahead, sir.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Thank you. I hope this is a fair question. I'll try and keep it really short. So a year ago, you hired a financial advisor to help evaluate the strategic alternatives for New Zealand. Has that process largely played out at this point?

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Or is there anything any color you can give us how we should be thinking about that given that was a year ago when that was announced or almost a year ago?

Mark Mchugh
Mark Mchugh
President & CEO at Rayonier

Yes. We don't have anything specific to report on New Zealand at this point other than to say that we are still actively engaged in that evaluation of strategic alternatives there. That process is not concluded. Recall that when we initially announced that review of strategic alternatives for New Zealand, we indicated that we expected that process to be a very lengthy process given some of the complexities of our joint venture structure there. So again, we're still working through it, but we're not in a position to comment further at this point.

Mark Weintraub
Senior Analyst and Head of Business Development at Seaport Research Partners

Very good. And thank you.

Operator

And at this time, I am showing no further questions, sir.

Collin Mings
Collin Mings
Vice President of Capital Markets & Strategic Planning at Rayonier

All right. This is Colin Ming. I'd like to thank everybody for joining us. Please contact us with any follow-up questions.

Operator

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.

Executives
    • Collin Mings
      Collin Mings
      Vice President of Capital Markets & Strategic Planning
    • Mark Mchugh
      Mark Mchugh
      President & CEO
    • Douglas Long
      Douglas Long
      Executive VP & Chief Resource Officer
Analysts
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