Rayonier - Q2 2023

Transcript

Operator (participant)

Welcome, and thank you for joining Rayonier's second quarter 2023 teleconference call. At this time, all participants are in a listen-only mode. During the question and answer session, please press star one on your telephone keypad. Today's conference is being recorded. If you have any objections, you may disconnect at that time. Now, I will turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning.

Collin Mings (VP, Capital Markets and Strategic Planning)

Thank you, and good morning. Welcome to Rayonier's Investor Teleconference, covering second 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. They are also referenced on page two of our financial supplement.

Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Dave Nunes, our CEO. Dave?

Dave Nunes (CEO)

Thanks, Colin. Good morning, everyone. First, I'll make some high-level comments before turning it over to Mark McHugh, President and Chief Financial Officer, to review our consolidated financial results. We'll ask Doug Long, Executive Vice President and Chief Resource Officer, to comment on our US and New Zealand timber results. Following the review of our timber segments, Mark will discuss our real estate results, as well as our outlook for the remainder of 2023.

In the second quarter, we generated Adjusted EBITDA of $69 million and pro forma net income of $8 million, or $0.05 per share. Adjusted EBITDA generated from our timber segments collectively declined 13% to the prior year quarter, as favorable results in our Southern Timber segment were more than offset by lower Adjusted EBITDA in our Pacific Northwest Timber and New Zealand Timber segments.

In our real estate segment, we achieved Adjusted EBITDA of $20 million, down from $25 million in the prior year quarter. Drilling down further on our operating segment results, our Southern Timber segment generated second quarter Adjusted EBITDA of $44 million, up $5 million from the prior year period.

The improvement versus the prior year period reflected a 32% increase in harvest volumes, primarily due to the acquisitions completed in late 2022, which more than offset a 14% reduction in net frontage realizations due to weaker demand and drier weather conditions. In our Pacific Northwest Timber segment, second quarter Adjusted EBITDA of $7 million was down $7 million from the prior year quarter, driven by an 11% decrease in harvest volumes and a 19% decline in domestic saw timber prices.

During the quarter, both domestic and export market demand remained relatively soft, which led us to defer some planned harvest volumes until mill inventories normalize and end market demand improves. Turning to New Zealand Timber segment, second quarter Adjusted EBITDA of $8 million declined $7 million versus the prior year quarter.

The weaker results were primarily driven by lower carbon credit revenues, as we chose to defer the sale of carbon units amid significant market volatility, lower net frontage realizations reflecting weaker export and domestic markets compared to the prior year period, and unfavorable foreign exchange impacts.

In our real estate segment, we generated Adjusted EBITDA of $20 million in the second quarter, down $5 million from the prior year, as higher weighted average per acre pricing was more than offset by 20% fewer acres sold.

Despite the increase in interest rates as compared to a year ago, demand for rural land continues to be strong, and we remain encouraged by the favorable momentum in both our Wildlight and Heartwood development projects. Overall, I'm pleased with how our team navigated the operating environment during the quarter in light of ongoing macroeconomic challenges.

As Mark will detail later in the call, we're updating our full year total Adjusted EBITDA guidance to a range of $275 million-$300 million, which represents a 4% reduction at the midpoint versus our original guidance and is largely consistent with the directional guidance update that we provided last quarter.

Our revised guidance maintains a similar midpoint expectation as the original guidance for our Southern Timber segment, reflects a lower contribution from our Pacific Northwest and New Zealand Timber segments due to softer market conditions in both regions, as well as a lower contribution from carbon credit sales in New Zealand.

However, we expect these reductions will be partially offset by a higher contribution from our real estate segment than we contemplated in our original guidance, due to a much stronger than anticipated land sales market. With that, let me turn it over to Mark for more details on our second quarter financial results.

Mark McHugh (CFO)

Thanks, Dave. Let's start on page five with our financial highlights. Sales for the second quarter totaled $209 million, while operating income was $20 million, and net income attributable to Rayonier was $19 million, or $0.13 per share. On a pro forma basis, net income was $8 million, or $0.05 per share, after adjusting for an $11 million net recovery associated with a legal settlement. Adjusted EBITDA was $69 million in the second quarter, down from $83 million in the prior year period.

On the bottom of page 5, we provide an overview of our capital resources and liquidity. Our cash available for distribution, or CAD, for the first half of the year was $63 million, versus $120 million in the prior year period. The decrease was driven by lower Adjusted EBITDA, higher capital expenditures, and higher cash interest paid, partially offset by lower cash taxes.

A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page 8 of the financial supplement. We closed the second quarter with $88 million of cash and $1.5 billion of debt. At quarter end, our weighted average cost of debt was approximately 3.1%, and the weighted average maturity on our debt portfolio was approximately 5 years, with no significant debt maturities until 2026.

Our net debt of approximately $1.4 billion represented 23% of our enterprise value, based on our closing stock price at the end of the quarter. I'll now turn the call over to Doug to provide a more detailed review of our timber results.

Doug Long (EVP and Chief Resource Officer)

Thanks, Mark. Let's start on page 9 with our Southern Timber segment. Adjusted EBITDA in the second quarter of $44 million was $5 million, or 13% above the prior year quarter, driven by higher volumes and non-timber income, partially offset by lower net frontage pricing and higher costs. Total harvest volume rose 32% versus the prior year quarter, primarily driven by an increase in pine sawtimber volumes from the successful integration of acquisitions we completed in late 2022.

Average sawlog frontage pricing was $29 per ton, or a 15% decrease compared to the prior year period. The moderation in pricing reflected reduced market tension across our operating areas due to drier weather conditions, softer demand from sawmills, and less competition from pulp mills for chip and saw volume.

Meanwhile, pulpwood net frontage pricing fell 26% versus the prior year quarter to roughly $16 per ton, as weaker end market demand, drier weather conditions, and extended maintenance outages at pulp mills all contributed to softer market conditions. Overall, weighted average frontage prices in the second quarter fell 14% versus the prior year quarter to roughly $22 per ton.

The market tension that drove exceptionally strong pricing levels a year ago has eased as a result of weaker end market demand for pulp products and softer residential construction activity. However, we believe the pricing de-deterioration we experienced during the first half of the year has largely played out, and expect that the relative strength and diversity of our U.S. South footprint will be a key competitive advantage for us moving forward as end market demand improves.

Moving to our Pacific Northwest Timber segment on page 10, Adjusted EBITDA of $7 million was $7 million lower than the prior year quarter. The year-over-year decrease was primarily driven by lower net frontage realizations, lower harvest volumes, and higher costs, partially offset by higher non-timber income. Volume decreased 11% in the second quarter as compared to the prior year period, as some planned harvests were deferred in response to soft market conditions.

At $97 per ton, average delivered domestic solid pricing in the second quarter fell 19% from the prior year period, primarily due to weaker demand from domestic lumber mills, coupled with reduced tension from export markets. Meanwhile, at $36 per ton, pulpwood pricing decreased 20% versus the prior quarter, as end market demand deteriorated relative to the favorable market dynamics seen last year.

During the second quarter, Pacific Northwest sawmills had ample log supplies, which constrained our pricing power even as lumber prices started to improve. We are optimistic that a further recovery in the end market lumber demand and a normalization of mill inventory levels will translate to positive momentum and solid prices in the latter part of this year.

Moving to New Zealand, page 11 shows results and key operating metrics for our New Zealand Timber segment. Adjusted EBITDA in the second quarter of $8 million was $7 million below the prior year quarter. The decrease in Adjusted EBITDA compared to the prior year period was driven by fewer carbon credit sales, lower net frontage realizations, unfavorable foreign exchange impacts, and slightly lower harvest volumes.

Average delivered export sawtimber prices of $104 per ton declined 26% compared to the prior year quarter, primarily due to ongoing challenges in the Chinese property sector. However, net frontage realizations remained relatively flat as port and freight costs fell significantly from the record high levels experienced in the prior year period.

The recovery in the Chinese economy, following the relaxation of COVID-19 containment measures in late 2022, has been slower than we had anticipated. Pent-up demand provided a lift to property sales and new construction starts early in the year, but activity slowed through the second quarter. Being said, port log inventories declined roughly 15% over the month of July to 3.7 million cubic meters, which has translated to some rebound in log pricing.

Shifting to the New Zealand domestic market, second quarter average delivered solid prices fell 10% from the prior year period to $69 per ton, largely reflecting the change in the New Zealand dollar to U.S. dollar exchange rate. Excluding foreign exchange impacts, domestic sawtimber prices declined 3% from the prior year period. Domestic pulpwood prices in New Zealand increased 10% on a U.S. dollar basis, reflecting supply disruptions following Cyclone Gabrielle.

Excluding foreign exchange impacts, pricing improved by 19% in the prior year period. Nondimmer income in New Zealand declined during the second quarter relative to the prior year period, as we opted to defer the sale of carbon credits amid market volatility resulting from regulatory uncertainty. We are encouraged by the recent uptick in carbon credit pricing following steps taken by the New Zealand government to stabilize the market.

Given the recovery in both pricing and market liquidity, we expect to be more active in the New Zealand carbon market in the second half of the year. Lastly, in our trading segment, we posted a slight operating profit in the second 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 Mark to cover our real estate results.

Mark McHugh (CFO)

Thanks, Doug. As detailed on page 12, our real estate segment delivered strong second quarter results. Real estate sales totaled $32 million on roughly 3,800 acres sold at an average price of $7,500 per acre. Real estate segment Adjusted EBITDA in the second quarter was $20 million. Drilling down, sales in the improved development category totaled $12 million.

In our Heartwood development project, south of Savannah, Georgia, sales included a $3 million sale of a 101-acre site to a national home builder for the first phase of an active adult community, two residential pod sales totaling 62 acres for $1.8 million, and 47 finished residential lots for $2.1 million, reflecting an average base price of roughly $44,000 per lot.

In our Wildlight development project, north of Jacksonville, Florida, sales consisted of a $5.3 million sale of a 97-acre site to a national home builder for the second phase of an active adult community. We're very excited about the market reception to our two active adult sites in Wildlight and Heartwood, as they are important components of our mixed-use development strategy.

Overall, we continue to believe that both our Wildlight and Heartwood development projects are well-positioned and will benefit from favorable migration and demographic trends, relatively affordable price points, and a diverse mix of residential, commercial, and industrial end uses that each help to catalyze demand for one another. Turning to the rural category, second quarter sales totaled nearly $16 million, consisting of approximately 3,400 acres at an average price of roughly $4,600 per acre.

Key transactions included 2 sales in Walker County, Texas, totaling roughly 1,100 acres for $5 million, reflecting an average price of roughly $4,500 per acre. Overall, we're encouraged by the continued strong demand for rural land, despite the higher interest rate environment. Lastly, during the second quarter, we also closed on the sale of 76 acres of non-strategic holdings in Bradford County, Florida, for $250,000, or roughly $3,300 per acre.

Moving on to our updated outlook for the full year. Based on our first half results and our expectations for the balance of the year, we now anticipate full-year net income attributable to Rayonier of $63 million-$78 million, full-year pro forma EPS of $0.30-$0.40 per share, and full-year total Adjusted EBITDA of $275 million-$300 million.

With respect to our individual segments, we now expect that our Southern Timber segment will achieve full-year harvest volumes of 7.2-7.4 million tons, which is at the higher end of our prior guidance and reflective of stronger than expected production in the first half of the year due to dry weather conditions. However, we anticipate lower quarterly harvest volumes for the remainder of 2023 as compared to the first half of the year.

Further, we anticipate a modest decline in net stumpage pricing versus second quarter pricing levels, primarily due to a seasonal increase in the proportion of thinning volume, as well as geographic mix. Overall, we expect to achieve full-year Adjusted EBITDA in our Southern Timber segment of $150 million-$155 million.

In our Pacific Northwest Timber segment, we now expect full-year harvest volumes of 1.4 million-1.5 million tons, as we've deferred some planned harvest in response to soft market conditions. We expect that weighted average delivered log prices in the second half of the year will increase modestly from first half 2023 pricing levels based on improved end market lumber demand and pricing.

We believe net stumpage realizations will also benefit from modestly lower cut-and-haul costs over the balance of the year. We now expect to achieve full-year Adjusted EBITDA in our Pacific Northwest Timber segment of $30 million-$34 million. In our New Zealand Timber segment, we now expect full-year harvest volumes of 2.3 million-2.5 million tons, as we have deferred some planned harvest volume in response to unfavorable market conditions.

We expect that export sawtimber pricing will be modestly lower as compared to the first half of the year. We expect this decline will be partially offset by lower port and freight costs. As Doug discussed earlier, we are cautiously optimistic that export log pricing has turned the corner, given the recent drop in Chinese port inventories. In the domestic market, we expect that sawlog pricing will decline modestly from second quarter levels as elevated interest rates continue to constrain the residential construction market.

Turning to the carbon market, we have tempered our full-year expectations for carbon credit sales based on significant market volatility and limited transaction activity in the first half of the year. We expect to be more active in the carbon market in the second half of the year, following the recent uptick in carbon pricing in response to governmental action to stabilize the market.

Overall, we now expect the New Zealand Timber segment will generate full-year Adjusted EBITDA of $39 million-$46 million. In our Real Estate segment, we now expect full-year Adjusted EBITDA of $90 million-$100 million, as demand for timberland and rural HBU properties has held up better than expected, despite the higher interest rate environment.

Based on the anticipated timing of closings, we expect that second-half transaction activity will be heavily weighted to the fourth quarter. Lastly, we expect Corporate Segment expense of $34 million-$35 million, which is roughly in line with prior guidance.

More details regarding our updated guidance, including a reconciliation of Adjusted EBITDA to net income and EPS, can be found on page 14 of the financial supplement and Schedule G of our earnings release. I'll now turn the call back to Dave for closing comments.

Dave Nunes (CEO)

Thanks, Mark. As I reflect on the first half of the year, I'm pleased with how our team has remained focused on both preserving and enhancing the long-term value of our assets, despite a difficult near-term operating environment. Following a challenging start to 2023, we're beginning to see encouraging signs of stabilization and improvement across many of the end markets served by our timber operations.

In the U.S., prospective home buyers have increasingly turned to new construction to meet their housing needs, amid a, amid a housing shortage that has been further exacerbated by the rapid rise in mortgage rates. Specifically, the significant increase in rates over the past 18 months has discouraged many prospective sellers from listing their current residences, and there- thereby translated to a, to a dearth of supply in the resale market.

As a result, we're seeing favorable momentum in several residential construction indicators, such as home builder sentiment, new single-family building permits, and orders for building materials. There are early signs that the destocking of inventory for products derived from our pulpwood, such as container board, is nearing completion.

Meanwhile, as discussed earlier, the New Zealand government has recently taken action to provide more stability in the country's emissions trading scheme, which better positions us to participate in the carbon credit market over the balance of the year, after we opted to remain on the sidelines over the past several months to preserve value and uncertain market conditions.

Turning to real estate, while market fundamentals have generally remained strong in 2023, our year-to-date financial results have not fully reflected this dynamic, as much of our transaction pipeline entering the year was weighted toward the second half of the year and the fourth quarter in particular. Overall, we remain very encouraged by the positioning of both our improved development projects and rural properties.

All things considered, I believe the operating environment for our business will generally be more favorable over the second half of the year versus the first half. In addition to managing ongoing operational priorities and evolving market conditions, our team has also been advancing initiatives associated with the growing demand for nature-based solutions to support the transition to a low-carbon economy.

Interest from prospective counterparties and the corresponding list of potential opportunities continues to grow, and we are in the process of converting some of these opportunities into financial results. We now have in place wind, solar, and carbon capture and storage leases, and expect that these nature-based solutions, as well as others offered by our timberlands, will become increasingly important to our long-term value proposition moving forward.

In sum, I'm proud of how our dedicated team is navigating evolving market conditions and positioning Rayonier to create shareholder value over time. We collectively remain very optimistic about the future prospects of our business and all of the opportunities that our land base provides. That concludes our prepared remarks, and I'll now turn the call back to the operator for questions.

Operator (participant)

Thank you, sir. At this time, if you would like to ask a question, you may press star 1. To withdraw your question, you may press star 2. One moment, please. Mike Roxland with Truist Securities, you may go ahead, sir.

Mike Roxland (Equity Research Analyst)

Thanks, David, Mark, Doug, and Colin, for taking my questions. Just wanted to kick it off with what's happening in the US South and your expectations for lower quarterly harvest volumes. In the back half of the year, that is. Is that more a function of pulpwood or sawtimber?

You know, given what's happened with housing the last couple of months, I would have expected, you know, certainly improving sawtimber demand, given the increase that we've seen in single-family housing. Just wanted to get your forecast in the back half of the year on, on southern volumes.

Doug Long (EVP and Chief Resource Officer)

Yeah, sure. This is Doug. I'll, I'll answer that one. We have a reasonable mix of both stumpage and delivered business, and what we've seen is that there's been pretty active harvesting on our stumpage sales. A lot of the harvesting that we had in the first half of the year, or a lot of sale, sales we've sold that had, you know, a 12-month contract, a lot of wood has been pulled forward in the first half of the year by the harvesting.

What we're seeing out there in the market is that a lot of the folks who do buy stumpage, they have very low inventories, and so they've moved on and, and harvested on those tracks. So we have a, you know, a lower mix of stumpage going into our, our second half of the year, so just a slight slowdown in the volume being harvested.

Mike Roxland (Equity Research Analyst)

Got it. In terms of how that relates to, you know, let's say, the, the mix itself in terms of pulpwood or, or sawtimber, have you seen it... I mean, have you seen anything improvement in or, or are expecting to see an improvement in the sawtimber demand, particularly given, you know, single-family housing construction, which has accelerated the last two or three months?

Doug Long (EVP and Chief Resource Officer)

Absolutely. We've been encouraged by some of the recent pricing negotiations we've had, both on our delivered sales programs as well as some of our recent stumpage sales. You know, as we discussed in our prepared remarks, while there'll be some fluctuations in, in reported pricing based on geography, harvest type, and mix, we think on an apples-to-apples basis, pricing appears to have bottomed out, and we're actually, you know, starting to see some improvement in pricing in our recent negotiations.

This is really compared to earlier in the year. As historically has been the case, about 5%-10% of our volume shifts when harvesting from the stronger coastal markets to the Gulf markets, kind of during Q3 and into Q4. That's accompanied by a 20%-25% increase in thinning volume. That's almost all pulpwood. While we've seen per pricing stabilize and even improve, the shift in location harvest type will still win our composite pricing going in the second half, which is what's built into our guidance.

Dave Nunes (CEO)

Yeah, Mike, just to reiterate, the lower expectation for volumes in the second half of the year is really driven by, like Doug said, that acceleration of volume on the stumpage sales and not any statement about market conditions. We actually expect market conditions to be more favorable in the back half of the year.

Mike Roxland (Equity Research Analyst)

Got it. Well, I appreciate all the color there. Just one other question on New Zealand. Do you have you guys seen any impact from the restart of the friendly relationship now between Australia and China, how China's reopened wood imports from Australia now, any impact on your New Zealand operations? You know, where do you think your New Zealand op, you know, margins could head as China starts to import an increasing amount of wood from Australia?

Doug Long (EVP and Chief Resource Officer)

Yeah, this is Doug, and I'll take that one. We, we have not seen any impact on, you know, additional fiber or logs flowing into China from Australia. We operate a, a large JV, exporting JV, that used to move quite a bit of wood up from Australia.

What we've seen is that over that course of kind of the trade war between Australia and China, really, the wood flow started to really shift back and being used domestically, and there's been further restrictions on, on harvesting in, in Australia during that time, too. We don't expect there to be a, a significant shift in volume going from Australia to China. There will be some, there'll be some marginal wood that comes from ports, but don't see this to be a significant event for us, going forward.

Dave Nunes (CEO)

Yeah, Mike, I'd add to that. You, you, if, if you think about where they were prior to this, this trade spat, you know, they were, they were they were roughly 10% of that China market, and we, we don't see them returning to anywhere near that, based on some of the shifts they've made to increase domestic processing.

Mike Roxland (Equity Research Analyst)

Got it. Thank you very much. Good luck in the second half.

Operator (participant)

Thank you. Our next question comes from Mark Weintraub with Seaport Research Partners, and again, that is star 1 if you would like to ask a question. Mark, you may go ahead.

Mark Weintraub (Equity Research Analyst)

Thank you. Obviously, a pretty big increase on the real estate side, relative to original guidance. Curious, you know, how much of that's a function of markets being better, versus kind of just a push forward or pull forward? Is it more timing driven? Maybe relatedly, what is your just sense of your HBU holdings today versus maybe where they had been a couple of years ago? Have you had a positive shift in that view? Any color you could provide would be helpful.

Dave Nunes (CEO)

Yeah, a good question, Mark, and, and there's a fair bit to unpack there. If you, if you break down the pieces of our, our real estate, you know, a lot of the, a lot of the baseline in the real estate is rural, recreation and residential properties.

What we have found is there's a fair, there's a fair component of, of that market that, that is somewhat insensitive to, to interest rates, you know, cash buyers. You know, that, that has been remarkably stabilizing. There certainly has been some impact, but it's not an arena where you tend to see, you know, highly levered transactions, that has provided a nice baseline of support.

I think another, another thing to keep in mind is as we progressed through COVID and came out on the other side, I think you're seeing a fundamental shift in more people wanting to live in more rural settings because they can, you know, work from home.

We have seen that translate into our rural places product, which is where we will put a modest investment into subdividing parcels and putting a modest amount of capital into those. The inventory that we've had of those has or the sales pace has vastly exceeded our expectations as we have progressed through and now post COVID. That's been another big component of it.

Then I think thirdly, our, our improved development projects, the ones north of Jacksonville, Wildlight and south of Savannah, Hartwood, Heartwood. Those have been, those have been really progressing nicely. I'd say from an absorption standpoint, we're well ahead of our expectations when we originally underwrote those projects, and we're seeing that momentum.

As, as we, as we discussed briefly in the prepared remarks, certainly a piece of that is, is the strategy around diversifying and uses. A good example of that is, is efforts around around our shifting from finished lot sales to pod sales.

The pod sales is where we will sell a group of entitled lots, and the home builder will have their capital to develop those lots into, into finished lots and then, and then ultimately sell homes. It helps us from a capital standpoint, it gives the builder a little bit more control on their end, and we've been very pleased with the progression of that. Secondarily, the move for more active adult communities. We've got a big active adult community in both Heartwood and Wildlight. We've had 2 closings on our Wildlight project, 1 closing on Heartwood. These are progressing nicely and complementing the single-family lots.

Another piece that, that is, that has influenced this, and it really kind of boils down to, you know, rates of absorption, is the big Hyundai plant announcement that touches our Heartwood project. We've had home builders who've had a number of sales already that have come out of that Hyundai project. I'd say with both Heartwood and Wildlight, which are very big projects, you know, many, many years' worth of supply, we're well ahead of our expectations. You're seeing that, you're seeing that in the results. You know, we're, we're extremely encouraged by how those projects are progressing.

Keep in mind, when we, when we got into those two projects, the motivation was not just for those lands, but also the lands around them. You know, we feel like as those projects are progressing, they're adding a lot of value to our surrounding timberlands.

Mark Weintraub (Equity Research Analyst)

Thank you very much for all that unpacking. When you sort of put it all together, do you have a more elevated view as to what kind of the run rate for the next, you know, 5, 7 years can average will be? Presumably, yes, given the heightened pace, but just wanted to clarify.

Dave Nunes (CEO)

Yeah, I'd say, I'd say that, I'd say that where we sit now, we, we certainly have, have seen a higher run rate than we expected and, and sort of faster, absorption. You know, some of the same dynamics that I talked about on the, rural residential also apply to these, projects, and, and they both benefited from some of the regional migration patterns, that we've seen in, particularly in the U.S. South.

Both of these areas have strong school districts and, and, and strong in-migration. So, yeah, we've, we've been, we've been very encouraged by, by, by what we've seen, and, and, you know, we, we, we, we expect more of this, to come. You know, another thing that, that we, we are, we're, we're continuing to kind of work on the pipeline.

We have a number of other projects that we're working on within the real estate sector that are at earlier stages. You know, we expect as, as, as, as these two projects progress, you know, some of our other projects that we're working on are gonna start to, to translate as well to, to, to P&L impacts.

Mark Weintraub (Equity Research Analyst)

And then-

Mark McHugh (CFO)

Hey, Mark, this is Mark McHugh. I'd, I'd just balance that a little bit, though, in terms of the longer-term expectation around just the rise that we've seen in underlying, you know, timberland values, as well as optionality around nature-based solutions. You know, recognize that, that rural HBU business is all about premium, and, and the, the clearing price to hit our premium expectations, it continues to move up, again, given some of those alternative land uses.

So while our development business, we feel, has certainly hit its stride, and we expect that that will, you know, continue to perform at a higher level relative to what we've seen, you know, for the last, call it five years ago. Again, I think that rural HBU business will be somewhat balanced in terms of our willingness to sell land, given some of the other optionality and the increase in values that we've seen there.

Mark Weintraub (Equity Research Analyst)

Interesting. Thank you. Just shifting gears quickly, Pacific Northwest, and I, I understand the, the comments you were making on, on the, the timber business. I, I guess I'm sort of surprised, given, lumber pricing's been pretty strong domestically, that there wasn't kind of a, a, a more robust, carry-through to, to saw timber pricing. I mean, how much of that is the, the export market or any other kind of additional nuance that you would bring to that process of analyzing what's been going on there?

Doug Long (EVP and Chief Resource Officer)

Yeah, sure. This is Doug. I'm happy to answer that one. Yeah, when we had those, you know, higher, higher interest rates at the beginning of the year, that really cooled demand for building products, and particularly in the West, you know, kind of start the year, which forced the mills, you know, basically to trim back production and, and lower their inventories to match that lower demand.

Like you said, this, this was also coupled with weakening market tension from, from exports to Asia. The mills had ample log inventory. As we move into Q3, and to your point, you know, we're seeing home builders gain more confidence, as Dave mentioned, in the market, and people are starting to, you know, increase that demand. So we're seeing that positive movement in the lumber pricing.

You would expect that to have translated maybe to your logs, as you said. What we're seeing right now is those mills are starting to increase that capacity. They had brought down their capacity and weren't running at full capacity. They're now stepping that back up. What we've seen with that is that's really resulted in stabilization of log pricing and even some positive momentum here recently in some specific markets. I think that's the positive thing we've seen. Really, it took.

They weren't running at full capacity. They ramped up, so more logs came in. You know, specs got a little bit easier, so we were able to move more wood. At that point in time, it just wasn't flowing in. We're really starting to see that tension in the market now.

We saw a 25% reduction in North American volume at China ports during July, so a pretty steady drawdown in China. We're also encouraged by increasing customer demand from there. We ourselves are moving back in that market in Q3 with exports from our Port Angeles export yard.

I think we've seen that point where the mills have gotten back up, they're running at capacity, there's less supply from British Columbia, Canada. They're feeling more confident now, we're starting to see that kind of drain now on the logs. Expect to see some price increases, and I've already seen some as, as we go into the second half of the year.

Mark Weintraub (Equity Research Analyst)

Okay, thanks so much. I, I'll get back in queue. I do have another question if, if it doesn't get hit. Otherwise, good luck in next quarter.

Doug Long (EVP and Chief Resource Officer)

Thanks, Mark.

Operator (participant)

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

Anthony Pettinari (Equity Research Analyst)

Good morning. I was wondering if you could talk a little bit more about kind of free cash flow or CAD implied by the updated full year guidance. In case, you know, the kind of second half improvement doesn't materialize, and maybe we're in a weaker economic environment in 2024, can you just talk about sort of free cash flow profile versus the dividend if we really stress test macro assumptions? You know, say there's a recession, obviously that's not the base case. Just wondering if you kind of talk about that and, you know, levers that you can, you can pull. Mark, you're on mute.

Mark McHugh (CFO)

I'm sorry. Yeah, no, our expectation is for higher free cash flow in the back half of the year. That's largely driven by, you know, higher Adjusted EBITDA in the back half of the year. You know, despite that, we do expect that the dividend will be modestly underfunded this year, and that's just, you know, a function of macroeconomic headwinds that we've seen, you know, really through the first half in particular.

Obviously, we set the dividend on the basis of long-term cash flow expectations, also with the desire to, to grow the dividend over time as cash flow has grown. We saw very strong growth in cash flow in 2021 and 2022. Obviously, that's backed up some here in 2023.

You know, we still feel as though long term, you know, we, we're, we're poised for growth in cash flow as we see a market recovery. You know, that's something that we have to continuously assess, and certainly, if we saw a more pronounced pullback in market conditions, we have to assess the dividend against that backdrop. Right now, we certainly feel confident that long term, the business is pretty well situated, and obviously, the our balance sheet is still in very good shape, and we have a lot of levers at our disposal to manage both cash flow as well as leverage.

Anthony Pettinari (Equity Research Analyst)

Okay, that, that's very helpful. Then maybe just shifting gears on, on credits. You know, you, you mentioned the, the plan to increase New Zealand credit sales after, I think, government actions to stabilize the market. I was just wondering if you could provide any more context on, on those actions.

Then in the US, you know, we've started to see some of these, you know, credit projects piloted in, in different geographies, maybe now including the US South. I, I was just wondering if you'd talk generally about sort of the attractiveness of those, those projects and, you know, maybe Rayonier participating in the credits markets in the US, you know, as well as New Zealand in the long term.

Doug Long (EVP and Chief Resource Officer)

Sure. This is Doug again. You know, the New Zealand government announced in March plans to review its emissions trading scheme to explore whether changes might be needed to encourage business to focus more on reducing emissions as opposed to offsets. This created a fair degree of market uncertainty and limiting liquidity in the market and causing prices for NZUs to really decline considerably compared to where they were a year ago.

While we expect the comprehensive view of that New Zealand ETS will take some time to complete, the government has recently taken measures to adjust both price controls and settings, which has helped support higher pricing liquidity than we saw earlier in the year. Notably, we've already seen the same uptick in the NZU carbon credit prices and liquidity following this news.

There was, you know, some uncertainty put in the market, and then, it probably market overreacted beyond what they expected, and, and the government's come back in to try to help assure everyone and stabilize things.

Mark McHugh (CFO)

Yeah, as it relates to nature-based solutions, more broadly, you know, we do still see, you know, tremendous opportunity long term around nature-based solutions. Carbon credit markets are really just one piece of that. You know, we tend to think of, of nature-based solutions as broadly falling into, to three categories.

You know, first of which would be carbon markets, both, voluntary markets, which is what we have in the US, as well as regulated markets like the New Zealand emissions trading scheme. You know, that second bucket would be, alternative land uses, and that might include, you know, solar, wind leases, carbon capture and storage leases. We're seeing, you know, tremendous activity there right now. Lastly, would be wood fiber for, bioenergy and biofuels, for example, sustainable aviation fuel.

That's kind of how we broadly think about the major categories of nature-based solutions. You know, that said, all of these different opportunities are in various stages of development. You know, to date, the regulated market in New Zealand has been the largest driver of revenue for us in that nature-based solutions arena.

We haven't yet participated in the voluntary carbon market in the US, given just, you know, broader concerns around the quality and consistency of voluntary market offsets. You know, that said, we're certainly evaluating a number of opportunities in the voluntary market currently, but suffice it to say, we're proceeding very cautiously on that front.

You know, like I said, the area that we're seeing the most opportunity right now, just in terms of capital investment, as well as, you know, tangible, medium-term revenue opportunities for Rayonier, is really around that alternative land use. You know, Doug is overseeing our, our nature-based solutions business, so maybe I'll turn it back to him, you know, to provide an overview of some of the kind of activity that we're seeing in that space currently.

Doug Long (EVP and Chief Resource Officer)

Yeah. Thanks, Mark. Yeah, I would just, you know, following with Mark's comments on the on the carbon credits, you know, with respect to the voluntary area, you know, we're in the process of working on that, and we have some of our initial projects we expect to come online in 2024, and we've been developing relationships with counterparties that are focused on, on top-tier quality credits.

As Mark mentioned, kind of given concerns about credibility some of those early carbon credits that were developed and sold, we're really hoping to see improved standards and best practices further evolve before issuing our own carbon credits. We've seen some of this with the Integrity Council for Voluntary Carbon Markets, and just passed a framework to assess carbon credit integrity, and we think that's a positive development.

You know, given our experience, you know, for well over a decade now in New Zealand carbon markets and the projected demand for carbon credits both in the US and globally, we believe it's prudent to focus on the long-term value by clear differentiating ourselves from a quality perspective. Overall, we believe that increased focus on the quality and integrity across the voluntary market, that's gonna be a positive trend.

Over time, it should increase pricing as cheap, low-quality credits are purged from the market and replaced by more durable ones that actually achieve traditionality. We were patient in New Zealand, you know, when credits were selling in the low single digits start, and I've seen them trade in the range of $35-$50 US over the past few years.

We intend to take a similar approach in the voluntary market with a view towards building a durable business rather than realizing a quick buck. I think that's kind of on the carbon where we see things right now. That just seems like it's a growing market, and we wanna make sure that we enter it, you know, at the right time with the right quality.

As it goes to alternative land use. No, we mentioned in our comments that we've done some or Dave mentioned we've done some CCS, carbon capture storage, you know, solar and wind. On the carbon capture storage front, based on the existing kind of pipeline infrastructure, the location and plans of many of the large emitters, and civil geology, we've prioritized the Houston carbon capture hub for our initial efforts.

There are other areas with our ownership that we believe are suitable for carbon capture storage, but they're likely further out from a timing perspective. We've identified about 400,000 acres in Texas and Louisiana with the geological potential for carbon storage in this hub, and are actively engaged with suitable counterparties. We've executed our first carbon capture storage lease earlier this year on 26,000 acres with one of those parties.

At a high level, the economics for these types of leases are generally structured as a lease payment for the land, then with upside if and when injection occurs in the future. The timeline to potential injection payments is several years out, given the lengthy permitting process involved for these types of projects. We really do remain excited about the potential for carbon capture storage leases to add material value for our shareholders.

Now, shifting on to solar. We're seeing really strong interest from top-tier solar developers across our southern footprint. The utility scale project is expected to lead to a tripling of the solar industry over the next five years. Over 50% of all new electric capacity add to the grid in Q1 2023, with solar, with Florida, Texas, and Alabama among the top five states.

This really suits our footprint well. Over the past years, we've sold approximately 3,000 acres at an average price in excess of $10,000 per acre as HBU land sales to solar developers. More recently, the leasing fundamentals are proving to be more attractive as a long-term annuity by itself, within the added potential upside to add other NBS, nature-based solution opportunities, such as carbon capture storage.

Right now, we currently have approximately 26,000 acres, either under lease or option to lease, with developers expressing interest on simply more acres in Florida, Georgia, Alabama, and Texas in particular. Naturally, based on factors such as capacity on the grid, proximity to transmission lines, and sufficient acreage for suitable sites. Lastly, on the wind. In 2020, we participated in our first wind farm in Oklahoma, with installation of 16 turbines on our property.

This is structured as a multi-decade lease with a base rental component and then a revenue share based on energy production of each turbine. We're still seeing interest in that area, and we currently have interest in an additional 3 wind farms in our New Zealand operations, with a potential of over more than 60 wind turbines.

As Dave said earlier, we've been active in this space and continue to see a lot of interest as we go forward. Lastly, kind of moving that third bucket that Mark talked about on the fiber demand. The level of interest in nontraditional uses of our fiber to achieve low carbon products such as biofuels, sustainable aviation fuels, and really other traditionally petroleum-based products, has also been very significant.

We're currently in varying degrees of discussion with 12 incredible projects for fiber supply, and are aware of several more being considered in our wood baskets. The average size of many of these projects is equivalent to the demand of a small pulp mill.

While that demand is not here and current, it will be coming down the road, we believe, in some cases, and it will take a little while due to permitting and construction. We're really encouraged about what that means for the midterm to long term for our land base. The nice thing about that, I think, is that these new customers, they're outside of our traditional end user products, so we're gonna see, you know, different, you know, different opportunities and different flexes within the markets.

That's kind of a high-level summary of what we've been working on and, and where we're going right now. I'd say the, the other area that is kind of moving forward as we look at our nature-based solutions, is also starting to go into a more nascent area, but in the biodiversity.

Dave Nunes (CEO)

Yeah, Anthony, if I could just add a little perspective to that. You know, we began this work in earnest, back in 2021, and part of that effort was to really divide up the potential opportunities from a, what we believed then, what would be the timing expectations and start to improve our understanding of the opportunities, bring in more expertise.

You fast-forward to where we are today, and it was one of the key reasons behind the reorganization that we announced earlier this year, where we moved that under Doug's leadership. We've brought a lot of new, dedicated positions to go after these opportunities, and it's allowed us to shift as the opportunities have become. Those opportunities that have become more material.

We're, we're very excited about not just the positioning of the portfolio, but also the positioning of our team and the way we're, we're structured to pursue these. You know, stay tuned. It's still, it's still the early days, but, we, we like kind of the approach that we've taken, and we like the fit to, to our portfolio.

Doug Long (EVP and Chief Resource Officer)

Great. Great note. Thank you. That, that detail is very helpful. I'll, I'll turn it over.

Operator (participant)

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

Ketan Mamtora (Equity Research Analyst)

Thank you. Good morning, Dave, Mark, and Doug. Perhaps to start with, Doug, you talked about, you know, port inventories in China, you know, having come down quite a bit. Any sense as to kind of where they are relative to historical averages? You know, whether they are down to normal levels or, you know, you expect, you know, it to get there at some point pretty soon?

Doug Long (EVP and Chief Resource Officer)

Sure. Yeah, this is Doug. I'll answer that one. Yeah, as we mentioned, we saw a 15% decrease in port inventories during the month of July, which is resulting in about 3.7 million cubic meters at the month's end. We're seeing average daily sales in July of approximately 72,500 cubic meters, and that's up 5% year-over-year.

We typically like to think about kind of what's the demand to the inventory ratio. If you think about that right now, this equates to an inventory-to-demand ratio of about 1.7 months. Historically, when we've seen this ratio below two months, that equates to tensioning in the market with price appreciation, which is what we're seeing currently.

We're getting back to your, to your point, at a point now where we're getting below that two months inventory-to-demand ratio, and that's where we typically have seen things. The inventories have come back down quite a bit from where they were. To your point, getting into more normalized when we get to below that two months ratio. I think that's a good thing.

Additionally, we've seen lumber inventories have also fallen through July, which has yielded some price improvements in, in lumber, too. The Chinese softwood market's, you know, showing signs of recovery with a reduction in both inventory and increased prices during a seasonally low period of demand, 'cause, you know, we're in the monsoon season, it's very hot temperatures.

I think we're, you know, we're seeing a point where we're starting to see price, price appreciation and attention in that market. It's, it's, it's feeling like a good time, right this minute, to be in that market.

Ketan Mamtora (Equity Research Analyst)

All right. No, that's, that's helpful context. You know, Doug, any update on kind of where we are with the European spruce bark, you know, kind of situation and, and the, you know, exports that we are seeing from there, you know, into Asia, whether it's, logs or lumber?

Doug Long (EVP and Chief Resource Officer)

Sure, yeah. You know, I think what we've seen is that the, the European spruce beetle salvage has mainly wound itself down. They're still harvesting some of that, but from what I've read and seen, the excessive harvest, where they were harvesting beyond their average annual cuts in certain countries, that has come back down now to where they're, they're pretty much cutting within their kind of more normalized annual harvest. We've seen the, the amount of volume from, from Europe, particularly being exported from those salvage, reduce significantly over the years. I don't expect to see that ramp back up.

What, what we can see, though, is that, kind of with the weaker demand and macro across the country, that, still could see European volume moving around, trying to find a home if it's not being processed as saw logs. I don't see that really increased ramp-up that we saw before, so not expecting to see European logs look anything like they did in kind of 2020.

Ketan Mamtora (Equity Research Analyst)

Got it. No, that's helpful. Final question from my side. Can you talk a little bit about how your M&A pipeline is looking and just deal activity in Timberland?

Dave Nunes (CEO)

Sure. I'll, I'll take that, Kate. I think generally, you know, this has been a, a slower year. I think some of that speaks to the, the optionality that a lot of these, these nature-based solution types of opportunities have presented. I think it's translating into a number of buyer, or excuse me, a number of, of, of landowners sort of sitting and waiting to see, how these various markets develop. I think that's part of why, you're seeing, a, a slowdown in activity. From a demand side, I think we've, we've continued to see, you know, pretty robust demand. I say that sort of in the context of, you know, our understanding of capital flows.

You know, capital flows often have a big impact on pricing and can even impact volumes. Again, for those same reasons around the nature-based solutions, we're seeing, you know, capital flows flowing into this asset class for that reason. It, you know, in the end, we're gonna have to kind of see how that sorts itself out. You know, we continue to, we continue to look pretty much across all our geographies for bolt-ons.

We're, we're always, we're always sort of active in smaller transactions that, that have a good fit for us, and we're, we're taking kind of a wait-and-see approach on some of the larger transactions until some of these things sort themselves out.

Ketan Mamtora (Equity Research Analyst)

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

Operator (participant)

Thank you. Our next caller comes from Buck Horne with Raymond James. You may go ahead, sir.

Buck Horne (Equity Research Analyst)

Hey, good morning. Thanks for the time, guys. I just wondering if we can go back to the pulpwood market for a second, just to, you know, characterize maybe a little bit better what you're hearing from your in-market customers on, on, you know, the pulp mills in terms of, you know, what their log inventories look like going into the back half of the year.

If you're seeing any signs that, that demand for container board or other pulp, you know, products is starting to rebound, or what's, what's kind of the, the color you're hearing on the ground from the pulpwood market these days?

Doug Long (EVP and Chief Resource Officer)

Sure. You know, a lot of the inventory stocking that has occurred across the supply chain, it was a result of that shift in economic consumption from goods to services post-COVID. Recently, we started to see that inventory situation improve as inventories at mills and box plants fell to 2.6 million tons in June, which was down from a high of 3.1 million tons in July last year.

For reference, in the two years leading up to the pandemic, inventories averaged about 2.6 million tons, so we're, we're right in that ballpark. This is why in our prepared remarks, we mentioned that the destocking process for end products derived from our pulpwood is, is largely complete, as we now see mill inventories and retail inventories at more normalized levels.

Kind of the last part of the supply chain that is still working on clearing inventory is that wholesale channel between the mill and the retail. When that happens, we expect to see, you know, a more pronounced recovery in container board demand. All that said, we, we feel like the inventory situation is much improved from where we were, you know, as, as mentioned there.

We've started to see improved demand on the ground matching that. We've, we've had mills where we were under quota, who have now removed the quotas from us and said, "You know, you can take more volumes." It's much like that I mentioned before in the lumber in the Northwest, where, you know, before we see price improvements, we have to see the capacity improvements and, and the wood move in.

What we're seeing in quite a few areas is that the mills have started to open up the quotas and allowing us to bring more logs in, and we expect that to, you know, as things move on and they start to see demand on their side, that that should translate into pricing, and we have seen that at individual mills so far.

Buck Horne (Equity Research Analyst)

Awesome. That's a very helpful color. I appreciate that. And then switching just to the Timberland M&A markets, as you guys have, have highlighted, I mean demand has remained pretty strong, not only for rural real estate, but just timber in general as an asset class.

Sounds like there's not a lot of sellers, you know, putting, you know, packages together in the market right now. Would you guys think about stepping into that and looking at maybe, you know, putting some parcels that are non-core, non-strategic to you guys and, and maybe, you know, step up disposition activity in the back half of the year?

Dave Nunes (CEO)

I mean, I think that's, Buck, that's something that we always look at, and I think that's one of the areas of advantage that we have as a pure play timber REIT, is that we have greater flexibility to kind of actively manage our portfolio. So that's something that we're always considering. We have kind of rank ordering of our own properties from a quality standpoint, and it gets back to some of the flexibility that Mark touched on as it relates to balance sheet that we have, you know, in our toolkit. We take that, that active portfolio management role, you know, very seriously, as a, as a, as a pure play.

Buck Horne (Equity Research Analyst)

Okay. All right. Thanks, guys. Appreciate the time.

Operator (participant)

Thank you. Our last question comes from Mark Weintraub with Seaport Research Partners. Sir, you may go ahead.

Mark Weintraub (Equity Research Analyst)

Thanks for all, for all the color, and especially kind of the rundown on the nature-based solutions. Lots of good information. Lots of follow-ons. I'll, I'll just ask one, though. On, on the carbon capture solutions, you talked about, I think 26,000 opportunity-acre opportunity having been identified and, and the, the possibility of 400,000 over time. Can you give us a sense in, in terms of how much earnings or revenue, could be associated with just a ballpark, with the, the 26,000, so we can begin to scale the potential of the opportunity for you here?

Mark McHugh (CFO)

Yeah, Mark, we're not in a position to provide that level of detail just yet. You know, recognize there's a lot of activity that's ongoing in, in this arena. A number of the discussions that we're having currently are under confidentiality agreements, as well as, you know, agreements that have been entered into and, and prospective agreements that we might enter into around CCS leases.

You know, we're, we're working on appropriate disclosures on a go-forward basis, and we, we do hope to be in a position to provide some more color on that here in the next in the next short while. We're not quite at a point where we can provide economics on the transactions that we're, we're evaluating.

Doug Long (EVP and Chief Resource Officer)

Okay. Fair, fair enough. Just so I...

Dave Nunes (CEO)

Mark, keep in, and keep in mind, keep in mind, too, that you have kind of two pieces. You have the, the land lease piece, and you have the injection piece. You know, while the land lease piece has started, the injection piece is very determinant based on the permitting and the pace of activity. That's gonna be a harder one to sort of get your hands on, early in the game.

Mark Weintraub (Equity Research Analyst)

Got it. There'd be, like, an underlying rental fee on the, the land lease, and then, it would be a bit more variable depending on the injection. Is that how to understand that?

Mark McHugh (CFO)

That's correct.

Dave Nunes (CEO)

That's, that's correct.

Mark McHugh (CFO)

Recognize again, that those injection payments wouldn't, you know, theoretically occur until a later date, given that the long permitting process that, that, that's involved in getting these injection wells permitted.

Mark Weintraub (Equity Research Analyst)

Understood. Not, not to hold you to it, because I realize, you know, things are dynamic, but, I think you suggested you, you might be in a place to give us a bit, a bit of a sense more on the economic side soon. What, what, what... Maybe when might soon represent?

Mark McHugh (CFO)

Well, illustratively, Mark, I can point you to a Wall Street Journal article from about a month ago that provided some detail around landowner economics. Again, they were given in fairly wide ranges. And again, we're working through at what point in time and at what level of detail we can provide that information going forward.

You'll recognize that again, we, we see this as a pretty meaningful opportunity for us long term, but it's still very much in the early stages, and some of those revenues are still, you know, several years out, or perspective revenues are several years out.

You know, again, I don't want to put a specific timeline on it, but it's something that, again, we've seen a lot of activity here just in the last, you know, 6-12 months. I think over the next 6-12 months, we'll be looking to provide some, some more detail around kind of how we expect that to impact the business long term.

Mark Weintraub (Equity Research Analyst)

Okay.

Dave Nunes (CEO)

Getting back to my team comments, you know, Mark, we're devoting a lot of resources to furthering these efforts.

Mark Weintraub (Equity Research Analyst)

Okay. Really appreciate the, the help. Thanks.

Operator (participant)

Thank you. Our last question comes from Paul Quinn with RBC Capital Markets. You may go ahead, sir.

Paul Quinn (Equity Research Analyst)

Yeah, thanks very much. Morning, guys. Just following up on Mark's question. If, if you looked out 10 years, you know, how big is this carbon opportunity, you know, to you between the wind, solar, carbon capture, storage, everything, all in a, in a bucket?

Is that? Do you think this is 10% of your business? Do you think it's 20%? What, you know, what, what's a ballpark number that, that, you know, without giving any financials, which, you know, it sounds like you're still a ways from, you know, how should we think about it?

Mark McHugh (CFO)

Yeah, Paul, we're just, we're just not quite at the point where, where we can put that type of figure out there publicly. Again, we, we are currently working to better refine the long-term view around that, but just recognize that there has been just a lot of activity in the last 6-12 months.

We are still trying to size, you know, both the market opportunity as well as the specific opportunity for Rayonier. Suffice it to say, we think that it's, it's, it's meaningful, but again, putting that type of those type of brackets around it in terms of percentage contribution to cash flow, revenue, EBITDA, we're just not quite at the point that we're ready to do that.

Paul Quinn (Equity Research Analyst)

Okay, maybe look at it a different way then.

Dave Nunes (CEO)

Keep in mind, you have a lot of overlay between various potential land uses and, and products, and so that, we're managing that complexity as well.

Buck Horne (Equity Research Analyst)

Okay, then, I don't know, maybe I take another look at it on a carbon capture sequestration basis. Do you think that, as some of these projects get up and the credits get sold, the areas get deferred from harvest, is that gonna be a material increase in terms of log pricing to you, you know, the way you think of it down the road?

Mark McHugh (CFO)

It, it certainly could be, if you saw, you know, meaningful deferral, around, you know, for example, carbon projects, or, you know, sale of forestry credits into the voluntary carbon market. I think it could also be meaningful as you look at the prospective demand for that fiber going into bioenergy or, or, or biofuels.

Again, recognize that all of these emerging industries are still in, in their relatively nascent stages. You know, again, we haven't seen-- we've seen a lot of, of, of talk around bioenergy facilities and biofuel facilities like sustainable aviation fuel, but we haven't actually seen that pull of fiber into those types of facilities yet.

You know, again, I think what's exciting for us is you look at any one of these opportunities in isolation, again, be it, you know, carbon capture and storage, or solar, or fiber into bioenergy, or sustainable aviation fuels. In isolation, we think that they could be meaningful for, for our business. When you start to think about the confluence of all of them together, it, it, it is.

There's a compounding effect, right? Just in terms of that demand for wood fiber and demand for land use more generally. You know, this, this is clearly something that's affecting our industry and is driving, you know, views around land values currently. It's obviously making the timberland M&A market, that much more competitive.You know, we're excited about the long-term prospects, but we're really still at the point of trying to size these opportunities long term.

Buck Horne (Equity Research Analyst)

All right. Fair enough. Best of luck.

Operator (participant)

Thank you. There are no further questions. I'll now turn the call back over to Colin Ming.

Mark McHugh (CFO)

Thank you. I'd like to thank everybody for joining us. Please contact us with any follow-up questions.

Operator (participant)

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