Rayonier Inc. REIT

first quarter 2024 conference call. At this time, all participants are in a listen-only mode. During the question and answer session, please press star 1 on your telephone keypad. 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 Ming, Vice President, Capital Markets and Strategic Planning.

Thank you and good morning. Welcome to Rainier's Investor Teleconference, covering first quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rainier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and forms 10-K and 10-Q, followed by the SEC, list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They're 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 gap measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Mark McHugh, our President and CEO. Mark?

Thanks, Colin. Good morning, everyone. First, I'll make some high-level comments before turning it over to April Tice, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. Then we'll ask Doug Long, Executive Vice President and Chief Resource Officer, to comment on our U.S. and New Zealand timber results. And following the review of our timber segments, April will discuss our real estate results and our outlook for the balance of the year. As this is my first earnings call since officially stepping into the CEO role, I want to reiterate how honored I feel that our board has entrusted me to lead Rainier at this exciting time for our company. I'm fortunate to be partnering with an experienced and dedicated team of senior leaders, all of whom are incredibly energized by the refreshed vision that we've laid out for Rainier and eager to execute on our future growth opportunities. On that note, I'd like to also formally welcome April to her earnings call this quarter in her new role as CFO. April has held multiple positions of increasing responsibility within the finance and accounting department since she joined Rainier in 2010, most recently serving as our chief accounting officer for the last three years before she assumed the CFO role last month. April has been instrumental in building out our finance and accounting department, as well as implementing a transparent financial reporting framework for the company. I'm confident that her transition into the CFO role will continue to be seamless. Now I'll switch gears and discuss our first quarter results, which were modestly improved relative to the prior year quarter and in line with our expectations at the start of the year. Specifically, we generated adjusted EBITDA of $56 million and pro forma net income of $7 million, or 5 cents per share. The 3% increase in adjusted EBITDA versus the prior year period was driven by stronger results from our southern timber and New Zealand timber segments partially offset by lower results in our Pacific Northwest timber and real estate segments. Drilling down further on our operating segment results, our southern timber segment generated first quarter of 45 million dollars, up two million dollars from the prior year period, as a six percent increase in harvest volumes, more than offset a four percent decline in net stumpage realizations. In our Pacific Northwest timber segment, first quarter of five million dollars was down two million dollars from the prior year quarter, driven by a 17 percent reduction in harvest volumes due to the Oregon sale completed late last year, as well as an 11 percent decline in weighted average log prices. Turning to our New Zealand timber segment, first quarter adjusted EBITDA of $11 million increased $5 million versus the prior year quarter. The increase in adjusted EBITDA was driven by higher carbon credit sales and favorable foreign exchange impacts, partially offset by a 4 percent decrease in export saw timber prices. In our real estate segment, we generated first quarter adjusted EBITDA of $5 million, down $2 million from the prior year period. Consistent with our prior guidance, real estate closings were relatively light to start the year. However, our full-year real estate pipeline remains strong, and we expect a significant increase in closing activity during the second quarter. As April will discuss in greater detail later in the call, we are on track to deliver on our full-year 2024 adjusted EBITDA guidance of $290 to $325 million. As we indicated at the beginning of the year, our full year 2024 financial guidance excludes the potential impact of any additional asset sales as part of our $1 billion disposition target that we announced in November. As it relates to the disposition target, we are continuing to make progress and are actively evaluating several large-scale transactions. Specifically, we are currently marketing approximately 115,000 acres in Washington State and we have further identified approximately 100,000 acres in the U.S. South that may be suitable for disposition. In addition to these opportunities in the U.S., we are evaluating strategic alternatives for our New Zealand joint venture interest and have engaged a financial advisor to assist us with this process. We look forward to sharing additional progress on our disposition program in the coming quarters as we continue to advance our efforts to reduce leverage in a higher interest rate environment and capitalize on the continued disconnect between public and private values for Timberland assets. With that, let me turn it over to April for more details on our first quarter financial results.

Thanks, Mark. Before covering the financial highlights from the quarter, I would first like to express that I'm very honored to be leading such a talented accounting and finance organization and look forward to building an already strong foundation. I'm intently focused on maintaining Rainier's position as an industry leader in transparency, as well as further enhancing our finance platforms to support data-driven decisions across our organization. Our balance sheet and liquidity position is strong, and as Mark highlighted earlier, we are actively taking steps to achieve the new leverage targets we communicated in November. Moving on to the financial highlights on page five of the supplement. Sales for the first quarter totaled $168 million while operating income was $16 million and net income attributable to Rainier was $1 million or one cent per share. On a pro forma basis, net income was $7 million or five cents per share. Pro forma items in the first quarter included a $4.5 million pension settlement charge and $1.3 million of net costs associated with a legal settlement. Adjusted EBITDA was $56 million in the first quarter, up slightly from $55 million in the prior year period. On the bottom of page five, we provide an overview of our capital resources and liquidity. Our cash available for distribution, or CAG, for the first quarter was $37 million, versus $30 million in the prior year period. The increase was driven primarily by higher adjusted EBITDA and cash interest received during the quarter. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page seven of the financial supplement. We closed the first quarter with $160 million of cash and roughly $1.4 billion of debt. implying net debt to trailing 12-month adjusted EBITDA of approximately 4.1 times. At quarter end, our weighted average cost of debt was approximately 2.8%, and the weighted average maturity on our debt portfolio was approximately five years, with no significant debt maturities until 2026. We expect to use our cash on hand to pay $150 million of debt that becomes unhedged in August, which will keep our debt 100% fixed rate. Our net debt to enterprise value based on our closing stock price at the end of the quarter was 19%. I'll turn the call over to Doug to provide a more detailed review of our timber results.

Thanks, April. Let's start on page eight with our southern timber segment. Adjusted EBITDA in the first quarter of $45 million was $2 million or 5% above the prior year quarter, driven by higher volumes and lower costs. partially offset by lower pricing and a decline in non-timber income. Total harvest volumes rose 6% versus the prior year quarter, primarily driven by healthy demand from customers due to wet weather-related constraints on competing log supply. Our continued investment in road infrastructure and dry ground optionality proved to once again be competitive advantages amid wet weather conditions that limited the ability of other Timberland owners to bring volume to the market. Meanwhile, non-timber income declined 3% from the prior year period as continued growth in our land-based solutions revenue was more than offset by lower pipeline easement revenue. Average saw log stumpage pricing was $31 per ton, a 3% decrease compared to the prior year period. Meanwhile, pulpwood net stumpage pricing fell 2% versus the prior year quarter to roughly $17 per ton. The moderation in pricing for both saw logs and pulpwood was largely driven by a shift in geographic mix toward lower-priced operating areas versus the prior year period. Overall, weighted average stomach prices in the first quarter fell 4 percent versus the prior year quarter to roughly $23 per ton. Improved in-market demand coupled with wet weather conditions translated into fairly stable pulpwood pricing to start the year across most of our markets in the U.S. South. Encouragingly, we believe the inventory destocking cycle that weighed on container board demand in 2022 and 2023 has largely run its course. Mill operating rates are generally improving, giving us reason for optimism as we move through the balance of the year. Train to grade markets. Market conditions were generally stable throughout the first quarter, despite some softness and Southern Yale pine lumber prices, as the El Nino climate pattern resulted in wet weather conditions that limited the supply of competing logs. However, saw log pricing has been under some pressure in recent weeks, as demand from lumber mills has softened amid the continued pullback in Southern Yale pine lumber prices and drier weather conditions. Looking ahead, we believe the significant discount that Southern Yale pine lumber currently trades at compared to other species will likely narrow, which should translate to improved demand and pricing for saw timber. Moving to our Pacific Northwest timber segment on page nine, adjusted EBITDA of $5 million was $2 million below the prior year quarter. The year-over-year decrease was driven by lower harvest volumes and lower net stomach realizations. Volumes decreased 17 percent in the first quarter as compared to the prior year period, reflecting the large disposition we completed in Oregon during late 2023. At $84 per ton, average delivered domestic solid pricing in the first quarter fell 9 percent from the prior year period, due to a combination of weaker demand from domestic lumber mills, reduced export market tension, and an unfavorable species mix as a lower proportion of Douglas fir salt timber was harvested in the current year period. Meanwhile, at $29 per ton, pulpwood pricing appears to have stabilized, but was down 39% versus a prior year comp that benefited from exceptionally favorable supply-demand dynamics for pulpwood in the region. The Pacific Northwest log market has faced headwinds in the form of both soft domestic lumber markets and limited demand for log exports to start the year. However, we are optimistic that demand has bottomed and is poised to improve over the course of 2024 as we have seen mill inventories normalize in recent weeks. Moving to New Zealand. Page 10 shows results and key operating metrics for our New Zealand timber segment. Adjusted EBITDA in the first quarter of $11 million was $5 million above the prior year quarter. The increase in adjusted EBITDA compared the prior year period was primarily driven by higher carbon credit sales and favorable foreign exchange impacts, partially offset by lower net stumpage realizations. Average delivered export salt timber prices of $109 per ton declined 4% compared to the prior year quarter as demand continues to be constrained by ongoing challenges in China's property sector. While improving seasonally following the Lunar New Year, offtake from Chinese ports has remained relatively subdued at approximately 70,000 cubic meters per day. However, softwood log inventories at Chinese ports are currently 9% below year-ago levels at roughly 3.9 million cubic meters. In response to the ongoing weakness in construction activity, we have seen many exporters reduce log shipments into China. In turn, we anticipate log inventories are poised to decline over the course of the second quarter, which we expect will lead to more favorable pricing conditions in the second half of the year. Shifting to the New Zealand domestic market, First quarter average delivered solid prices fell 5% from the prior year period, or 3% when excluding foreign exchange impacts. The decline in pricing reflects continued challenges facing the local construction market amid a higher interest rate environment, as well as reduced competition from the export market. First quarter non-temporary income in New Zealand of $4 million increased $3 million relative to the prior year period. The year-over-year increase reflects higher carbon credit sales in the current year period as we temporarily suspended our sales program in early 2023 amid significant market volatility. We anticipate that we will remain active in the New Zealand carbon market over the course of 2024 as pricing remains healthy from a historical standpoint, albeit down in recent weeks as compared to the end of the year. Lastly, in our trading segment, we registered a break-even result in the first quarter. As a reminder, our trading activities typically generate low margins and are primarily designed to provide additional economies of scale to our feed timber export business. I'll now turn it back over to April to cover our real estate results.

Thanks, Doug. As detailed on page 11, the contribution from our real estate segment during the first quarter was relatively light, consistent with our expectations entering the year. Real estate revenue totaled $16 million, including roughly 1,900 acres sold in an average price of $5,800 per acre. Real estate segment adjusted EBITDA in the first quarter with $5 million. Drilling down, sales in the improved development category totaled $2 million and were driven by two transactions in our Heartwood development project south of Savannah, Georgia. The Heartwood sales consisted of a 3.1 acre multi-tenant retail parcel for $1 million, or $321,000 per acre, as well as 18 residential lots for $800,000, reflecting an average base price of approximately $46,000 per lot. While the first quarter was relatively light in terms of closing activity, we continued to see favorable momentum at both of our development projects. In February, the St. Joseph's Candler Healthcare System opened the initial phase of its health and wellness campus at Hartwood. This was an important milestone And as we move forward, we expect that Hartwood's diverse mix of residential, commercial, and industrial end uses will serve to further catalyze demand. In wildlife, home builder interest in the next phase of development has continued to increase. We expect initial sales over the next year within the 15,000 acre area that we received entitlement improvement for in November. Overall, we continue to see a tremendous runway for both our wildlife and heartwood development projects going forward. Turning to the rural category, first quarter sales totaled $9 million, consisting of approximately 1,500 acres and an average price of roughly $5,800 per acre. Key transactions during the quarter included the sale of 409 acres in Texas for $2.3 million or over $5,500 per acre, as well as the sale of two properties totaling 364 acres in South Carolina for a total of $1.4 million or nearly $3,800 per acre. Overall, demand from prospective buyers on rural lands remains healthy, and we expect a larger contribution from these sales as we move through the balance of the year. While interest in smaller tracts has moderated, Somewhat amid a current interest rate environment, demand for the larger tracts remains strong. In addition, we have recently seen growing interest among conservation and impact-oriented buyers looking to place capital. Lastly, during the quarter, we also closed on a 430-acre non-strategic timberland sale in Louisiana for roughly $600,000 or $1,400 per acre. Now moving on to the outlook for the balance of 2024. Based on our first quarter results and our expectations for the remainder of the year, we are on track to achieve our prior full year adjusted EBITDA guidance of $290 to $325 million. As a reminder, our guidance excludes the potential impact of any additional asset sales as part of our previously announced $1 billion disposition target. With respect to our individual segments, in our southern timber segment, we expect to achieve our full year volume guidance. But following strong harvest activity to the start of the year, we anticipate lower quarterly volumes for the remainder of the year. Further, we anticipate that pine stumpage realizations will decrease modestly over the remainder of the year due to a less favorable geographic mix and a relatively higher proportion of thinning volume. Lastly, we remain encouraged by the momentum in our land-based solutions business, and we continue to expect higher non-timber income for the full year 2024 relative to the full year 2023. In our Pacific Northwest timber segment, we remain on track to achieve our full year volume guidance, as we expect harvest volumes to increase during the second half of the year. We believe that market conditions have stabilized and anticipate that end market demand will improve modestly over the course of the year given the continued favorable dynamics in the single family construction activity. We further expect weighted average delivered log prices will increase modestly into the second half of the year as log inventories at mills continue to normalize. In our New Zealand timber segment, we are on track to achieve our full year volume guidance as we anticipate higher quarterly harvest volumes for the remainder of the year. We expect weighted average log prices to decline modestly in the near term before rebounding in the second half of the year as the inventory-to-demand ratio normalizes. Following the recent pullback in carbon credit pricing, we now anticipate the full-year contribution from carbon credit sales to be comparable with the prior year. In our real estate segment, we remain on track to achieve our prior adjusted EBITDA guidance following a relatively light first quarter as our full year pipeline of transactions remains strong. Consistent with our prior guidance, we expect a significant uptake in the transaction volume and operating results in the second quarter. I'll now turn the call back to Mark for closing comments.

Thanks, April. As we wrap up today's call, I'd like to recognize the extraordinary efforts of our team during what has been an incredibly busy period of time for our entire organization. Amid challenging and market conditions, our team has worked diligently to make value-optimizing decisions throughout our operations while also advancing several important strategic initiatives. As we move through the remainder of the year, we're optimistic the continued favorable dynamics for single-family housing, higher operating rates for many of our pulpwood customers, and lower log inventories in China will translate to improving fundamentals in our timber segments. On the real estate front, we've been pleased by the continued strong demand for our rural land and development properties despite the higher interest rate environment. We are especially excited to start executing on new opportunities in wild light stemming from the entitlements that our team secured last November. We've also continued to make progress in our land-based solutions business. Specifically, we've increased the number of acres we have under lease for carbon capture and storage to 70,000 acres as of today, up from 59,000 acres at the time of our investor day. In addition, we now have 33,000 acres under option for solar development, up from 27,000 acres at the end of 2023. As we've expanded our pipeline of opportunities and land-based solutions, we've continued to focus on working with high-caliber counterparties that we believe will ultimately see a stronger conversion rate to operational facilities. All said, I'm very proud of how we've worked together to effectively manage through some difficult market conditions while also advancing these important strategic initiatives. In closing, I'd further like to thank our board, as well as our recently retired CEO, Dave Nunes, for guiding us through a smooth leadership transition process over the past two years. Their collective efforts helped ensure that the organization didn't skip a beat amid a very dynamic market environment. Lastly, I also want to take a moment to recognize the significant contributions of our board chair, Dodd Frazier, who will be retiring from our board in May. Dodd has served on the board of Rainier since the 2014 spinoff of the performance fibers business, including as chair for the past four years, as well as audit chair for the prior six years. Throughout this time, he's demonstrated impeccable leadership, dedication, and judgment. On behalf of the board and the entire company, I want to thank Dodd for his invaluable contributions, the governance of Rainier, and wish him well in his future endeavors. That concludes our prepared remarks, and I'll now turn the call back to the operator for questions.

Thank you, sir. At this time, if you do have any questions or comments, you may press star 1. You may also press star 2 to withdraw your questions. One moment, please, for the first question. Keaton Mantora with BMO Capital Markets. You may go ahead.

Thank you, and good morning. Perhaps we'll start with, Mark, can you talk a little more about, you know, some of the progress on the land-based solution side? As you look at, you know, you talked about solar, you talked about CCS, As you think about next two, three, five years, where do you think sort of, you know, from your standpoint, you see the most opportunity? And how should we sort of think about, you know, when this starts to have an impact on EBITDA?

Sure. This is Doug. I'll start off with that. So, you know, as we laid out at our investor day, we talked about kind of as a process here with respect to getting the pipeline built out in our land-based solutions, particularly on the the CCS side of things as well as the solar. And then there's that, you know, depending on what it is, a multi-year project to get it permitted and get it into the, you know, into the grid if it's solar and then to get it built. So we are building that out as we talked about and very, very happy we're out on those. And I'll talk about kind of progress in each of those in a second. But when it comes to, you know, delivering on those things, as we mentioned that investor day, there's kind of these incremental steps, which is why we put out kind of the interim targets to share with that. So we see that building, but there is going to be a slight delay as we get these in the pipeline. which we do recognize, you know, option values and lease payments at that point in time. But it's really at the point in time when they start to produce either power or we sequester carbon where we'll see the real benefit of those hit in, and we see that still kind of in that three to five-year time horizon.

And, Cato, we did lay out, you know, our targets at our Investor Day back in February, you know, $75 million of the Just City BIDA by 2030 and that interim target that Doug referenced of $30 million by 2027. We've also started to break out our land-based solutions contribution. in our southern timber segment detail, in our supplement, just so investors can start to track our progress against those targets.

What I would say is that we're seeing really strong interest in both those areas. On the carbon capture storage, that market just continues to grow for us, and we're seeing just a lot of interest from other people. We start off in the oil and gas industry. We're really starting to see more interest broader from utilities, pulp and paper industries. Our pipeline of projects is really strong, and we're advancing multiple large-scale opportunities across the U.S. South that we think will meaningfully contribute towards our goals in 2024. Mark mentioned that we've increased our actual lease acres up to 70,000 acres in his comments, and we're actively in exploration discussions on additional 200,000 acres with several other companies, so we feel good about the progress we're making in our carbon capture storage. And on the solar side of things, Also, really happy with the progress we're seeing there. So our pipeline project, again, is really strong and growing. We now have over 33,000 acres under option for solar development, which is up from 27,000 at the end of 2023. And we're on track to achieve our year-end objective of having 50,000 acres under options. And we're advancing quite a few multiple large-scale solar relationships across the South. And we think those will contribute meaningfully over the next few years as we go forward in What we're really excited to see is that some of the ISOs, those independent system operators for the regional transmissions, they've started to implement interconnection queue reforms with the goal of ensuring that projects that are going to basically have a high-level success get brought up in the queue. And so in the past, we talked about we've seen where there's been a lot of projects clogging the queue, and some of those had low probability success. And we're seeing reforms to help with that. And we believe that our focus on working with high-quality counterparties who are, in a lot of cases, the utility companies themselves, that will help speed that process up and move it up the queue. So we do believe that that will bring some of these forward, and we've seen one of those projects kind of moving forward, and we believe will be under construction this year.

Got it. That's very helpful. And just on solar, are you looking at mostly to lease land, or are you also looking at outright sale? And this is just specific to solar.

Yes, specific to solar. We're particularly looking at the leasing opportunity. We believe that's the best option for us from a financial standpoint. As well as we're finding a lot of our customers also find that favorable not to put that high capital up front, so it's worked out to be a good solution for most of our customers.

Understood. And then just switching to just China, you talked about sort of offtake. It's a little bit slower. Curious kind of to see in terms of just activity level, have you seen sort of things pick up at all? Is it sort of pretty similar? Any more color there?

Sure. This is Doug again. I'll grab on that one also. So, yeah, the economy has come out of the Lunar New Year. It's grown relatively strong. That hasn't really spread in the property sector yet, but we have seen with that GDP running over 5%. We're seeing strength in areas like the infrastructure and manufacturing and exports are recovering also, which is really positive for the packaging industry, as well as the furniture exports. We've seen those increase by over 25% year over year in the first quarter. So we're seeing growth in a lot of areas. And these trends tend to favor radiata, particularly from New Zealand, due to the wood quality there. So it's a very versatile product. And while we saw relatively strong pricing at the start of the year, that was due to low port stocks that came into there. And so we're pleased with that. But then Chinese New Year came along, and we saw that kind of build back up. So going into the year, we were at an inventory-to-demand ratio below 1.5 months, which historically yields strong pricing. And we saw that. But through the Lunar New Year, it built up to over 4 million cubic meters at the ports. We're happy to say, though, that at the end of April, it's dropped down below 3.9 million cubic meters. And where we're seeing offtakes in the 40,000 to 60,000 cubic meters per day kind of over the first quarter of the year, we're now seeing that offtake up from 70,000 to 80,000 recently in the past couple weeks. And so that inventory-to-demand ratio has fallen back below two months, which, again, historically has led to that upward pressure on prices. And we're seeing a lot of increase in shipping costs from the rest of the world. I don't want to talk about that too much. Probably most people understand that, particularly from Europe. And so we think that both log and lumber supply will be constrained over the coming months. So that's why our comments, we believe that we've kind of seen the buildup, but that's drawing down, and we're seeing increased offtake with less input coming in. So we have seen that MTR ratio drop below 2. So we believe that will lead to some improved pricing and demand going forward, particularly for radar pine.

Got it. No, that's very helpful. I'll jump back in the queue. Good luck.

Thank you. Our next caller is Matthew McKellar with RBC Capital Markets. You may go ahead, sir.

Hi, good morning. Thanks for taking my questions. Good morning. First, does weak southern yellow pine lumber pricing represent a potential risk to your outlook for harvest volumes in the U.S. south this year?

Yeah, this is Doug again. I'll cover that. Yeah, you know, it's always hard to predict exactly how things are going to work out with respect to that, but what we've seen is that operating rates for pulpwood customers have really picked up over the year, too. So we have that ability to flex between. As we did last year, we flexed more towards them towards lumber and saw logs, and this year we're seeing a lot of demand basically on the pulp side, as well as still continued demand on our log side. So we're pleased to see that the operating rates for pulp customers have moved from the mid-70s up into the low 90s now, so we're really seeing an increased demand there. It seems like most of the closures and economic downtime that followed that post-COVID inventory stocking cycle are over, and that we've seen these increases in pricing. So we're still seeing strong demand on the pulp side, and while we have seen some weakness in the lumber side, Overall, the mills are still running, and we see that demand. So it's hard to say exactly how that would look. We have the ability to flex between those two, so we still believe we're comfortable as we put our outlook on our removals.

Matthew, I think we also believe that that price divergence that we've seen is likely going to tight. I mean, we just haven't. It's pretty unprecedented, that disconnect that we're seeing right now between SYP and SPF lumber prices. And so our expectation is that will start to converge as the year progresses.

Yeah, absolutely.

I would agree with Mark.

One of the things we've seen is that, particularly in the repair and remodel, there's been some weakness for those higher grade saw logs that are destined usually for treating facilities. And so that's where we've seen some of the weakness to date. But overall, we've still seen reasonable demand.

Great. That's helpful. Thanks very much. Next, I was wondering if you could just provide a bit more color on how you're thinking about your evaluation of strategic options for the New Zealand business at this point. I think you talked about that process potentially taking a little while due to the JV governance structure. So my question would be is how you proceed with that process or evaluate your options that are contingent on the outcomes of the Washington State sale and any potential sales processes you might run on the 100,000 plus acres you've identified as suitable for this position in the U.S. South?

Yeah, I guess the way that we're approaching that, Matthew, is that we're really looking at – structuring a number of different options that would ultimately get us to that $1 billion disposition target. We haven't sort of laid out one specific path that gets us there, but really assessing a number of different options, various combinations of which could ultimately get us to that $1 billion target. As it relates to New Zealand specifically, as we noted in the release, we've engaged a financial advisor to assist with an evaluation of strategic alternatives there. As part of that process, one of the alternatives that we will consider is exiting our position in New Zealand. I can't really comment beyond that at this point, but again, we have entered into that process in earnest, and we expect that we'll have further updates in the next couple of quarters.

Okay, thanks for that. And then last one for me, just on carbon credit prices in New Zealand. It sounds like you've tempered your expectations there slightly with prices trending lower over the past couple of months. Can you talk about what you think has driven prices lower and what your expectations would be for prices for the balance of the year?

Yeah, as we detailed in our supplement, we sold about $3.4 million worth of carbon credits in New Zealand in the first quarter, and that's relative to zero in Q1 2023. Recall that we elected to defer NZU sales in early 2023 due to the significant volatility that we were seeing in the carbon market. And then we ultimately ended up resuming sales later in the year as the market recovered. So we've continued to be opportunistic as it relates to how we've approached carbon credit sales in New Zealand. Overall, the regulatory backdrop, I would say, has stabilized relative to last year. The government's indicated that they're not contemplating any significant changes to the ETS in the near term, which was really, you know, driving some of that volatility last year. You know, that said, the most recent NZU auction failed to reach full subscription, so the pricing has backed up some from where it was at the start of the year. Overall, though, you know, pricing, which has recently been in the range of 50 to 60 New Zealand dollars per unit, still relatively strong from an historical perspective. So we've continued to be active in that market.

Thanks very much. That's all for me. I'll turn it back.

Thank you. Our next caller is Mark Weintraub with Seaport Research Partners. You may go ahead, sir.

Thank you. So I guess there's sort of two related questions. One is to the extent that you can provide an update on where you are in the process on the 115,000 acres Pacific Northwest and the 100,000 acres in the US South. And then also, though, in conjunction with that, if one of the alternatives for New Zealand that is being considered as a potential exit of the position, I would imagine to get to the billion dollars, that would take you pretty far away, given you've already done the 55,000 acre sale. And so I'm just sort of trying to understand, is there a scenario where you might end up selling more than the billion or more than the billion dollars? Or are there ways you're juggling that so that wouldn't happen? Or how should we just think that all through?

Yeah, like I said earlier, Mark, we've really laid out a number of different options, any number of combinations of which could ultimately get us to that $1 billion target. Our objective as we sit here today is not to deliberately exceed that target, certainly not as it relates to our capital allocation objectives in terms of the deleveraging and return of capital to shareholders. But recognize that if we do find, you know, compelling values in the market for, you know, some of these different assets that we're exploring sale alternatives around, you know, we certainly have the ability to redeploy that capital into acquisitions through like-kind exchanges. And so, you know, the top priority is to achieve the new leverage targets. return capital to shareholders, and then we'll evaluate how much further beyond that we wish to go. Look, as a general matter, we don't comment on M&A until there's a closed transaction or at least a signed contract. That said, we recognize that there's going to be an elevated level of interest around our disposition plans given the $1 billion target that we announced last November. You know, we also recognize that there's invariably going to be chatter in the industry regarding assets that we've taken to market or considering taking to market. So, you know, given these factors, we try to be more transparent and specific around some of the efforts that we currently have underway. But just given that you're still in the evaluation phase on a number of these different potential transactions, again, we don't want to comment much more beyond that.

Fair enough. But if I heard you right, I mean, there's a scenario, though, where... You are not prevented from moving forward on doing something in the U.S. until you've sort of decided what you're doing with New Zealand. You could do something in the U.S. and then ultimately if you were to do something in New Zealand, you may then just reposition some of those monies to acquire. So again, there's no reason to be thinking you're going to delay making decisions in the U.S. Is that fair?

Yeah, I think that's fair. I mean, look, when we laid out at the outset of this plan, you know, we laid out two objectives and it was really to concentrate capital in the markets we think that have the most favorable long-term growth prospects and the most favorable cash flow attributes. And so, you know, we don't have a billion dollars of assets that I would characterize as non-strategic, but we have a billion dollars worth of assets that we could characterize as less strategic. and potentially able to recycle that capital into higher returning areas or areas in which we feel that we have a unique ability or opportunity to add value. Again, we've identified those properties that we believe are less strategic and will help us to achieve our $1 billion target within the parameters that we've laid out in terms of the the features under which we're kind of evaluating different transactions. And as we proceed through that, as we see, you know, transaction outcomes, we'll recalibrate our plans and expectations thereafter.

Okay. Appreciate it.

Thanks, Mark.

Thank you. Our next caller is Anthony Petraneri from Citi. You may go ahead.

Good morning. This is Gregory. I'm for Anthony this morning. A lot's been covered already in the prepared remarks and Q&A, but I did want to just bring something up that was said in the prepared remarks. I think what was mentioned about southern yellow pine was there's a significant discount right now between southern yellow pine and other species. So I just was wondering if you could provide a little bit more context on what other species you're comping southern yellow pine to when you say that, and then timeline for that discount to narrowing key drivers And then I'd want to follow on after that.

Sure, this is Doug. I'll talk to that. So, yeah, as Mark mentioned, we do believe this historically unprecedented discount that Sun Yeld Pine Lumber is trading at compared to, you know, SPF and other Western grades will eventually correct. And there are a few factors there at play. You know, as you mentioned, there are different species preferences for different end uses. But in the long run, we think we'll see increasing substitution for Sun Yeld Pine for SPF as the market adapts to those. In the near term, as I mentioned, there's some weakness in repair and remodel activity. And that particularly plays out in our higher-grade logs, and those are going to be used in outdoor and DIY projects where sun-yellow pine is favored for treating and outdoor use. And on top of that, kind of some weaker multifamily construction also plays a role in this. So sun-yellow pine is increasingly being utilized in prefabricating trusses and wall panels, as well as engineered wood products, which make up a larger share of the lumber consumption for multifamily or commercial construction compared to single-family construction. But we believe that it very much can be used in that process, and so the market's just going to fill that gap as we see things work its way out. And then Canadian tariffs are set to increase from 8% to 14% as we go into the summer. So builders who prefer those Western grades have been more active buying ahead, basically, and that's particularly in the single-family home construction. But as we said before, eventually we believe that builders and other consumers will continue to move towards the value that's presented by Southern Yellow Pine, and these markets will normalize as we've seen in the past.

That's helpful. Thank you. And just thinking about returning to Southern Solid pricing in the first quarter, you called out the over-year decline, but I was just looking. Pricing looks like it was up about 6% or so from the fourth quarter. So I'm wondering if you can just kind of comment on what drove that increase, whether it was mixed or the fact that competitors couldn't bring logs to market. And then, you know, how you think that kind of dynamic plays out over the second quarter and then into the second half if lumber operates are a little bit stronger than you're anticipating.

Sure. Yeah. So, yeah, you're right. On a quarter-of-quarter basis, we did see improvement in that pricing. And, you know, some of that was due to the wet weather we saw. But also, I think going into the year, there was, you know, some encouragement in the mills. So we saw relative strength, basically, in the sawmills. and going into that. And that has tempered a little bit as we've gone through the rest of the quarter, basically, as we see that. When we talked about that, you know, some of our pricing that we're seeing and going from Q1 kind of Q2 and thinking going on Outlook really is a shift in geography, basically. So we're going to have a shift in our harvest moving a little bit from the Atlantic over more towards the Gulf states, which typically have just slightly lower pricing, as well as we're going to have an increase in our thinning harvest throughout the rest of the year. And that typically produces either more pulpwood, but as well as lower grade saw logs and smaller ones.

Thank you very much. I'll turn it over.

Thank you. Once again, if you would like to ask a question, you may press star 1. And our last caller is Michael Roxland with Truist Securities. You may go ahead, sir.

Hi, guys. Thanks for taking my questions. This is Nico Pacini on for Mike Roxland. Just on the $1 billion question, disposition plan, can you comment maybe on where you're seeing the most interest? Is it public companies, TMOs, things like that? And then on the Washington parcel, the non-strategic qualities that make it attractive for disposition, is that similar to the Oregon parcel in that it maybe is geographically dislocated from the rest of your holdings in the area?

Yeah, I mean, in terms of the first question, I'd say that we're seeing a pretty wide range of interest across the board. I mean, the TMOs continue to have a fair amount of capital to place. By our estimates, about $4 billion that's actively looking for Timberland acquisitions. I think there's also a fair amount of capital that's flowing into the space or looking to get into the space. just around carbon-related or impact-related investments. And so, again, we continue to see pretty strong bid in the Timberland market and just pretty robust M&A market overall. As it relates to the Washington properties, again, we're not commenting specifically on the nature of those properties at this juncture. Suffice it to say, as we've looked at potential properties for disposition, we have really looked at trying to maintain strategic scale within each of our regions. And so, again, we've generally focused on properties that we think will allow us to maintain that across our three different operating areas.

Yeah, thank you very much. And then I guess just switching gears, you talked about some of the demand for your development projects. What are you hearing from some of your customers that are home builders take up on interest demand. Any update on that, please?

Again, you know, single-family dynamics continue to be pretty strong and favorable, and we've certainly seen that in our development projects. You know, recognize that a lot of the activity that we are focused on right now is around, you know, single-family residential, you know, including age-restricted. And so we've continued to see pretty robust demand in both of our major development projects.

Got it. Thank you very much. That's all for me.

And thank you. There are no further questions at this time. I'll turn the call over to Colin Langston.

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

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