Rayonier Inc. REIT

Welcome and thank you for joining Ray and Nier's third quarter 2020 teleconference call. At this time, all participants are in a listen-only mode. During the question and answer session, please press star 1 on your touch-tone phone to ask a question. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning. Sir, you may begin.

Thank you and good morning. Welcome to Rainier's Investor Teleconference covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rainier.com. In these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal security laws. Our earnings release and SEC filings 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 measure in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Dave Nunes, President and CEO. Dave?

Thanks, Collin, and welcome aboard. I'll begin the call by making some high-level comments before turning it over to Mark McHugh, our Senior Vice President and CFO, to review our consolidated financial results. Then we'll ask Doug Long, Senior Vice President Forest Resources to comment on our U.S. and New Zealand timber results. And following the review of our timber results segments, Mark will discuss our real estate results as well as our outlook for the remainder of 2020. We generated adjusted EBITDA of $67 million and pro forma net income of $7.5 million or six cents per share in the third quarter. We delivered strong operating results across our three regional timber segments, as well as within our real estate business. Despite facing some ongoing challenges associated with the COVID-19 pandemic, we benefited from robust new residential construction activity, continued strong repair and remodel spending, improved demand from key export log markets, and strong market dynamics for our pulpwood customers. Our collective results underscore the strength of the markets we operate in, the diversity of our portfolio, and the resiliency of our business. Despite strong operating results, we had to navigate multiple casualty events during the quarter, including Hurricane Laura in the U.S. South, as well as wildfires in Oregon. Our thoughts go out to all those who were affected by these tragic events. While we sustained some property damage, fortunately no Rainier employees were injured. From an operational standpoint, we expect only limited near-term disruptions to our business, given the geographic diversity of our footprint. While the direct impact to us was limited, we've taken steps to help those communities get back on their feet through financial donations to disaster relief efforts. Drilling down to our different reporting segments, our southern timber segment generated a just-a-dee-ba-dah of $26 million for the quarter. which was 16% above the prior year third quarter. Results were bolstered by a 16% increase in harvest volumes and 8% higher saw log stumpage prices relative to the prior year quarter. Saw log pricing benefited from healthy mill demand amidst record lumber prices, as well as growth in log exports along the Atlantic coast. In our Pacific Northwest timber segment, we achieved adjusted EBITDA of $9 million, and many others. In our New Zealand timber segment, we reported adjusted EBITDA of $18 million, slightly above the prior year quarter. Modestly lower log prices were offset by a slight increase in harvest volumes, as well as higher carbon credit sales. In contrast to our prior two quarters during which we experienced COVID-related lockdowns, our New Zealand business was fully operational throughout the third quarter. Our real estate segment reported very strong third quarter adjusted EBITDA of $22 million, driven by the sale of over 10,000 acres of rural land. Overall, we have continued to see healthy demand across all our real estate sales categories, which we will elaborate on later in the call. Before turning the call back over to Mark, I'd like to provide a brief update on our ongoing response to the COVID-19 pandemic. The work from home model we instituted for all U.S. employees in mid-March remains in place, and field employees continue to observe enhanced safety guidelines. Given the current state of the pandemic, we anticipate remaining in this mode in many of our locations through at least the end of the year. While the pandemic has been extremely disruptive to all aspects of life, I continue to believe that Rainier has been managing through it very well. Despite the challenges posed by the pandemic, our team has managed to operate very efficiently and has also advanced several important strategic initiatives this year, most notably the closing and integration of the Pope Resources acquisition, and has continued to respond in a nimble manner to rapidly changing market conditions. On that note, I want to reiterate how pleased we've been with the Pope Resources transaction to date. Since closing the deal on May 8th, the collaboration among our employees has been tremendous, supporting our view that the combined organization would benefit from the blending of best practices and the talent associated with each company. We're also already seeing the benefits associated with our increased scale and operational flexibility in the Pacific Northwest, We have managed to achieve synergies modestly ahead of our initial estimates. With that, let me turn it over to Mark to review our financial results and highlights from the quarter.

Thanks, Dave. To start, I'd like to briefly comment on the write-offs this quarter associated with Hurricane Laura and the wildfires in Oregon. In total, these casualty events resulted in write-offs of $15 million, of which approximately $8 million was attributable to Ray and Irr, and the balance was attributable to the non-controlling interest in the timber funds business. We have included these charges as a pro forma item in our third quarter results due to the nature of these events and the infrequency with which they materially impact our results. As it relates to our southern timber segment, Hurricane Laura made landfall in Louisiana on August 27th, impacting nearly 8,000 acres of our timberland properties in the state. We anticipate being able to salvage approximately 1,000 acres based on existing mill quotas and the condition of the damaged timber. As a result of the hurricane, we wrote off timber basis in the amount of $6 million during the quarter. Moving to the Oregon wildfires, our timber fund segment was directly impacted by two fires during the quarter. Specifically, the Beachy Creek fire in northwest Oregon impacted roughly 9,000 acres of land owned by ORM Timber Fund 2 and the Slater fire in southwest Oregon impacted about 1,000 acres of land owned by ORM Timber Fund 4. Rainier manages both funds and owns a 20% economic interest in Fund 2 and a 15% interest in Fund 4. Based on our latest assessment, we estimate that approximately 60% of the damaged merchantable timber will be salvageable. As a result of the wildfires, we wrote off timber basis of approximately $9 million on a consolidated basis. However, based on our economic interest in these funds, only $2 million of this write-off was attributable to Rainier. I'll now switch gears and provide an overview of our third quarter results, starting on page five with our financial highlights. Sales for the quarter totaled $199 million, while operating income was $2 million, and net loss attributable to Ryanier was $1 million, or a loss of one cent per share. On a pro forma basis, net income was $7.5 million, or six cents per share. The pro forma adjustments for the third quarter included the timber write-offs previously discussed, as well as costs related to the Pope Resources merger. Third quarter adjusted EBITDA of $67 million was well above the prior year quarter adjusted EBITDA of $43 million. All three timber operating segments, as well as our real estate segment, posted stronger results relative to the prior year quarter. These positive variances versus the prior year quarter were partially offset by higher corporate and other expenses, as well as a slight loss in our trading segment. On the bottom of page five, we provide an overview of our capital resources and liquidity at quarter end, as well as a comparison to year end 2019. Our cash available for distribution, or CAD, for the first nine months of the year was $124 million, compared to $116 million in the prior year period, primarily due to higher adjusted EBITDA and lower CapEx, partially offset by higher cash interest paid. A reconciliation of CAD to cash provided by operating activities and other gap measures is provided on page 8 of the financial supplement. We closed the quarter with $75 million of cash and $1.3 billion of debt, both of which exclude cash and debt attributable to the timber fund segment, which is non-recourse to reindeer. Our net debt of $1.2 billion represented 26% of our enterprise value based on our closing stock price at quarter end. Consistent with our nimble approach to capital allocation, we established an at-the-market or ATM equity offering program in September. While we did not issue any shares under the ATM program during the quarter, we view this program as a tool that will allow us to opportunistically access equity capital in a very efficient manner. I'll now turn the call over to Doug to provide a more detailed review of our timber results.

Thanks, Mark. Good morning. Let's start on page nine with our southern timber segment. Adjusted EBITDA in the third quarter of $26 million was $4 million above the prior year quarter. Results reflect strong demand across much of our US South footprint for both pulpwood and salt timber. Specifically, third quarter harvest volume of approximately 1.5 million tons was 16% above the prior year quarter. Domestic demand from sawmills has been robust, and we also remain encouraged by the growth in log exports along the Atlantic coast as demand from China for southern yellow pine has rebounded in response to the tariff waivers introduced earlier this year. We are well positioned to capitalize on this market opportunity moving forward, which provides an added layer of market demand. Turning to pricing, average saw log stomach pricing was $25 per ton, an 8% increase compared to the prior year quarter. The improvement in saw log pricing was attributable to stronger demand for both domestic and export grade timber. Pricing also benefited from a geographic mix weighted toward our stronger Atlantic coastal markets. Pulpwood pricing was flat relative to the prior year period. Third quarter results include a modest amount of salvage volume due to Hurricane Laura. We expect salvage activity to increase during the fourth quarter, anticipate the ramp up in these efforts to lead to a short term drag on pulpwood pricing. Third quarter non-timber income of $5 million with $3 million below the prior year quarter due to a reduction in pipeline easement revenue. Recall that 2019 marked a record high year for our non-timber income business. Moving to our Pacific Northwest timber segment on page 10. Adjusted EBITDA of $9 million with $6 million above the prior year quarter. This was primarily driven by a significantly improved pricing environment as well as an increase in volume attributable to the Pope Resources acquisitions. Sawmills in the region are generally running at full capacity. With the surge in lumber prices translating into increased profitability for the mills, log pricing dynamics have certainly improved. However, export market demand has been relatively sluggish given the increased supply of European logs and lumber into China. Pacific Northwest harvest volumes, augmented by our acquisition of Pope Resources, were also favorable. Of the 346,000 tons harvested in the third quarter, 55,000 tons represent volume from the acquired Pope Resources Timberlands. At $93 per ton, our average delivered saw log price during the third quarter was at its highest level since 2018, and up 19% from prior year quarter. The strength in pricing primarily reflects robust demand due to the surge in lumber prices over the past several months, as well as a higher percentage of Douglas fir as a result of the Pope Resources acquisition. Meanwhile, pulpwood pricing fell 15% relative to prior year quarter due to weaker export markets and higher saw mill residuals. As it relates to our acquisition of Pope Resources, we continue to be pleased by our integration efforts. Our operational flexibility has been enhanced within the Pacific Northwest, and we are seeing the benefits of our increased scale and geography diversity as our team acted swiftly to optimize harvest plans following the recent wildfires in Oregon. While we believe it could take some time for the operating environment in Oregon to normalize due to substantial salvage efforts following the recent fires, we expect stable domestic market conditions fueled by strong lumber prices to persist in Washington well into next year. Page 11 shows results and key operating metrics for our New Zealand timber segment. Adjusted EBITDA in the third quarter of $18 million was comparable to a year ago. Third quarter harvest volume of 776,000 tons was up 3% compared to the prior year quarter. We were fully operational throughout the third quarter, and as discussed on our earnings call last quarter, our team has done an incredible job in resuming production and making up a good portion of the lost volume after the government mandated lockdown earlier this year. Turning to pricing. Average delivered prices for export salt timber decreased 1% from the prior year to $94 per ton. Demand for radiopine from China remains very robust as this species continues to serve a wide range of end uses, with demand from plywood and furniture manufacturers particularly strong at present. However, persistently high China log inventories through the second quarter and to start the third quarter, as well as increased competition from lower-cost European log and lumber imports, have been a constraint on pricing. That said, we saw an 80% increase in daily consumption during the third quarter, which has brought the Radio Pine port inventory back into a healthy supply-demand balance. Slightly softer export demand increased domestic log supply, creating some downward pressure on domestic pricing. Specifically, average delivered prices for domestic salt timber decreased 7% from the prior year period to $70 per ton. Meanwhile, the average domestic pulpwood price fell 10% as compared to the prior year quarter, but has increased relative to earlier this year. I now briefly discuss the results from our timber fund segment. Highlighted on page 12, the timber fund segment generated consolidated EBITDA of $1 million in the third quarter on harvest volume of 110,000 tons. Adjusted EBITDA, which reflects the look-through contribution from the funds, was $200,000. As noted in our press release, consolidated EBITDA and adjusted EBITDA in the timber fund segment are pro forma for the write-offs associated with the fires that Mark discussed earlier. Lastly, in our timber trading segment, We generated negative adjusted EBITDA of $600,000 in the third quarter. Typically, our trading segment has very low margins and is designed to augment our feed timber export sales. In the third quarter, we incurred increased port storage and shipping fees in China associated with COVID disruptions, which contributed to this negative EBITDA result. I'll now turn it back over to Mark to cover our real estate results.

Mark? Thanks, Doug. As highlighted on page 13, our real estate segment delivered strong results in the third quarter. Sales totaled $29 million on roughly 10,600 acres sold and an average price of over $2,300 per acre, as well as a conservation easement sale of $3 million. Adjusted EBITDA for the quarter was $22 million. Sales in the improved development category totaled $1.3 million, highlighted by the sale of 15 lots in our wildlife development project north of Jacksonville, Florida, for $1 million, or $65,000 per lot. We also close on our first post-merger land sale from Legacy Pope Resources Property in Washington, consisting of one industrial lot in Kitsap County for $300,000. In the rural category, sales total $23 million on roughly 10,500 acres sold at an average price of $2,200 per acre. The category was highlighted by a 7,300-acre sale for $14 million, or $1,900 per acre, across four counties in Georgia, and a 1,400-acre sale for $3 million, or approximately $2,100 per acre, in South Carolina. We also continue to see robust demand for our Rural Places program during the quarter. We closed on 28 lots totaling 340 acres for $2 million, or approximately $6,300 per acre. We believe this program may benefit in a post-COVID environment as the growth in work-from-home arrangements make rural living outside of city and suburban centers more feasible for a larger portion of the population. Lastly, we closed on a 2,150-acre conservation easement sale in Washington for $3 million, or roughly $1,450 per acre. The property that the conservation easement covers was acquired as part of the merger with Pope Resources. As noted in our earnings release, we began reporting conservation easement sales as a new sales category within the real estate segment this quarter. Since conservation easement sales involve the sale of certain land use rights rather than an outright sale of the land, These sales are not reflected in our average per acre metrics for the segment. We're optimistic about the prospect of additional conservation easement opportunities going forward, as they allow us to capture the HBU value of certain properties while retaining the underlying land to continue to grow and harvest timber. Overall, following light activity in Q1, coupled with COVID-related headwinds earlier in the year, demand has come back strong in our real estate development project areas, as well as for rural land. Market strength is being driven by a combination of favorable demographics, historically low mortgage rates, and an increased need for space as many families reassess their living situations after months of sheltering in place and working from home. We continue to be encouraged by the pipeline of opportunities in Wild Light, Florida, Richmond Hill, Georgia, and the Puget Sound area of Washington. In Wild Light, which is now in its fourth year of development, the Village Center is gaining critical mass with several new buildings opening since July. In Richmond Hill, we expect the new interchange on Interstate 95 which is on track for completion before the end of this year to generate incremental demand for the residential, mixed-use, and industrial portions of the project. Now moving on to our outlook. As noted in our earnings release, we expect to achieve full-year adjusted EBITDA modestly above the high end of our prior guidance range of $240 to $260 million. Additionally, we anticipate the pro forma EPS will be around the high end of our prior guidance range of 17 to 21 cents. With respect to our individual segments, we now expect that our southern timber segment will achieve full-year harvest volumes of roughly 6.2 million tons and full-year adjusted EBITDA toward the higher end of our prior guidance range of $104 to $109 million. We expect that strong demand for both pulpwood and saw timber will continue through the balance of the year, although we expect that lower-priced salvage timber in markets affected by Hurricane Laura will impact our average pulpwood prices over the next few quarters. In our Pacific Northwest timber segment, We now expect full year adjusted EBITDA well above our prior guidance range of $30 to $32 million. We believe the strengthening of the Pacific Northwest market coupled with the partial year contribution from Pope Resources will likely result in full year adjusted EBITDA from the segment more than doubling the $17 million reported in 2019. While the wildfires have disrupted harvest activity in Oregon, we expect only a modest impact to our portfolio given the geographic dispersion of our Pacific Northwest footprint. We still expect to harvest between 1.6 and 1.7 million tons in the region during 2020. We further expect continued strong saw timber pricing, but believe pulpwood pricing will remain well below year-ago levels. In our New Zealand timber segment, we now anticipate full-year harvest volumes of roughly 2.5 million tons and full-year adjusted EBITDA near the high end of our prior guidance range of $50 to $56 million. Our operations continue to normalize following the COVID-19 disruptions earlier this year, with modest improvements anticipated in both export and domestic pricing. While we are very encouraged by the recovery and activity to date, we continue to expect the competition from European salvage volume may constrain pricing to some extent. In our real estate segment, we expect to achieve full-year adjusted EBITDA near the high end of our prior guidance range of $77 to $83 million due to continued strong demand and a favorable transaction pipeline across our sales categories. Lastly, we expect that our new timber fund segment will contribute full-year adjusted EBITDA below our previous guidance range due to the operational impacts of the fires that we discussed earlier. I'll now turn the call back to Dave for closing comments.

Thanks, Mark. Overall, we remain very encouraged by the stability of our business and the strength of our end markets, especially in what has clearly been a tumultuous year for many industries. Although still very elevated, we note that lumber prices have trended lower in recent weeks. As such, we believe it's prudent to prepare for some continued volatility in end markets as there remains considerable uncertainty stemming from the COVID-19 pandemic, the upcoming election, and a broader economic outlook as we look toward 2021. We've talked a lot in the past about our operational flexibility, our nimble approach to capital allocation, and our focus on building long-term value per share. While the challenges posed in 2020 have tested our resolve, I'm very pleased with the progress made this year as we continue to focus on long-term value creation for shareholders. On that note, I want to reiterate how proud I am of our employees. Our team has navigated the COVID-19 pandemic with poise and determination. The integration of Pope Resources has gone exceptionally well, especially considering the safety protocols and social distancing requirements necessitated by the pandemic. We continue to make significant progress towards several other strategic initiatives, and we've stayed nimble and capitalized on market opportunities as they have emerged. Additionally, when faced with natural disasters in both the U.S. South and the Pacific Northwest during the third quarter, our team mobilized quickly and safely to assess the damage to our lands and execute a plan to maximize salvage opportunities. I feel very fortunate to be surrounded by such exceptional talent at all levels of our organization and continue to believe this helps position us for future success. This concludes our prepared remarks. I'll now turn the call back over to the operator for questions.

Thank you. We will now begin our question and answer session. If you'd like to ask a question, please press Star 1. Please unmute your phone and record your name slowly and clearly when prompted. Your name is required to introduce your name. Again, that's Star 1 if you'd like to ask a question. Our first question comes from Anthony Pedranari with Citi. Your line is open.

Good morning.

This is actually Randy Tote sitting in for Anthony. Can you talk about the price improvement in the U.S. South, specifically on salt timber? I think you commented the improvement was driven by mix as well as export demand. So maybe talk about the strength you're seeing in various regions and then just remind us how large that export business is expected to be this year and how that compares to prior years. Thank you.

Sure. This is Doug. I believe your question was a little broke up there, but from what I understand, you wanted to talk about the increase we've seen, particularly in the South, in pricing on saw timber and then our comments around the exports. So I'll cover those real quickly here. The main benefit to increased lumber prices across the South has been increased demand for saw logs and loosening of log specs, which allowed us to harvest tracts heavier to saw grade in the quarter. Approximately a quarter of the 8% year-over-year increase is due to actual increase in pricing and the remainder is due to a shift in salt timber harvest to the Atlantic coast where we have greater competition with exports and therefore higher relative pricing. That's been the case for the past few years due to our expiring Arkansas timber deeds. Our harvest will shift back in Q4 towards the Gulf region which realizes lower average prime salt timber prices. So we did have a delay. Typically we see that volume happening in Q3 going into Q4 and this year it's going to be more heavily weighted to Q4. With respect to the exports that you mentioned, We've seen a rebound, as we talked about, for SunYellow Pine going into China once the tariffs waivers were put in place. And SunYellow Pine fills a niche market for pressure treating, and that demand has been growing. Across the U.S. South, in Q1, we saw about 155,000 tons. By Q3, it was up to 474,000 tons. And Rainier's participated in that as a similar increase. And so we expect to see about a 55% increase over our 2019 volumes. So we're seeing a pretty good demand there for that, and it's created that tension on the Atlantic Coast for us.

Got it. Okay, that's very helpful. And then just maybe switching over, can you comment on Chinese log inventories and what the uptake of those volumes have been in October thus far and how you're thinking about that? Thank you.

Sure. The China economy has had an impressive V-shaped recovery from COVID. That was led by construction to start with, but now shifting more heavily to industrial activity and exports to cover the downfall from competing nations who are still struggling with COVID. So we've also seen with that consumer spending in China has been positive since Q2, similar to U.S. with home purchases and other durable goods. So over the course of the quarter, we've seen an increase in demand from 60,000 cubic meters per day up to 110,000 cubic meters per day for radio pine. That particularly is going in that furniture and plywood manufacturing commented earlier. So while we had historically high port inventories of around 7 million cubic meters going into the third quarter, this robust demand has brought that supply-to-man ratio down into the kind of 1.5 to 2-month balance that we consider as being healthy. And we've seen it basically come down to around 4 million cubic meters at this point in time. So with respect to that, the strong demand we're seeing, we feel like we're in a good position right now where the radar pine sits. What we have still seen is the increased supply of the German, particularly German, but European spruce, And so that's impacting the exports off of Pacific Northwest, particularly for Hemlock. And so I expect that we'll do considerably less if almost no exports off of Pacific Northwest because of that strong domestic demand we have right now.

Okay, that's very helpful. Thank you. I'll turn it over.

Thank you. Our next question comes from Kurt Yinger with DA Davidson. Your line is open.

Great. Thank you, and good morning, everyone. I just wanted to start in the Pacific Northwest and the sequential improvement in realizations. Could you maybe help us parse out how much of that was really attributable to Pope's mix versus kind of apples to apples price gains?

Sure. In the Pacific Northwest, the strong lumber markets resulted in an average 19% increase across both our Chivensall and Saltimer grades. So we saw that lift across all the grades. Based on the series we harvested in the quarter, we had about 7% higher proportion of Chippensaw in our grade mix, which often trades at a 20% discount to the saw timber. But this was made up for by the higher proportion of Douglas fir in our mix with the addition of Pope volume. So that's kind of what we saw is that additional Pope volume helped offset the increased amount of Chippensaw we were harvesting.

Got it. Okay, that's helpful. And, you know, with lumber rolling over, and I realize it's Not directly tied to it, but could you maybe just talk about how, you know, your prices in the Pacific Northwest trended over the quarter and kind of exiting where they might be versus the Q3 average?

Yeah, we're not going to publicly talk about them, kind of the forward look on the pricing and things like that. But what I would say is, lower pricing still looks to be, you know, that a historical, historically strong going into the And then as we start to look ahead to 2021, could you just talk directionally about some of the different drivers of

Harvest Variations versus 2020 or even 2019, if that's more representative, just given all that's happened this year.

Again, we're not providing any guidance on a look-forward basis at this point, but suffice it to say that we publish our sustainable yield by segment, and I think our general operating philosophy is that we're going to be generally in that range. We may shift volume And then just lastly, maybe you could just talk a bit about capital allocation priorities and what you're seeing as far as potential timberland acquisitions and just valuations across those opportunities.

Yeah, I think if you look over the year, I think the biggest impediment to the Timberland transaction activity was just the inability from travel restrictions to get people on the ground to do additional due diligence. As we've seen that ease, we've seen more properties coming on the market, and we've seen a pickup in activity. So I think from an offering standpoint, we're back, I'd say, to a more normalized level. In terms of pricing, keep in mind that this is influenced by capital flows, and I think we still see the timber asset class as a safe haven for capital. And so we've continued to see a fairly robust amount of capital available in the space to invest, and we've certainly seen that reflected in asset values to date. Got it.

Okay. That's very helpful. Appreciate all the color and good luck in the fourth quarter.

Thanks.

Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Your line is open.

Yeah, thanks very much. Good morning. Just a follow-up question on timber pricing. It looks like you got a very significant bump in the Pacific Northwest, but yeah, while the U.S. South prices increased, there really wasn't anything close to what we've seen in the on the lumber side. And with the expectation that lumber stays pretty robust going forward, do you anticipate a pickup in that? Is there a lag there, or is this it?

I mean, Paul, a lot of that really is a function of what part of the U.S. South you're in. And as we've discussed before, we had stronger pricing performance on our logs relative to the broader market just because we tend to be in more balanced or tensioned wood baskets in the South. So the South still in an overall sense has had to build an inventory since the global financial crisis of a decade ago. But that build has been very differential. And where you have areas that are more in balance from a growth drain standpoint, we've seen More Pricey Elasticity, and you see that in our results for Q3.

Okay, and then how do you guys look at, in the changing environment, your percentage of delivered sales versus stomach sales? What's happening with that, and what do you expect going forward?

Yeah, the change that's particularly happening in the South, a lot of that is related to our export program, and we're delivering directly to our own yards and then exporting, and so through that process, we've shifted heavier to an export program on the Atlantic coast We've also seen, with respect to the weather and things like that we've had, that we've been able to gain additional crews and then utilize them and keep them working for us, basically, as we go forward. So it's been two combinations, but primarily it was the greater leverage to the export market has increased our need for delivered crews. And then through that process, getting some also greater quotas into some of the local mills, we've garnered from that, so we've continued on with those crews.

Great, that's all I had. Thanks.

Thank you. As a reminder, if you'd like to ask a question, please press star 1. Our next question comes from John Babcock with Bank of America. Your line is open.

Hey, good morning. This question, I mean, primarily, you know, obviously you closed, you know, Pope Resources earlier this year. Just wanted to get a sense for, you know, that you've got another quarter under your belt with that, you know, where you see opportunity to, I'd say that our approach is still very consistent with where it has been for the last number of years. We tend to have a preference around bolt-on transactions in all three of our geographies where we see a complementary fit from an age class

We've had a quality bias in the things that we've looked at and gone after. I think the Pope acquisition is certainly consistent with that. Right now, we're looking at transaction opportunities really across all three of our timber segments, but again with an eye toward quality and market dynamics.

Okay. And then with regards to the ATM equity offering, is the goal for that – well, actually, can you just talk about ultimately where those funds will be deployed should you decide to pursue that? And you mentioned maintaining flexibility on that front, so if you can just kind of talk about That and if there are kind of any thoughts around, you know, when and if that might be used.

Yeah, sure. This is Mark. You know, I'd say our mantra around capital allocation has always been to be nimble and opportunistic. And really, we view the ATM program as just another tool and toolkit to optimize our capital allocation opportunities and to raise capital when desired in a very cost effective manner. We also believe that it provides nice symmetry with our buyback program under which we still have roughly $88 million available pursuant to the last authorization. As we discussed earlier on the call, we didn't issue any shares under the ATM during the third quarter. So we intend to remain very disciplined around capital allocation and particularly the issuance of equity. Ultimately, our appetite to use the ATM is going to be heavily influenced by the stock price. as well as the opportunity set that we have available to deploy that capital at any given point in time.

Okay. And how do you balance the share issuances with the share buybacks? Is that effectively just going to be based on where the stocks train or are there any other factors you're taking into account there?

Yeah, I mean, that's going to obviously be a significant driver. You know, really the design of our capital allocation program more broadly is to build NAV per share over time. And so, you know, we look to deploy buybacks when we see an opportunity to generate that NAV accretion per share through buybacks. And likewise, when, you know, we'll use the ATM as appropriate to fund growth opportunities when we think that there's an opportunity that warrants the issuance of shares. Again, we saw it as being sort of very symmetrical in terms of having that ability to buy back shares when the pricing is opportune and likewise have the opportunity to issue shares when we like the price and we like the opportunities that we have available to deploy that capital.

Okay. Does the equity offering there have any sort of limitations that we should be mindful of?

Subject to typical trading restrictions around, you know, material non-public information. It's a continuous offering program. And so I'd say it operates much like the converse of a buyback where, you know, you're able to issue shares periodically into the market through open market transactions.

Okay. And then just last question before I turn it over. Just on Europe, if you can talk about the trend that you're seeing there and ultimately how that's, and you talked a little bit about how it's impacting the China market, but I just want to get a sense for

We continue to see, in the second quarter, the volume of Europe was reduced due to COVID, but going into Q3, they've really stepped up. I don't have the exact numbers with me right now, but I can tell you that Germany has hit an all-time high in their exports. We're seeing increased supply going into China, particularly out of Germany over that time, but it was coming off of a lower quarter. Germany has become the second largest exporter Thank you. And at this time, we have no further questions on the audio line. Thank you. This is Collin Mings. I'd like to thank everybody for joining us. Please contact us with any follow-up questions.

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