This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Welcome and thank you for joining Rainier's third quarter 2021 teleconference call. At this time, all participants are in a listen-only mode. During the question and answer session of today's conference, press star 1 on your touchtone phone. 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. Colin Mings, Vice President, Capital Markets and Strategic Planning,
spk01: Thank you and good morning. Welcome to Ray and Yer's Investor Teleconference, covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayandyer.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 in Form 10-K filed with the SEC lists 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?
spk04: Thanks, Colin. Good morning, everyone. First, I'll make some high-level comments before turning it over to Mark McHugh, Senior Vice President and Chief Financial Officer, 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 segments, Mark will discuss our real estate results as well as our updated guidance. We're very pleased to report our strongest quarterly adjusted EBITDA result since our separation into a pure play Timberland REIT in 2014. Specifically, we generated adjusted EBITDA of $115 million and pro forma EPS of 35 cents per share during the third quarter. Adjusted EBITDA exceeded the prior year quarter by 71%. fueled by solid contributions across our timber segments as well as an outsized contribution from our real estate segment due to the closing of two significant development transactions. We continue to capitalize on healthy domestic timber demand in the U.S., favorable log export pricing in New Zealand, and robust real estate market trends in the third quarter. However, wet weather conditions and trucking shortages in the US South constrained production during the quarter, while production in New Zealand was negatively impacted by a government-mandated shutdown in response to an outbreak of COVID-19. Given these headwinds, we were very pleased with the results delivered by our team. As Mark will discuss in greater detail, based on our performance over the first nine months of the year and our outlook for the balance of the year, we're modestly raising our full year 2021 adjusted EBITDA guidance to a range of $320 to $330 million. Drilling down to our different operating segments, our southern timber segment generated adjusted EBITDA of $24 million for the quarter, which was 7% below the prior year quarter. We were encouraged to see Net stumpage prices increased by 16%, but this lift in pricing was more than offset by a 20% reduction in harvest volumes due to wet weather conditions and trucking shortages. In our Pacific Northwest timber segment, we achieved adjusted EBITDA of $13 million, an improvement of 38% from the prior year quarter. This increase in adjusted EBITDA was driven by a 15% increase in sawmill prices as domestic lumber markets remained favorable. In our New Zealand timber segment, third quarter adjusted EBITDA increased 10 percent year-over-year to $20 million. Favorable pricing more than offset a significant increase in export shipping costs, as well as 14 percent lower production volumes due to the government-mandated shutdown, which prohibited harvest activity throughout the country during a two-week period in August. In our real estate segment, we generated record adjusted EBITDA of $64 million, up from $22 million in the prior year period, as we closed on a $38 million unimproved development sale in Kingston, Washington, and a $25 million improved development transaction in our Belfast Commerce Park project south of Savannah, Georgia. Switching gears from the third quarter results, I'd like to provide an update on our timber fund business, which we acquired last year through our merger with Pope Resources. As we previously communicated, the private equity timber funds business was not a good long-term strategic fit for Rainier. I am pleased to report that we have now completed our exit from the timber fund business. During the third quarter, as previously announced, we sold the rights to manage timber funds three and four, as well as our co-investment stake in both funds for an aggregate purchase price of roughly $36 million. We subsequently entered into three separate agreements to sell the remaining fund two timberland assets for an aggregate purchase price of $157 million. Note that one of these transactions closed on September 30th, and is reflected in our third quarter financial results, while the other two transactions close on October 5th and November 1st, respectively, and will be reflected in our fourth quarter financial results. All said, based on Rainier's 20 percent ownership interest in Fund 2 and factoring in the repayment of Fund 2 debt, proceeds to Rainier from the sale of Fund 2 assets will be roughly $24 million. In addition, we expect to receive a carried interest incentive fee with respect to Fund 2 of approximately $14 million. Overall, we view this as a favorable result for the sale process, particularly given the negative impact that last year's forest fires had on roughly 10,000 acres of Fund 2 and Fund 4 properties in Oregon. We believe the successful sale of our co-investments in funds three and four, as well as the properties in fund two, represent a positive outcome for our shareholders as the wind down of the fund business allows us to simplify our operations and allocate capital to other strategic priorities. With that, let me turn it over to Mark for more details on our third quarter financial results.
spk05: Thanks, Dave. Let's start on page five with our financial highlights. Sales for the quarter totaled $365 million while operating income was $123 million and net income attributable to Rainier was $76 million or 53 cents per share. On a pro forma basis, net income was $50 million or 35 cents per share. Pro forma adjustments for the quarter were primarily associated with a large disposition in the Pacific Northwest as well as the actions taken to exit the fund business. As Dave touched on, third quarter adjusted EBITDA of $115 million was considerably above the prior year period as an exceptionally strong contribution from our real estate segment, and year-over-year improvements in the contributions from our Pacific Northwest and New Zealand timber segments more than offset a modestly lower contribution from our southern timber 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. Our cash available for distribution, or CAD, for the first nine months of the year was $204 million versus $124 million in the prior year period, primarily due to higher adjusted EBITDA, partially offset by higher cash taxes and capital expenditures. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page eight of the financial supplement. Consistent with our nimble approach to capital allocation, we raised $52 million through our at-the-market equity offering program during the third quarter at an average price of $37.26 per share. As previously discussed, we view the ATM program as a cost-effective tool to opportunistically raise capital, strengthen our balance sheet, and match fund bolt-on acquisitions. Also, building upon the actions taken in the second quarter to improve our debt maturity profile and lower our weighted average borrowing cost, in September we opportunistically repaid the $45 million outstanding under our credit facility with Northwest Farm Credit Services, which we had previously assumed in the Pope Resources transaction. In sum, we closed the third quarter with $420 million of cash and $1.4 billion of debt, both of which exclude cash and debt attributable to the timber fund segment, which is non-recourse to Rainier. Our net debt of $957 million represented 15% of our enterprise value based on our closing stock price at the end of the third quarter. I'll now turn the call over to Doug to provide a more detailed review of our third quarter timber results.
spk11: Thanks, Mark. Good morning. Let's start on page nine with our southern timber segment. Adjusted EBITDA in the third quarter of $24 million was $2 million below the prior year quarter. The year-over-year decline was primarily driven by lower harvest volumes, partially offset by higher net stumpage pricing. More specifically, volume declined 20% during the third quarter as wet weather conditions and constraints on trucking availability hindered production throughout most of the region. This decline in volume was partially offset by a 12 percent increase in average saw log stumpage pricing compared to the prior year quarter. At slightly over $20 per ton, third quarter pricing reflected the highest average saw log pricing we have registered since early 2015. The improved pricing reflects strong demand from sawmills, weather-related constraints on supply, upward pressure on chip and saw pricing due to increased competition from pulp mills, and improved export log demand in certain markets. Likewise, pulpwood pricing was also at its highest level since early 2015. Specifically, our prices climbed 23% from the prior year quarter in response to strong domestic demand, constrained supply due to wet weather conditions, and an increase in pulpwood exports to China. Overall, weighted average pine stumpage prices increased 16% year over year, despite a shift toward a higher mix of pulpwood sales as compared to the prior year quarter. We are encouraged by the pricing gains registered during the quarter, albeit fueled in part by the wet weather conditions. Moving forward, we believe certain southern markets are poised for stronger pricing and believe our results continue to underscore the relative strength of local timber market dynamics across our footprint in the region, including proximity to the dominant works serving log export markets. Moving to our Pacific Northwest timber segment on page 10. Adjusted EBITDA of $13 million was $3 million above the prior year quarter. The year-over-year increase was largely attributable to favorable domestic lumber markets coupled with increased export demand relative to a year ago, as the third quarter harvest volume was flat versus the prior year quarter. At nearly $108 per ton, our average delivered solid price during the third quarter was up 15% from the prior year quarter. Strong pricing was generally sustained throughout the quarter as underlying log demand remained healthy even as lumber prices receded from the record level set earlier in the year. Meanwhile, pulpwood pricing fell 2 percent in the third quarter relative to the prior year quarter as sawmill residuals remained plentiful amid strong lumber production. While domestic demand remains healthy in the Pacific Northwest, we have seen export demand from China soften over the past few months. This softness is largely attributable to elevated log inventories in China. concerns about the country's near-term economic outlook, and supply chain disruptions. We expect some choppiness in demand for log exports from the region to continue over the near term. However, we believe the reduced harvest of European spruce salvage logs, the continued ban on Australian log exports to China, and the ban on Russian log exports beginning in 2022 will support continued demand for logs from the Pacific Northwest, particularly as inventory levels in China normalize. I'd also like to offer a few comments regarding the wildfires that have impacted parts of the western U.S. this year. Fortunately, none of our properties were seriously threatened by the fires. That said, the availability of burnt wood has constrained pricing in some areas, and there has been upward pressure on hauling costs in areas that have been directly impacted by fires. Consistent with our previous updates on this front, our operations have not been materially impacted from the salvage efforts conducted by others, which are generally winding down. Page 11 shows results in key operating metrics for our New Zealand timber segment. Adjusted EBITDA in the third quarter of $20 million was $2 million above the prior year quarter. The increase in adjusted EBITDA was driven by much stronger domestic and export pricing, largely offset by lower harvest volumes, higher cost, and reduced carbon credit sales. Volume declined 14% in the third quarter as compared to the prior year quarter. As the government shut down all non-essential activity across New Zealand from August the 18th through August 31st due to COVID-19. Our team in New Zealand was generally able to resume harvest operations in September, but there were some regions where restrictions continued as the government aimed to limit the spread of the Delta variant. Harvest operations have now resumed across the country, but full year 2021 volumes are expected to be modestly lower than we had previously anticipated due to the disruptions encountered in the third quarter. Turning to pricing. average delivered prices for export saw timber jumped 59% in the third quarter from the prior year to $150 per ton, reflecting solid demand from China, the ban on Australian log exports to China, and the reduced flow of European screw salvage logs into China. While net stumpage realizations on export volume were well above the prior year period levels, favorable export pricing was largely offset by a significant increase in shipping costs as supply chain issues drove freight and demurrage costs higher. Since reaching record levels a few months ago, there has been a pullback in pricing for radiated pine logs in response to elevated log inventories in China. A slowdown in construction activity, adverse weather conditions, and power shortages in China have collectively reduced the offtake from ports and resulted in pricing pressure on log exports. While we anticipate pricing will remain favorable from a historical perspective, we expect relatively lower export pricing over the balance of the year. We generally expect that net stumpage realizations on export volume will decline in the fourth quarter as we've seen only limited relief in shipping costs. Shifting to the New Zealand domestic market, demand remains very strong, albeit constrained to some degree by COVID-related restrictions and the availability of labor. During the third quarter, average delivered saw log prices increased 21 percent from the prior year period to $85 per ton. Excluding the impact of foreign exchange rates, domestic saw timber prices improved 14 percent versus the prior year period, following the upward trend in the export market. As a reminder, domestic salt timber pricing normally follows export pricing with a lag. Average domestic pulpwood pricing climbed 25 percent as compared to the prior year quarter. As it relates to carbon credits, we continue to defer sales during the quarter. The value of carbon credits has roughly doubled over the past year. Moving forward, we will continue to be opportunistic in our sale of carbon credits based on our market outlook. In sum, we were pleased with third quarter results in the New Zealand timber segment, especially given the COVID-related disruptions and cost pressures we encountered. Moving forward, we remain well positioned to continue to capture market share from Australia and Europe in the export market, as well as benefit from strong domestic demand. However, we do anticipate a relatively lower contribution from our New Zealand operations in the fourth quarter as compared to the first three quarters of the year. I'll now briefly discuss the results from our timber fund segment. Highlighted on page 12, the timber fund segment generated consolidated EBITDA of $4 million in the third quarter on harvest volume of 61,000 tons. Adjusted EBITDA, which reflects the look-through contribution from the timber funds, was less than $1 million. As Dave discussed earlier, we recently completed our exit from the timber funds business. Lastly, in our trading segment, we generated break-even results in the third quarter. As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our fee timber export business. I'll now turn it back over to Mark to cover real estate results.
spk05: Mark? Thanks, Doug. As detailed on page 13, our real estate segment delivered exceptionally strong results in the third quarter. Third quarter real estate sales totaled $93 million on roughly 12,000 acres sold, which included a large disposition in Washington consisting of roughly 8,100 acres. Excluding this transaction, third quarter sales totaled $73 million on roughly 4,100 acres sold, at an average price of over $17,000 per acre. Adjusted EBITDA for the quarter was $64 million. As Dave mentioned earlier, excluding gain on the large disposition, third quarter real estate sales, third quarter real estate results set a record for pro forma sales, pro forma operating income, and adjusted EBITDA since our separation into a pure play Timberland REIT in 2014. Sales in the improved development category totaled a record high $28 million in the third quarter, In our Richmond Hill development project south of Savannah, Georgia, we closed a $25 million transaction for three entitled industrial parcels at the Belfast Commerce Park near the new Interstate 95 interchange that is adjacent to our property. This transaction, coupled with the sale of a 153-acre parcel to a national industrial developer last quarter, underscores the strong demand for shovel-ready sites strategically positioned near transportation corridors, and in this case, the Port of Savannah. Meanwhile, within our wildlife development project north of Jacksonville, Florida, we closed on 42 residential lots to three different home builders for $2.8 million in total, or $66,000 per lot. Unimproved development sales of $38 million consisted of a 359-acre sale in Kingston, Washington for roughly $105,000 per acre. This property, known as Arborwood, is a well-positioned entitled land parcel accessible by passenger ferry to downtown Seattle. which was sold to two national home builders. The property was acquired through our merger with Pope Resources last year, and we are very pleased to have successfully completed this sale at an attractive value. The benefits of the strategic investments we've made on the real estate front over the last several years are being increasingly realized. The location and maturity of our development projects have allowed us to capitalize on favorable migration and demographic trends, and looking ahead, the pipeline of future opportunities in Wild Light, Richmond Hill, in the West Puget Sound area of Washington remains strong. In the rural category, sales total just under 3,300 acres at an average price of roughly $2,100 per acre. As we close out 2021 and look toward 2022, demand for rural land remains healthy as the space, privacy, and recreational opportunities offered by these properties continue to attract buyers. Lastly, we closed on a large disposition comprising roughly 8,100 acres in Washington State during the quarter for $20 million, or nearly $2,500 per acre. This property was a non-strategic holding sold through a competitive bid process to a conservation-oriented buyer. Now moving on to our outlook for the year. Based on our strong results through the first nine months of 2021 and our expectations for the balance of the year, we are raising our full-year adjusted EBITDA guidance to a range of $320 to $330 million, which reflects a 5% increase of the midpoint from our previous guidance and an 8% increase of the midpoint from the original 2021 guidance we provided in February. In our southern timber segment, we now expect full-year harvest volumes of 5.7 to 5.8 million tons as production has been constrained by regional weather conditions and trucking availability. However, we expect that improved pricing will largely offset the decline in volumes. Overall, we expect full year adjusted EBITDA of $118 to $120 million in our southern timber segment, a slight decrease at the midpoint from prior guidance. In our Pacific Northwest timber segment, we are maintaining our full year volume guidance of 1.7 to 1.8 million tons. We expect that weighted average log pricing in the region will be lower in the fourth quarter as compared to the exceptionally strong pricing realized during the third quarter, but will be fairly consistent with the pricing achieved during the first half of the year. We now expect full-year adjusted EBITDA of $53 to $55 million, a modest increase at the midpoint from prior guidance. In our New Zealand timber segment, we now expect full-year harvest volumes of 2.5 to 2.6 million tons as we do not expect to fully recover production loss during the third quarter due to the COVID-19 shutdown. We further expect lower export pricing during the fourth quarter as log inventories in China remain elevated. Overall, we now expect full-year adjusted EBITDA of $75 to $78 million, a decrease from prior guidance. In our real estate segment, we now expect full-year adjusted EBITDA of $101 to $104 million, a significant increase from prior guidance. As previously discussed, the successful completion of the Arborwood sale in Washington is the primary driver for this favorable revision. Following an extraordinarily strong third quarter, we expect real estate closings for the balance of the year will be relatively light. Even with lower EBITDA in the fourth quarter, the full year contribution from real estate segment in 2021 is poised to be well above historical levels in this segment. While we expect continued favorable tailwinds in this business, we believe it's prudent to remind everyone that we do not expect these outsized results in 2021 to be repeated in 2022. As usual, we plan to provide detailed 2022 guidance in conjunction with our fourth quarter earnings release. More details regarding our updated 2021 guidance can be found on page G of the earnings release, as well as page 15 of the financial supplement. I'll now turn the call back to Dave for closing comments.
spk04: Thanks, Mark. Overall, we're very pleased with our financial performance through the first nine months of 2021 and believe we are well positioned to benefit from continued strength in U.S. housing market and favorable long-term export market demand trends. That said, we're not immune from the supply chain and inflationary pressures that are impacting many parts of the global economy. Significant constraints on trucking availability, as well as higher fuel costs and a considerable increase in fertilizer costs, are among the headwinds our industry is facing in the current environment. We expect these challenges will likely persist into 2022. However, our team continues to work diligently to optimize haul distances, leverage our scale in both domestic and export markets, and make prudent silviculture investment decisions tied to localized supply-demand dynamics. Further, we believe our focus on local timber market dynamics and active portfolio management leave us well positioned to navigate logistical challenges and recoup the impact of cost increases in our log pricing. On that note, active portfolio management remains central to our view of how best to create value for shareholders. We have continued to improve our portfolio through both addition and subtraction this year. We opportunistically recycled capital out of non-strategic timberland holdings in Washington State and exited the timber fund business, while also closing on a total of $52 million of bolt-on acquisitions through September. Moving forward, our balance sheet is well positioned for future growth, particularly following the actions we have taken this year to reduce leverage, extend our debt maturity profile, and optimize our cost of capital. I would also note that we continue to advance many of our ESG-related initiatives. In August, we published our sustainability report, as well as an updated carbon report. With COP26 currently underway in Europe, I want to reiterate the important role working forests can play as a natural climate change solution. As discussed within our sustainability report, we believe the myriad environmental and social benefits offered by our lands and the products made from our trees leave Rainier uniquely well positioned for a low-carbon economy. In sum, I remain extremely grateful for the dedication of our employees and their ability to adapt to ever-evolving market conditions and business opportunities. Our team remains committed to maximizing the potential of our assets and creating long-term shareholder value through growing cash flows and value per share over time. This concludes our prepared remarks and I'll now turn the call back to the operator for questions.
spk00: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1, unmute your phone, and record your name clearly. Your name is required to introduce your question. If you need to withdraw your question, press star 2. Again, to ask a question, please press star 1. Our first question comes from Mark Wilde.
spk08: Good morning, Dave. Good morning, Mark. Morning. Morning, Mark. Dave, I wonder just around some of these real estate and land sales in the third quarter, if you could give us a sense of what remains at Belfast in terms of your portfolio there and also what is left in the Pope portfolio there in terms of either developed or undeveloped land opportunities?
spk04: Yeah, so I'll start with the Richmond Hill project. And so keep in mind, we opened up a new I-95 interchange that roughly bisected our ownership there, where we had the Belfast Commerce Center to the west and our mixed-use community development project to the east. And the Belfast Commerce Center is very well positioned with rail access to the Port of Savannah. And what the interchange did was it opened up other opportunities. And so we've seen with the transactions that we've completed in Q2 and Q3, we've seen an acceleration of the absorption. We're probably 10 years ahead of where we thought we would be when we originally underwrote that project. And so we're very happy with that. I'd say we're mostly through that commercial park. We do have a few remaining pieces of it left, but the bulk of it has now been sold. And so we're pretty happy with that. And it has a carry-on effect to the mixed-use development project in the sense that you're going to be seeing facilities that will add jobs. The transaction that we closed, the $25 million transaction that we closed, is going to be for a 6 million square foot U.S. distribution center that's expected to add a lot of jobs. And we see that as being complementary to our mixed-use project on the other side of I-95. So we're pretty excited about that. Um, switching gears to, um, what is left in those projects. I think the, the, uh, on the, on the, on the Richmond Hill project, which we're calling Heartwood, you know, it's really just getting started. We've done the, the, um, catalytic, uh, investment, uh, in that, uh, our, our partners, uh, our community partners have completed, um, a lot of the major, um, spine infrastructure roads that connect the property to other existing infrastructure. And we're just getting started in terms of ramping that up into the future. So that is, I'd say, still at the very early stages. Wildlife, I think similarly, we have accelerated the absorption there with home sales. Our downstream customers expect to sell roughly 100 homes this year, and we're well ahead of the underwriting pace as it relates to that, and really the focus now is on opening up new elements. With respect to your question on the Pope transaction in Arborwood, this was a project that had been entitled back in 2010, had a 15-year development agreement, We had, back when the project was originally entitled, it was very much ahead of market readiness. And we decided to test the market early this year on a subset of the asset on a completed finished lot basis. And the results of that were strong enough that we decided to test the value on the whole project on an undeveloped sense. And We ultimately decided to transact. We were very happy with that. I think it speaks to the value of having ready projects out there. As has been communicated a lot, there's a shortage of lots out there. And so we have basically transacted with two national home builders who are going to be finishing those, constructing those finished lots themselves. And we think it not only is helpful as it relates to our business and in accelerating the absorption of that, but we think it will have carry-on beneficial effect to the pork gamble asset that is to the north of that. Okay.
spk08: Yeah, I think I visited Arborwood with you with some investors several years ago. It was a very interesting project. I'm just curious, Dave, the world has changed a lot in the last 12 to 18 months. I know you're trying to kind of – Manage expectations going into next year. But, but is there an argument because of the, you know, the greater interest and perhaps a little more residential space for people that, you know, your real estate business could be moving on to a, you know, higher track here that might be sustained over the medium term.
spk04: I think we generally share that view. I mean, I think we've all seen that, especially with COVID, where we've seen a desire to have more space, to be out of cities and whatnot. And we've seen that reflected in our rural demand. We've certainly seen it reflected in the projects that we have in place. And so I think At that level, I would agree, and I think as we think about particularly these two projects in Jacksonville and Savannah, keep in mind that all of our initial capital in these was really designed to catalyze downstream demand, with the idea being that as we proved out these projects, others would step up and be willing to take on other pieces, similar to the Arborwood transaction. And it's akin really to how we think about timber as you can sell delivered or you can sell in stumpage. We're seeing that now in wild light. We saw it in Arborwood where developers are stepping up and saying, we will build out these lots ourselves. And to us, that was really the strategy all along. And that will do two things. A, it reduces our capital expenditure exposure and accelerates the absorption of of more land into these projects. But it, you know, it also has a big improvement just in terms of the overall financial profile of that. So we're pretty bullish on it. But at the same time, you know, we also want to not set expectations too high going forward. You know, if anything, I think we've outstripped some of our entitlements, you know, and so we have work to do to refill that pipeline even within these projects. And so we're working pretty hard to kind of get the next layers of these projects fully entitled so that we have things that we can sell.
spk05: Yeah, Mark, I would just add to that, recognize that, you know, for the last couple of years in particular, we've really shifted towards fewer acres sold, but, you know, higher values per acre. And so, you know, the EBITDA result this year was obviously very strong. But even if you compare it to, say, going back to 2018, when we also had a very strong real estate year. We've sold far fewer acres in the premium realization, which is really where you get economic value in this real estate business, I'd say has been even more favorable. But I'd say counterbalancing that to some extent is we also believe we're in an escalating Timberland value environment. And so, you know, the kind of rural real estate sales, which have really been the bread and butter of our real estate business, you know, we're going to continue to focus on trying to maximize premium and not just maximizing sale value and adjust the EBITDA. So, obviously, as values change, that bar gets higher, and that's going to factor into our calculus in terms of velocity of real estate activity.
spk08: Okay. Then just two quick ones for Doug. One is, in talking with some of the big TMO managers, the feedback I'm getting around stumpage trends is actually a little more bullish than than what's showing up in timber mart numbers or public company numbers like yours so far. And so I'm just curious whether you have a sense that there is kind of momentum finally starting to build around stumpage pricing. And then secondly, when you get high fertilizer costs and high labor costs like we have right now, what's your ability to just defer that for a year or two without damaging growth trajectory of your forests. Do you have that discretion?
spk11: Sure, yeah. I'll start with the first question and then go on to that one. You know, we're seeing strong markets for sure across the U.S. South, and I know there were some comments about kind of our quarter-over-quarter numbers type thing, and we typically focus more on year-over-year comparisons, show trends in quarter-over-quarter because there's a lot more noise typically inter-quarter than there is across the year. It's often based on seasonality. For example, Q3 is often heavier to the thinnings during the summer. And so that's one of the reasons we see some of that. But that said, weather significantly impacted our removals along the Atlantic coast in Q3. So we had a higher proportion, approximately about 10% of our total removals that came from our Western Gulf region. And because we finally started to get some drying weather over the Western Gulf, almost all of our stumpage were thinnings. So we had a heavy degree of thinning compared to clear cuts. And thinnings in that area typically generate less than half the net stumpage compared to the Atlantic coast. And then salt timber was even more pronounced. We had about a 20% shift in total volume from our coast Atlantic markets to our western Gulf region. And a large amount of that was salt timber volume swap coming from our northernmost Arkansas expiring timber deeds, which until now have been uneconomic to harvest. And so these sales generate net stumpage below $6 a ton due to the extremely long haul distances we had, which really weighed on our quarter-over-quarter comparison. So I'd say looking at quarter-over-quarter comparisons of our numbers, you've got to be very careful because of what we see like that with all these different noise. Kind of going back to your question about momentum, possibly, I'd say we've been really encouraged by the upper pressure on long pricing we've seen this year in the U.S. South. And there's a lot of factors at play. You know, strong lumber prices have driven strong demand, as well as strong pulp demand from our pulp mill customers. And there's also been increased demand on the export front. In some markets, you know, we have seen constraints on logging and hauling capacity, as well as weather conditions have also played a role in those price gains being reported by us and others. But we remain really optimistic about the underlying housing fundamentals moving forward and what appears to be fairly low inventories of finished products in the supply chain. So I do think that what you're hearing from those TMOs, you know, there's truth behind that. We're seeing a lot of strength. And, you know, some of the core of a core comparison was noise, like I said, in our information there. And as we've been talking about, you know, the relative strength of our footprint for a long time, we're now seeing pricing above pre-GFC in select TMS regions, such as along the Atlantic coast, where we've talked about before as being very strong.
spk08: Okay, and then finally just on that fertilizer thing.
spk11: Yep. Moving on to your fertilizer. So, you know, and labor costs is your point. We do have some discretion, but we also try to optimize our land base. And the decision around fertilizer is very much based on our expected returns and our financial metrics. So in that process, we have the ability to either at some point defer, depending on what we think the outcome prices are going to be, but also we can adjust our prescriptions. So we can do a smaller amount and do it more often. So we do have flexibility to move those around. We're not held to any one year how we operate with that.
spk08: Okay, very good. I'll turn it over.
spk00: Our next question comes from Paul Quinn from RBC Capital Markets. Your line is open.
spk07: Yeah, thanks very much. Good morning, guys. Good morning. Hey, I'm just trying to understand the upside in 22 given the expected rusted log export ban. And let's just start with New Zealand. How sustainable do you think that pricing will be? And if you could remind us what the sustainable harvest level is for your properties down there.
spk11: Yeah, this is Doug. You know, there's a lot of factors at play from the um, Australian ban that we still believe is going on. We've seen that happening. And then, as you mentioned, the Russian, the Russian log ban coming in, um, 2020, 2022. So we see a lot of, a lot of opportunities on that side. A little bit opposing that is we've seen some recent influx of European salvage wood. It's, it seems to be slowing down the harvesting, but they've had some recent up, um, savings about 25% in their shipping coming in to China. So we have seen an influx of that. So, you know, we think, um, mid to long-term it's very, very favorable for export volumes coming out of, coming out of, um, New Zealand. But also in the short term right now, we're seeing higher log inventories that it'll take a little while to wind down.
spk05: Yeah, on your question about sustainable yield, our disclosed sustainable yield in New Zealand is 2.4 to 2.7 million tons annually.
spk07: Okay, and then just on the European salvage wood coming into the market, you know, we cover a couple of European companies that would say, hey, the salvage effort over there is just about complete. Is that your understanding as well, or do you expect that to be a meaningful factor in 2022?
spk11: My understanding is that last year slash this year was kind of the peak of it, and it is definitely slowing down. We believe it is going to taper off. I still think there's going to be some volume coming across, but not near what it was before. And as I said, we're just getting this influx right now. It's around shipping, so there's been this burst, but we don't expect that to be long-term and sustainable. So we think there's been a a last-minute push, and there'll still be volume coming in next year, but I do think it's going to start to wind down from everything we've seen. Both the infestation has slowed down. They also had less climatic changes. A lot of that volume was also impacted by really extreme weather, kind of 2018, 2019. So I think what you've heard is similar to what we're hearing. It seems to be winding down, but we'll still be in the market next year, but to a lesser degree.
spk04: And, Paul, consistent with what you've heard as well, keep in mind that the shelf life of the European spruce is much shorter now than what we experienced in Western Canada. And so that's consistent with this idea that the harvest volumes are gonna be ramping down. And now you just sort of add this shipping component where it's driven as much by the harvest as it is some of these shipping constraints.
spk07: Okay, yeah, no, I understand that. Okay, and then just moving on to southern timber, And it's been a busy morning, so I might have missed it. But just any color that you've got on export volumes and what you're seeing in trends there?
spk11: Sure. Since this is a competitive developing market, I won't speak explicitly about rain or volume, other than just to say that we're actually purchasing from two ports in the south. But I can speak more generally about the total SYP exports. The demand and pricing for sun-yield pine logs in China has been gaining momentum all year. SunYellow pine exports exceeded 750,000 cubic meters this quarter, which is a 64% increase year over year. So we've seen really, really strong demand and strong pricing in this market. While over half of the shipments are leaving from the port of Savannah, several other ports are growing their contribution to the flow of logs out of the U.S. South, and we see that also as a positive trend. We continue to be encouraged by the demand for these logs, as well as what the incremental tension is doing in pricing in our coastal markets. As I mentioned before, some of these coastal markets we're seeing pre-GFC pricing again, so very positive momentum there. We're optimistic about the potential to export more logs from the US South to markets such as India and Vietnam and are looking to grow that part of our business and have done some work there. But for now, over 90% of the logs being exported to the US South are going to China, with India being a far distant 6% of the volume. Demand signals are really strong from India, but the high shipping costs that Dave just referenced are a significant hurdle given the current supply chain issues. So we're looking to see what we can do when the supply chain corrects itself. But real strong market right now, very pleased with it. All right. That's all I had. Best of luck, guys. Thanks.
spk00: Our next question comes from Buck Horn from Rainier James. Your line is open.
spk09: Hey, guys. Good morning. Sorry about that. Yeah, I was curious if you guys had any high-level thoughts about the announcement coming from the Canadian government yesterday that kind of surprised a lot of industry observers about you know, the British Columbia acreage that is now looking to be set aside for kind of harvesting and, you know, what the potential implications might be on, you know, regions like the U.S. South. How do you think this plays out in terms of, you know, shifting lumber production and or shifting capital into U.S. producing regions? How do you think that kind of
spk11: plays out going forward given this canadian announcement sure this is doug i'll start and then someone else might jump in with me um yeah as you mentioned british columbia announced this week the deferral of harvest on about 6.4 million acres of old growth forests and these deferrals are classified as temporary to prevent irreversible biodiversity loss but based on the communications so far that i've seen um it really appears to be aimed at permanent protection either through preservation or restricted harvesting so we do think there's going to be an impact here The government has already ceased selling British Columbia timber sales in the affected areas, and they expect the process of analyzing this to last at least into 2023 and possibly beyond. And further suggesting that this will have meaningful impacts on removals, the government is committed to providing necessary support to offset job losses and economic impacts for communities. And based on that, the Council of Forest Industries indicated from their initial analysis that such deferrals would result in a closure of between 14 and 20 sawmills and two pulp mills. So pretty significant. And this action is a result of a multi-year strategic review that declared the need for a paradigm shift in British Columbia, from managing for timber, such as constraints, to managing for ecosystem health, recognizing that old forests are non-renewable in many cases. So it does feel like there's a real shift here. And additionally, concerns were raised over log exports. Much of the British Columbia industry is configured to harvest primarily from the 20 million acres of old-growth forests in the area. So a potential reduction of, say, over 20% of the area would likely have significant impacts on the industry, which currently exports about 6 billion board feet of lumber to the U.S. And as you mentioned, kind of the south, about 25% of that goes to the U.S. south, which I think surprised a lot of people. But due to the rail networks, we do see a significant amount of that. So you're talking, you know, of 1.4 billion coming into the U.S. south. As well as approximately 600 million board feet goes to both China and Japan. So it's a significant export opportunity there for them also. So if you assume an average size mill of kind of 200 million board feet across that 14 saw mills at the low end of Coffee's impact range, This could equate to approximately 2.8 million board feet of lost lumber capacity. And in addition, BC exports about 1.9 million cubic meters of logs to China, another 1.6 million to Japan, and 300,000 to Korea. But depending on the magnitude of the deferrals or the revised harvest practices, additional production capacity may definitely shift out of the region, which bodes well for the recently announced capacity expansion in the US South, as well as possible for the greenfield mills. And this appears to be very incremental. you know, positive opportunity for the lumber operations in the U.S., as you mentioned. And in turn, we'll create more demand, hopefully, for our timber. In addition to that, we recently purchased an existing export operation in Port Angeles, Washington that we'll be supplying with our legacy Rainier volume, as well as acquired Pope volume and third-party wood. And this yard is equidistant between Rainier and the former Pope lands, provides operational synergies associated with our greater scale in that area. And we see this BC announcement will create additional export log market opportunities for our newly established team as they start up operations in the next few quarters. So it's obviously an evolving situation, and we'll follow closely, but it does appear from what we've read so far and read through the Street Report that this is a net positive for both export operations and lumber in the U.S.
spk04: And, Buck, if I can just sort of add to that, you know, we obviously aren't close enough to make sort of reliable estimates, but just based on the stuff that's out there, you know, even if it was at sort of half that level, you know, you're still talking about very substantial kind of overall impacts to the North American lumber market. And I think when you see these kind of disruptions, you have to really sort of think through the second and third order effects. There's a lot of ripple effects associated with transportation and kind of traditional markets for some of these products and then what other products will end up backfilling. And then you have to sort of think through all of those. So it's We think it's definitely going to have a lot of impact, but it's still pretty fresh. We're going through that analysis process ourselves right now. That's great, guys.
spk09: Go ahead. I'm sorry.
spk11: I'm sorry. I was going to just add to what Dave's comments were kind of to that point. If it was just half of what's kind of I mentioned there that's been kind of proposed, you're still talking about what's equivalent to what's been exported to the south out of British Columbia, so it's still very meaningful.
spk09: Absolutely. That's a very helpful answer. Appreciate the thoughtful description in color there. Also, thinking about some of the bolt-on acquisitions you've done year-to-date, I was wondering if you could just talk about if there's any theme or geographic regions where you seem to be focusing more in on in terms of where the best incremental opportunities for future acquisitions lie? What are the kind of things you're looking for in terms of how to deploy your rapidly improving cost of capital here? What is it that you guys are targeting going forward?
spk04: Sure, I'll take that. I think the first thing I'd say is we are always active in all three of our geographies. I mean, this is a continuous process. But recognize that deal flow is very differential. You've got the most deal flow in the south, followed by the northwest, and then followed by New Zealand. COVID has disrupted that considerably. For larger properties that require physical due diligence to verify inventory, that was restricted for much of this COVID period. And so I think we've seen a lot of offerings come to market as travel restrictions have been eased. We've definitely seen the market in the Northwest heat up in part because of strong lumber markets and resurgent export markets. We certainly were able to capitalize on that in the context of our fund. business sale. New Zealand, conversely, has been more restricted in deal flow in part because of the COVID-related shutdowns. We were still able to, in the deals that we've done this year, we've had a total of seven bolt-on transactions, two in New Zealand and five in the U.S. South for a So we've still done a little bit of activity in New Zealand. But we're always looking, in terms of the attributes, we're always looking for the complementary fit. We look at age class. We look at productivity. We also look at properties where we think we can bring a property up to the standards that we're used to through our management intensity. And so we'll often find situations like that. We're looking at lease expirations, often on lands that we have been managing as another opportunity. And we try to be both nimble but also disciplined. I mean, we're seeing a lot of capital in the market right now, and so there's an awful lot of deals that go to others. But we feel like that's part of our job is being disciplined on a capital allocation standpoint.
spk09: It's very helpful. And in terms of valuations, would you say, you know, implied cap rates or discount rates have compressed noticeably in recent months with more due diligence possible or more capital available?
spk04: I wouldn't say in months. I think it's been a gradual compression of discount rates for sure. I think, you know, frankly, the introduction of of carbon as a potential product offering has changed the flows of capital. We have seen a continued progression of European capital flowing into the North American Timberland markets. There were three notable transactions globally of late that had pension funds from from Canada, France, and Sweden being the ultimate buyers. And that's indicative of some of the capital flow attractiveness of the asset class, and we have to sort of be prepared to respond to that. Very helpful. Thank you, guys.
spk00: Our next question comes from Anthony Pettinari from Citi. Your line is open.
spk10: Good morning. Just maybe following up on Paul's question on China, it sounds like, you know, given restrictions for Australia and Russia, you're positive. I think you said midterm, long term on New Zealand price volume. But, you know, and China has this inventory issue near term, if that's sort of an accurate summary. I guess my question is, you know, what is the visibility in terms of, you know, how long it could take for that inventory situation to normalize or is there any kind of like, you know, historical example that you'd point to, whether it's a couple quarters, more or less. And then apologies if I miss this, but the COVID restrictions that held back 3Q results in New Zealand, in terms of the size of that, or maybe getting a little bit of an ebitda tailwind from that non-recurring in 4Q, any thoughts there?
spk11: I'll start with the China inventory questions you have there, and then we can follow up on the New Zealand impact. China log inventories are currently around 6.5 million cubic meters, which, as we discussed in our prepared remarks, is higher than normal for this time of the year. And as I mentioned before, European spruce volume was constrained earlier in the year, but we really have seen a significant influx of that volume come in recently with that shipping cost being reduced for them. So in addition to the more spruce volume coming in, We've seen slower than normal consumption of approximately 76,000 cubic meters per day for the past few weeks. While this demand is up over 60,000 cubic meters today we saw in Q2, it's still about 30% less than what we saw this time last year. So at those demand levels, the supply-demand ratio is close to three months, which yields our conservative outlook that we've incorporated in our guidance for New Zealand for the remainder of the year. That being said, we are seeing a significant reduction in logs being delivered to New Zealand ports. As forest owners are adjusting to this new higher inventory level, as well as the pricing that's coming from it. So we do expect to reduce supply over the next few months, and that should help bring down the supply-demand ratio as we go forward. Other than that, it's very hard. There's just a lot of things you mentioned going on in China, so I wouldn't want to try to predict how quickly it will come down, but I will say that there's a lot of things in work right now that are working towards the reduction in supply. So we'll really wait to see what the demand side looks like as we go forward, but the supply side is definitely coming off quickly.
spk04: If I could add to that, I think one of the big kind of seasonal things that we typically see is following the Lunar New Year, you see a resumption of building activity. And so that's probably a period that we would expect to see these inventories come down meaningfully. But recognize, as Doug said, they're much higher now than they typically are. But our team in New Zealand that is monitoring this, you know, generally is optimistic that in a kind of Q1, Q2 timeframe, we'll start to see some improvement.
spk05: Anthony, on your question about the volume and the potential to make some of that up in Q4, I think, you know, our volume expectation for full year is reflected in our updated guidance. You know, New Zealand did have a hard shutdown for a couple weeks that affected logging operations, which extended even length or period of time in certain areas. And so, you know, I think it's not likely that we'll make that up this year, but recognize the volume is still there. And so it's not lost value, but really deferred value.
spk10: Okay, that's very helpful. And then just on the harvest guidance reduction for the U.S. South, you know, relatively modest, you referenced weather and trucking availability. I don't know if it's possible to parse out how much was weather versus trucking. But just any other kind of comments on trucking in 4Q, you know, to the extent that that's lingering and, you know, how it could potentially even affect 22 as you think about, you know, harvest planning for next year. Sure.
spk11: You know, it's very difficult to accurately parse out the impacts of each because they're compounding. When we have extreme wet weather, the logging crews typically have to stand down, which reduces the production. But the truck drivers who are in high demand, they'll shift to either another crew or even another industry to keep working. And they may not return immediately when the conditions improve. So you just kind of have that dynamic going on. And in addition, everything just takes longer when working in wet conditions. If you've ever driven on a slick, muddy road, you know it takes longer, as you often have to reduce your speed by, say, up to 50% or more. And so that may not be a huge issue for us when we're just taking one trip going somewhere. When you start to multiply that across multiple trips in a day, it means a lost load or more for a driver that you do have working. So you can easily see you can lose 20% of a driver's daily production just due to wet conditions. And with all that said, we do still see loads left in the woods at the end of the day that could be hauled if trucking capacity wasn't constrained for both availability and the wet weather reasons. So as things dry out, I think we're going to see some improvement, and we actually have seen some improvement in production. So we're optimistic that things are getting better as we move forward. But we still do have a trucking, you know, constraint out there. There's demand for these drivers everywhere, and so we're working hard with our team to optimize our harvest operations and how we work with that and how to make sure we get the best utilization of the trucks that we do have access to.
spk05: Anthony, I'd also note that we reduced the volume guidance for the full year by about 250,000 tons at the midpoint, but we only kind of guided down on EBITDA very slightly. And so I think that's reflective of the pricing environment that we're in currently. And so we were pleased to have been able to make up a lot of that lost volume with improved pricing. And again, same point, as I made on New Zealand, the volume is still there and available to be realized in the future. It just won't be realized this year. So net-net, I think it's still sort of a positive dynamic in the US South.
spk10: Okay, understood. That's very helpful. I'll turn it over.
spk00: Our next question comes from Mark Weintraub from Seaport Global Securities. Your line is open.
spk02: Thank you, appreciate all the very well informed and thoughtful responses to the questions. So far I'm going to try and do a few follow-ons. The first being on the AAC cuts etc. in BC, do you have any sense, recognizing you don't operate there, but do you have any sense when the sawmill closures might actually be happening? if we were to go along that path.
spk11: Yeah, to your point, obviously don't operate in that area. And from what I've read on the strategic review reports, which is very fresh and recent, it appears that they're going through an analysis period they said could last through 2023. So I think there's still some wind down period in this. But as I did mention, they have started ceasing selling of timber sales. So it's going to be a matter of how these mills react to the lack of volume that's coming in. So it's still very fluid. So I don't think we have an answer to that. But the fact that they've immediately suspended sales. I'm sure it'll put some pressure on those to figure out where they're going to get their wood. And they have talked about a target of by 2023 identifying these areas will be set aside or restrictions added.
spk02: Great. Thank you.
spk04: Yeah. And keep in mind as well, they haven't even sort of issued maps yet. This is still, you know, this is still preliminary, but there's a small amount of private land out on Vancouver Island that, you know, will probably be in more demand, but it's, you know, it will be tricky for those mills as these new sales are shut off.
spk02: Right. And then second, you talked about being as much as 10 years ahead of plan on some of the real estate strategies. Can you update us perhaps then as to when might we get to that point where things like unimproved development acreage might become commonplace quarter to quarter, if that's an appropriate way to think about it? or maybe just update us on big-picture timing on the way the real estate in that southeast corridor, the I-95 corridor, how that's looking like it might play out as it stands today.
spk04: Yeah, that's a great question. I mean, I think we're getting closer to that stage now, but I'd say it's still going to be lumpy and recognizable. that the entitlements, you know, we're going through an entitlement phase right now in Wild Light, and these take, you know, these take months to complete. And so, you know, one was submitted recently for sort of the next layer of entitlements. But I think the encouraging thing is the interest that we're seeing in the national builders, the breadth of entitlements of customers that we've had. You know, we've got a strategic healthcare partner in University of Florida. We have a new Publix grocery store that's under construction that we can see from our office right now that's supposed to be open next spring. We have an adult age-restricted community that is under construction. And so you have lots of these elements that are going to add incremental demand pressure into these next layers of the project. And so as we see these entitlements come through, I think you will see a pickup in those types of unimproved development sales. We just can't really predict that timing just yet. Okay. And then lastly... And moving to the Richmond Hill, it's at a slightly earlier stage. So we're doing a similar model there in our Heartwood project where we're developing finished lots for the first increment of residential home sales. But again, we're following the same model where we've got a healthcare, we've got a healthcare partner, we've got schools that are in the area. So all the elements of that growth are in place. Okay, great.
spk02: And then lastly, coming back to Mark's comment, escalating timberland value environment, and then we had a conversation on that. If we were to think about it in terms of just value per acre, again, a big picture concept, are we at higher levels, do you think, than we have been historically? Because on the one hand, we've got your comments on discount rates implied. On the other hand, of course, there's been shifts and movements in EBITDA per acre or whatever measure we want to use. So where would you assess, as you're looking at M&A pipelines, et cetera, where the value per acres look like relative to history?
spk05: Hey, Mark, this is Mark. I would say that we are at a point now where values are probably as strong as they've been historically. And I think some of that is driven by some speculation on future carbon value. Again, this is still a very undefined opportunity right now, but if you just look at the scale of what that could become, I think people aren't necessarily underwriting explicit carbon volume and prices into their DCF models, I don't think, but I think people view there as being kind of meaningful option value there, and so they're willing to perhaps lower their their discount rate on Timberland acquisitions, you know, on which they're kind of valuing that stream of cash flows, excluding carbon value. And so it's definitely a competitive environment. I think it's also an environment in which we're seeing kind of more discretion about, you know, kind of where people are investing. There are certainly areas in which we've seen a lot more price momentum, particularly in the South. I think that's being reflected in prices being paid. But You know, again, we obviously just tested the market in the Northwest with these Fund 2 asset sales. We were very pleased with the values received. It was a very competitive bid process. And so, you know, overall, yeah, it's a very strong market right now, and we think it's trending positively.
spk04: Yeah, and what I'd add to that, Mark, is keep in mind as well that you have a fair bit of noise associated with stocking and age. And so, you know, there have been some recent sales in the South that have had, you know, much younger average age. And, you know, you absolutely see that reflected in the per acre values. You know, where you have a more balanced age class, I think I agree with Mark. I think you are seeing higher per acre values. And that's driven by some of these capital flows. It's driven by additional optionality, as Mark touched on with carbon. and then just the general improvement in the markets, especially as we see more of this capacity coming online in the U.S. South. Great. Thank you.
spk00: As a reminder, if you would like to ask a question, please press star 1. Our next question comes from John Babcock from Bank of America. Your line is open.
spk06: Hey, good morning and thanks for taking my questions. Really just two quick ones here. I guess, first of all, if you could just talk about how you're thinking about the option value for rain air from carbon. And then, you know, also if you could just talk about how meaningful fertilizer costs ultimately are relative to your cost base, that'd be great.
spk05: And John, this is Mark. I'll take the carbon question. You know, this is an area where we're spending a lot of time right now because we believe it represents a significant opportunity for our sector. Not only to be part of the solution to climate change, but also to improve the economics of forestry ownership and incentivize greater investment and the types of activities that are really going to enhance natural climate solutions. The projections around the growth in the voluntary carbon offset market in particular are pretty mind-boggling. According to a study that came out a few months ago, the demand for offsets in 2020 was about 100 million units. Various forecasts of the path to net zero show that demand growing by around 10 to 15 times by 2030 and by 50 to 100 times by 2050. That would imply demand for negative emissions of at least 5 billion metric tons of CO2 equivalents in 2050 with an escalating path towards that figure over the next 30 years. To put that in context, the total global industrial roundwood harvest in 2019 was about 2 billion tons. Now, forestry offsets aren't the only type of offsets available, but they currently comprise far and away the largest component of the voluntary market. They're also the most readily available and cheapest technology that we have today to generate negative emissions. Other technologies like, you know, carbon capture and storage are likely going to require dramatically higher economic incentives in the form of higher offset pricing to stimulate extensive investment in that arena. It's also unclear when we'll be at a point that any such technology can be deployed economically at scale. So we believe that the opportunity for forestry to provide a solution here is pretty compelling. It's also worth noting that this doesn't even take account of the other potential uses of wood fiber on the path to net zero, including biomass energy, sustainable aviation fuels, and mass timber. Each of these individually could have a pretty significant effect on the demand for wood fiber in land use. Taken together, we think these opportunities, again, are very compelling for our sector.
spk11: And I'll take the fertilizer question that we had there. As I mentioned before, as it relates to the fertilizer costs, as that input changes, our processes really don't. So we generally only engage in subculture activities where financial returns make sense. And so as we're seeing the cost increase, we're also seeing price increases, so we have to weigh those and look at that on a localized basis. And so we'll make some changes and take action as we go there. But as we think about our fertilizer budget, you're talking kind of around, say, 20% of our silvicultural spend that we typically have in a year. As I mentioned before, we've looked at this, and we have opportunities to potentially reduce the rate in a given year and maybe do multiple applications versus one application. So we have ability to work around this and don't see it as being a significant issue for us to be able to manage through over the long term. And I do think fertilizer pricing is more of a short-term supply chain issue than a structural long-term change that's going to keep these prices at this level.
spk06: Thank you. That's all I have.
spk00: I'm showing no further questions at this time. I would now like to turn the call back to Colin Ming.
spk01: Thank you. This is Colin Ming. I'd like to thank everybody for joining us. Please contact us with any follow-up questions.
spk00: That concludes today's conference. Thank you for participating. You may disconnect at this time.
Disclaimer