Mark McHugh - SVP & CFO Dave Nunes - President & CEO Doug Long - SVP-U.S. Operations Chris Corr - SVP, Real Estate & Public Affairs.

Collin Mings - Raymond James Mark Wilde - VMO Capital Market Steve Chercover - Davidson Chip Dillon - Vertical Research Mark Weintraub - Buckingham Paul Quinn - RBC Capital Markets Collin Mings - Raymond James.

Welcome and thank you for standing by, for joining Rayonier's First Quarter 2017 Teleconference Call. [Operator Instructions] 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. Mark McHugh, Senior Vice President and CFO. Sir, you may begin..

Thank you, and good morning. Welcome to Rayonier's investor teleconference covering first quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at, rayonier.com.

I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of Federal Securities Laws. Our earnings release and 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 2 of our financial supplement. Throughout these presentations we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials.

With that, let's start our teleconference with opening comments from Dave Nunes, President and CEO.

Dave?.

Thanks Mark and good morning everyone. First I'll make some overall comments before turning it back over to Mark to review our financial results. Then we'll ask Doug Long, our Senior Vice President of U.S. Operations to comment on our U.S. Timber results.

I’ll discuss our New Zealand Timber results and following the review of our Timber segments, Chris Corr, our Senior Vice President for Real Estate will discuss our Real Estate results. Before discussing our results for the quarter, I'd like to briefly address our recent equity offering and portfolio moves in the U.S. south.

On March 16, we announced that company had entered into three transactions to acquire approximately 95,100 acres of high quality industrial timberlands located in Coastal Florida, Georgia and South Carolina. We recently closed on the transactions for a final aggregate purchase price of $214 million or roughly $2250 per acre.

We're very excited about these acquisitions as they meaningfully increase our footprint in some of the strongest markets in the U.S. south. Further, these properties are highly productive with an average site index of 78 feet and average productivity of 4.7 tons per acre per year.

Over the next five years we expect that these properties will contribute on average roughly 13 million of incremental adjusted EBITDA per year to our Southern Timber segment.

So while these properties transacted at a relatively high per acre value reflective of their high quality, we expect them to generate a strong cash yield and an attractive long-term return for our shareholders.

Concurrent with our announcement of these acquisitions, we also announced an overnight equity offering of 5 million common shares to fund a portion of the purchase price.

We priced the transaction at $27.75 per share on March 17, and the underwriters subsequently exercised their overallotment option which translated into 5.75 million shares issued for net proceeds of approximately $152 million after deducting transaction fees and expenses.

We did not take the decision to issue equity lightly, but we ultimately determined at this particular acquisition opportunity would be an attractive and value-added use of equity capital and would yield incremental NAV per share over time.

Further, it allowed us to maintain our investment grade credit ratios and preserve some dry powder to opportunistically pursue other capital allocation alternatives going forward.

Our capital allocation strategy is focused on building long-term value per share by being nimble and opportunistic and we're pleased to have executed these recent transactions consistent with this strategy. Now I’d like to switch gears and discuss our first quarter results.

In Q1 we achieved adjusted EBITDA of $57.1 million versus $55.6 million in the prior-year quarter. Lower volume and pricing in our Southern Timber segment and reduced land sales in our real estate segment were more than offset by favorable performance in our Pacific Northwest and New Zealand Timber segments.

In our Southern Timber segment 22% lower volume relative to the first prior-year quarter was driven primarily by high-volume Q1 last year which we saw stumpage customers accelerate harvest activity early in the year due to wet weather conditions in certain areas.

In our Pacific Northwest Timber segment, we're reaping some of the benefits of the portfolio repositioning that we executed last year, as our Q1 results significantly exceeded the prior-year quarter in both volume and pricing.

In the New Zealand Timber segment, we continue to enjoy strong performance and price gains as both domestic and export market conditions remain favorable.

Our real estate results excluding the gain on the previously announced large disposition were below the prior-year quarter due to fewer acres sold partially offset by an increase in prices as we pursue a strategy of unlocking value from our higher and better used land portfolio.

As we discussed in the past, we expect our real estate results to be lumpy based on the timing of transactions. With that, let me turn it back over to Mark for a review of our financial results..

Thanks Dave, let's start on Page 5 with our financial highlights. Sales for the quarter totaled $186.5 million, while operating income was $49.3 million and net income attributable to Rayonier was $33.8 million or $0.27 per share. Pro forma net income was $6.3 million or $0.05 per share.

Our pro forma net income for the quarter exclude $740,000 of cost related to shareholder litigation and a $28.2 million gain from a large disposition. Both net income and pro forma net income for the quarter were impacted by GAAP tax expense of $6.3 million which is primarily related to our New Zealand operations.

Cash taxes for the quarter were de minimus. First quarter adjusted EBITDA of $57.1 million was above the prior year quarter primarily due to favorable results in our New Zealand and Pacific Northwest Timber segments which were partially offset by lower contributions from our Southern Timber and real estate segments.

As a reminder, adjusted EBITDA on our Real Estate segment exclude the impact of the previously announced large disposition that we closed during the quarter. On the bottom of Page 5, we've provided an overview of our capital resources and liquidity at quarter end, as well as a comparison to prior period.

Our cash available for distribution or CAD was $38.8 million in the first quarter compared to $36.4 million in the prior year quarter primarily due to higher adjusted EBITDA and lower cash interest paid partially offset by higher capital expenditures.

A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 7 of the financial supplement. We closed the quarter with $219.4 million of cash and roughly $1.1 billion of debt. Our net debt of $855 million represented 19% of our enterprise value based on our closing stock price at quarter end.

Note that our cash balance at quarter end excludes $111 million of restricted cash that was held by an LTE intermediary and earmarked for acquisition. Subsequent to quarter end, we used approximately $207 million of that cash and restricted cash to close the acquisition that Dave discussed earlier.

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

Thank you, Mark. Good morning. Let's start on Page 8 with our Southern Timber segment. Adjusted EBITDA in the first quarter of $26.4 million was 5.6 million favorable to the fourth quarter and $6 million unfavorable compared to the same period in the prior year.

First quarter harvest volume of approximately 1.38 million tons was 94,000 tons favorable compared to the prior quarter although 380,000 tons lower compared to first quarter last year.

Recall that our southern harvest volume was well ahead of plan in the first quarter of last year due to wet weather and the timing of customer [renewals] from stumpage sales. First quarter pine sawtimber prices of $17.29 per ton were 9% favorable to fourth quarter prices and 9% below the same period in the prior year.

The increases in prices over the prior quarter was driven by geographic mix as some volume differed in Q4 was harvested in the first quarter, essentially doubling our pulpwood volume in our best markets.

Decline in pulpwood prices compared to same period in the prior year was due to ample supply resulting from extended dry weather conditions, coupled with reduced demand from mill shutdowns as a result of unforeseen maintenance and accidents.

Pine pulp timber prices of $26.40 per ton was 1% below the fourth quarter prices and 2% below the same period in the prior year. The modest decline in average pulp timber prices prior year periods was primarily due to geographic mix.

Hardwood prices of $10.95 per ton were 26% and 12% lower than the prior quarter and the prior year quarter respectively. In both cases the reduction and price was primarily due to unfavorable changes in product mix.

Now, moving to Northwest Timber segment on Page 9; adjusted EBITDA in the first quarter of $9.3 million was $2.1 million favorable to prior quarter and $3.3 million favorable to the same period in the prior year to higher harvest volumes and higher average pricing.

First quarter harvest volume of 399,000 tons was 12% higher as compared to the prior year quarter and 21% higher than the same period in the prior year. The Menasha acquisition Oregon which we closed in May 2016, was the primary driver of the increased harvest volumes.

Delivered pulpwood prices of $38.71 per ton were 2% and 14% lower than the prior quarter and the prior year quarter respectively. The steady decline in pulpwood prices over the last year is due to the increase availability of residual chips on the open market which has reduced demand for pulpwood.

Delivered pulp timber prices of $74.88 per ton were flat in the prior quarter and 10% higher in the same period of prior year. The increase in grade prices since the beginning of last year is due primarily to improving export and domestic markets coupled with an increased mix of Douglas-fir logs from Menasha acquisition.

Now Dave will review New Zealand Timber results. Dave..

Thanks Doug. Page 10 shows results in key operating metrics of our New Zealand Timber segment. We continue to see strong results from our New Zealand Timber segment which delivered another solid quarter.

Adjusted EBITDA of $15.7 million was $2.2 million unfavorable to the prior quarter and $4.3 million favorable compared to the prior-year quarter driven by a mix of volume fluctuations and significantly improved pricing.

First quarter harvest volume of 500,000 tons was 11% lower as compared to the prior quarter and 3% higher than the same period in the prior year. Export sawtimber prices increase 4% and 15% compared to the prior quarter and prior-year quarter respectively primarily due to strong demand from China. Similarly domestic sawtimber prices in U.S.

dollar terms increased 1% and 18% compared to the prior quarter and prior-year quarter respectively as a result of strong demand for construction materials, as well as the rise in the New Zealand dollar to U.S. dollar exchange rate.

Our trading segment generated adjusted EBITDA of $1.1 million more than doubling both the prior quarter and prior-year quarter.

First quarter volumes were flat to the prior quarter and 41% higher versus the prior year quarter due to increased volume from existing customers, as well as stumpage blocks acquired from third parties which allowed us to address increasing export market demand.

Average prices in our trading segment also increased by roughly 5% and 12% compared to the prior quarter and prior-year quarter respectively. I’ll now turn it over to Chris to cover real estate..

Thanks Dave. As highlighted on Page 11, excluding large dispositions sales for the real estate segment in the first quarter totaled $12.3 million on roughly 6200 acres sold which was largely made up of a large nonstrategic timberlands sale in Alabama and two rural HBU sales in Texas.

In the rural category, sales totaled $6.7 million on approximately 2300 acres at an average price of $2950 per acre. This included two sales in Texas for a total of 1845 acres at an average price of approximately $3000 per acre.

In the nonstrategic and Timberland category, we sold a nonstrategic property in Alabama totaling 3900 acres for $5.6 million in the price of approximately $1400 per acre.

Looking ahead, we have a strong pipeline of HBU opportunities with a number of prospects either under contract or in negotiation and expected to close this year to despite a relatively light quarter one. We are still on pace to achieve our full year sales and adjusted EBITDA guidance.

Overall, we remain focused on unlocking the long-term value of our HBU land portfolio with a significant focus on Wildlight, our mixed-use community development project, North of Jacksonville, site development on the initial phase of the project is well underway now with approximately 85 acres of mixed commercial highway furnished -- in residential lots being prepared for sale to developers and homebuilders.

We are now about one year into the site development and expect to hit key delivery milestones in the second half of the year including the opening of the Rayonier office building this summer, the opening of the Wildlight elementary school in fall and the announcement of single-family homebuilders before the end of the year.

We continue to be very encouraged by the interest we are receiving in the project. I’ll now turn the call back over to Mark.

Thanks Chris. As we noted in our earnings release we're on track to achieve our full-year adjusted EBITDA guidance following a solid start to the year. In the U.S. South, we continue to experience some price pressure as dry weather has led to an ample supply of logs.

However, with the recent announcement of countervailing duties on Canadian lumber imports we’re optimistic that logs prices will improve longer-term as lumber production is rebalanced and Southern Mills gain market share.

In our Pacific Northwest and New Zealand timber segments, we enjoyed a strong start to the year and are solidly on track to achieve our prior guidance. And as Chris noted despite a light Q1 with respect to real estate closings our pipeline is strong and we expect to achieve our full-year guidance.

I’ll now turn the call back to Dave for closing comments..

Thanks Mark. As you can imagine we had a very busy first quarter working through the various transactions discussed earlier. We remain committed to active portfolio management as part of our strategy for optimizing the value of our assets and achieving best-in-class returns.

Capital allocation remains a top priority for our Board and leadership team and we’re confident that the strategic actions that we've taken will benefit our shareholders.

As we've demonstrated over the past two years we’ll remain nimble and will shift our priorities as needed to capitalize on the best available opportunities to build long-term value per share.

In conclusion, I'm excited about this the strong steps forward we've made in executing our strategy and appreciative of the dedication and commitment of our employees in achieving these important milestones. I'd like to now close the formal part of the presentation and turn the call back to the operator for questions..

[Operator Instructions] Our first question comes from Mr. Collin Mings from Raymond James. Your line is now open..

Maybe just to start Mark maybe can you provide a little bit more color just around the guidance I know obviously prepared remarks you indicated that you're on track for the full year as far as adjusted EBITDA guidance but has the outlook particularly in the U.S.

South shifted around at all I mean you guys highlight may be some softness in pulpwood pricing but then you also have completed this acquisition in the U.S.

South can you provide a little more color on that front?.

Look our prior adjusted EBITDA guidance was $220 million $240 million and as we think about the year keeping in mind it’s still so early in the year we feel as though we’re well on track to achieve that even before factoring in our recent acquisitions in the South.

Again we’re still early in year we literally just closed those acquisitions a couple of weeks ago.

And so we think it's premature to update our guidance particularly given that the pro forma contribution from those properties for the balance of the year really isn’t going to be a significant [damn] relative to the $20 million range that’s embedded in our original adjusted EBITDA guidance.

So again we’re pleased with our start to the year we feel confident about the range with perhaps some upside based on these recent acquisitions. And as it relates to the South again the duty just recently got announced. We’re still sort of seeing how that is going to play out in terms of lumber prices and ultimately sawtimber prices in the South.

So I think it’s still little early to say kind of how we’re thinking about the U.S. South in particular for the balance of the year, but we clearly have some incremental flexibility around the acquisitions that we just did.

But again we’re going to remain focused on long-term value and we’re going to shift around volume as we see fit to kind of maximize long-term value. So again a little early in the year to kind of comment on the U.S. South in particular just given all the recent activity..

Okay.

But as I look back at the prior guidance of 93 to 98 for adjusted EBITDA for the South no reason to necessarily think it’s going to be higher or lower at that point you’re still just kind of seeing how the year plays out relative to that initial range for that segment?.

Yes, I think it's really going to be volume driven I think it's just going to depend on how we decide to shift around volume during the course of the year just in response to the pricing dynamic. And again I say that’s still very much in flux with the very recent announcement at the countervailing duties..

Okay.

I guess maybe along those lines Mark Dave or Doug as far as any sort of initial response from any of your customers that you’ve seen given the duty announcement last week?.

Yes, this is Dough, Collin just as Mark said it’s been so early we really haven’t seen any impact from our customers at this point in time.

There is still I am understanding talking about it and feels like folks are we’re seeing some positive signs in the market with – it’s almost [indiscernible] to look at second shifts and things like that, but not necessarily due to counter billing duties as much as it’s just demand they’re seeing as they look at housing and residential construction, things like that.

So we’re seeing some positive signs in some select areas. But with respect to the duties, haven’t really heard anything out of our customers as to how that impacts their thoughts right now..

And then, Doug, maybe just can you expand a little bit more -- I know it’s in the prepared remarks, but just on some of the softness in pulpwood pricing? I know that has been kind of a bright spot for you guys overall in context of your portfolio and where it’s positioned in the U.S. south. Maybe expand upon that a little bit more..

As you’re aware, we’re in severe drought which happens after we get the linear conditions like we’ve had in 2016 and so. We have seen an ample amount of logs in the market as Mark mentioned. And that's kind of reduced the amount of demand needed from our operation.

Another thing that was placed in the first quarter was the multiple pulp explosions that happened. So those are two of our customers, the [PC interrater and IP containment].

So both of those also shutting down for periods of time caused additional volume to be up there in the market that shifted around and moved around to different locations, which normally wouldn’t. So we just thought a lot more supply than normal in the first quarter..

Okay. And then go back to just housekeeping question I guess for Mark. It looks like the tax rate was a little higher. The income tax number was a bit high. Can you just maybe explain what’s driving that, it looks like that was delta part as far as the EPS number..

GAAP income tax expense for the quarter was $6.3 million. I mean, that’s versus a tax benefit of $0.8 million in the prior year quarter. So $7.1 million are a swing in that tax expense line item. And that’s also relative to $11 million of full-year guidance that we provided for income tax expense.

So we recognize the key one who is probably well ahead of what most of you have been modeling. Recall that our New Zealand timber segment is the primary driver of GAAP income tax expense. However, GAAP requires that we accrue income taxes during the year based on our sporadic consolidated pretax book income for the quarter.

And that’s relative to our full-year expectations. So due to the large disposition that’s closed in Q1, our consolidated pretax book income for the quarter was disproportionately high, and that was what was really driving the larger income tax expense for the quarter.

So intuitively, you’d expect that the income tax expense would accrue based on the proportion of -- the income is actually generating the tax, but that’s not the case. Keep in mind as well that our cash taxes remain relatively de minimus due to the NOLs that we have in New Zealand. But it was really just a GAAP item that occurred this quarter.

It was really kind of outsized in nature.

Appreciate the extra color there Mark. I’ll turn it over, jump back in the queue..

Thank you. Currently we have five questions in queue. And our next question comes from Mr. Mark Wilde of VMO Capital Market. Your line is now open..

Good morning, Dave, good morning, Doug. I wondered just Doug going back to kind of pulpwood for a second.

Is it possible to give us some sense of the impact of those two mill outages on your pulpwood volumes in the quarter?.

Give you some relative impact there. I think timberland particular was a large customers of ours. So before the explosion, we were sending over 150 truckloads a week to that mill. So that mill being down throughout, the quarter had a serious impact on us. Also the [indiscernible] with a shorter shutdown.

That’s another one of our primary customers that we have. And so that one was less extent but similarly still created a drag. So we saw about 30% of less pulpwood demand for our deliver program in the quarter due to those explosions..

Okay, that’s helpful. Another thing that you mentioned just briefly in the release, but we didn’t really talk about too much, I see that there’s been a big increase in southern log export volumes early in 2017. I know it's off of a low base.

But I wondered if you could talk a little bit about what's going on there, and the degree to which Rayonier is participating in that increase in southern log export sales..

You’re correct. We’ve seen a lot of demand along the Atlantic coast in particular for exports. And as you also, low base, it was a 3% of our volume in Q1 2015 of our Atlantic coast. And in Q1 of 2017, it moved to almost 20% of our grade volume coming off of our Atlantic coast.

So the significant increase over the course of the year and we just see continued demand we've had multiple new exporters come in including one has recently moved in 80 miles inland into Georgia and set up shops. So that’s good for us to see that means we’ll start to see really tension in the market as you have.

The ports kind of getting competitive and then are seeing people coming inland so we’re excited to participate in that and it’s been a very nice premium compared to the domestic market in this area. So we were encouraging it as best we can..

And Doug where exactly are those logs exports going, are they going to China but they’re also going to places like Turkey or elsewhere?.

So for the logs, they’re primarily going to China and one of the things about the East Coast over here mostly going in containers and so often they’re going more inland into China so they kind of different level of competition versus a Great Bolt is coming out of New Zealand or the West Coast so it’s give them up a little different treatment.

So a lot as we’re see going up the rivers deeper into inland China. On the Turkey side we do see demand for pulp chips going to Turkey that we’re also supplying out of the East Coast..

All right and then Dave just any general comments on the overall kind of Chinese log market as we are part way through the second quarter now?.

I think it’s been a continuing theme Mark of stable demand recognize that China instituted a curtailment of the harvest of natural forest that really went into effect fully last year. And so there was a big step shift reduction in supply.

And so it exaggerated the impact from the demand and really has benefited all the folks that are exporting logs into China. And so we are benefiting from that really and all three of our timber segments right now that the U.S. South, Pacific Northwest and New Zealand.

So we remain encouraged by that the other thing to keep in mind is that while inventories increased in the Chinese New Year this year which they do every year and they went over 4 million cubic meters. They've fallen very rapidly due to kind of that combination of stable and strong demand as well as reduced domestic supply.

And so we’ve seen those inventories come down to below a two month supply -- the demanding blow two months supply and so that has translated to some nice stable and modestly rising pricing as we've kind of come through that Chinese New Year period..

Okay.

And then I wondered just going back to this trade issue with Canada as a major timberland owner, do you have any input into this dispute or you just got to stand back and let the lumber guys fight this battle?.

We’re not formally part of the coalition and so based on that we’re sitting on the sidelines and letting the others have a direct seat at the table and that tends to be as you suggest the folks that are producing lumber.

We certainly are watching this dynamic and we’re tracking it and we continue to believe that ultimately this is going to translate to the combination of the resolution of the softwood lumber agreement and the mountain pine beetle epidemic working its way through the system it’s going to ultimately translate to more production of lumber coming from the U.S.

South and ultimately a lower market share of the U.S. lumber market that that is from Canada. And so we think the U.S.

South is in the best position to capitalize on that and so we watch capacity very closely and as Doug said earlier in the call, we've been encouraged by the capacity additions that have been announced within our footprint and we’re going continue to monitor it.

We don't necessarily see this as a fast response but we think directionally it’s moving in our favor..

Okay.

And then finally Dave if I could one of the trade papers recently had an article suggesting some cooling in the Southern timberland markets I assume you seen this and I wondered if you had any thoughts on that?.

Our view is always been that it really is quality dependent and I think that you’re seeing a mix of quality assets there's plenty of deal flow right now but there's a mix of assets. Certainly at one end of the spectrum you have the transactions that we recently completed, that were very high quality assets in high quality markets.

There are other assets that are going to be at lower quality and I think that depending on how you look at markets and which of those assets you're looking at, it’s going to color your view of markets.

But I think we still are seeing strong market dynamics in terms of capital trying to get into the asset class and I don't know that we espoused to the markets cooling as much as we do really been driven by the quality of the assets that are out there..

Okay. Fair enough. I’ll turn it over. Thanks very much..

Our next question comes from Steve Chercover of Davidson. Your line is now open..

Thank you, good morning everyone.

The first question is just, I guess I should get a hearing aid, I heard that the site index is 78 feet, what was the second number that you provide Dave, this is the land you acquired?.

That was 4.7 tons per acre per year as the sustainable harvest level coming from those land..

Great. Thank you for that. And then second question switching gears, I think the New Zealand started to surprise you guys to the upside at the beginning of 2016 and it seems like it's even building on that momentum, so is that sustainable? Is somehow New Zealand benefiting from the strong U.S.

dollars with the Chinese going there, or is it also domestic situation?.

I think it’s a lot of things Steve. I think that the one - we have always been fairly bullish on New Zealand just based in part on the - the underlying productivity of the lands and the access to markets, and I think that what we saw last year were a number of factors that contributed to that.

I think the one area that perhaps if you want to put it into the bucket of surprises was the effectiveness of the reduction in domestic harvest in China.

This has been something that's been attempted before, it's been widely reported that there was overharvesting for a long period of time and so it was really the effectiveness of that domestic harvest ban and the impact then that that had on the market.

And so I think that catalyzed the market to some degree last year and then we had - we also had the confluence of a very strong domestic New Zealand market, the Auckland market is one of the fastest growing markets in Asia and so we are seeing very strong domestic demand, the domestic market has taken market share from the export market in that period of time.

So we are now at about 55%-45% mix of domestic to export. And then you also have a strong and growing market in India. So you had all of those market factors that were taking place at the same time while you also had low oil prices and an abundance of ships that kept shipping rates low. And then you had strong currency on top of it.

So you really had all the planets lined up last year and we're seeing more of the same this year. We've seen some increase in shipping rates but generally we remain pretty bullish and pretty encouraged by what we've seen out of New Zealand this year..

So no regrets as to the increasing ownership of the JV?.

None whatsoever..

My last question again, forgive me if I might've missed it, but in southern sawtimber, the price is about as flat as a board.

So when do you expect tension in that market that will help elevate prices?.

I think it's quite variable. In our discussions with investors, we are focusing on the relative build in inventory across the U.S. south and we continue to believe and see that there is going to be very variable price elasticity going forward.

And in some of our more tensioned wood baskets, we're experiencing that price elasticity now and in other wood baskets that are less tensioned, we're not.

And I think it it's been to some degree exacerbated by the weather factors and the demand reductions associated with these two pulp mill incidents that Doug referenced that I think have exaggerated perhaps some of the effects.

The La Niña conditions that have currently translated to a lot of dry weather in abundance of supply, as well as the demand reduction, neither of those two things are going to be long-term in nature.

And it’s one of the reason that we’re remaining as Mark talked about earlier we’re taking a fairly nimble approach in terms of how we think about volume and it’s one the reasons that we deferred some volume late last year and that really gets back to what Mark was commenting on as well in terms of maintaining the flexibility going forward for the balance of this year..

But overall you believe your Southern lands are situated in regions that should see tension as housing picks up towards 1.5?.

Yes, this is Doug. I believe so. We’re tracking around 16 million tons of additional capacity announcement that have been announced across our Southern footprint and about half of that is in the pulp, pellets business and about half of that is in lumber. And so as those come into play we do believe that’s going to be positive.

Now some of those are 2017, 2018 type things or maybe beyond even further for pulp mill. But along those lines that’s kind of capacity that we’ve seen that’s been announced..

Great, thank you..

And Steve I would just add to that I mean clearly the softwood lumber dispute has exacerbated the supply demand and balance in South and you really saw U.S. lumber production flat line over the course of last two years with the expiration of managed trade.

And so again I think we're optimistic about the impact that – the duties as well as some ultimate resolution of that softwood lumber dispute will have on our markets..

Thank you all..

Our next question comes from Chip Dillon of Vertical Research. Your line is now open..

Good morning Dave and Mark. First question is I know we were talking about the strength in New Zealand.

Is there any chance that as we think about, and I know it's early in the year, the 2017 guidance and maybe that range might either be tilted up a little bit; I know you're looking for $64 million to $68 million in EBITDA from that area?.

Yes, it’s still really early in the year and so we don't get too specific around each of the individual segments but clearly as you kind of think about that the start to the year I think we’re still kind of remaining the most cautious around the South, Northwest and New Zealand obviously had strong start.

In real estate we're light in Q1 but we still feel good about the full year guidance there. And so directionally that’s kind of where we’re at but again still a little early in the year to update our guidance, but if we see material move we’ll certainly keep you posted as the year progresses..

Okay. And I noticed earlier in the call you didn't really want to make any changes to the overall - either Southern or overall EBITDA ranges of. But when you think about - at least what I read from the offering and from the transaction that you just closed, looks like that annualized the EBITDA should be about 13 million of a contribution.

And I guess, and maybe that’s based on getting up to the 450,000 incremental tons which I know is more of a sustainable number, but could you talk about two things, the ramp to the 13 million and the 10 million of CAD, when do we expect to get there, would we see any of it this year? And then maybe secondly, just talk a little bit about how you look at these returns versus the equity issue that I suppose was used to pay for roughly half of the acquisition?.

Sure, I mean as Mark touched on earlier we just literally closed on the last of these transactions a couple weeks ago. So we’re getting our feet wet in terms of deliveries.

We’re in the process right now of determining how much of that’s going to come during 2017, but I think that certainly as we look ahead at 2018 and beyond we feel like we’re going to be at those run rates that you described of the 13 million of EBITDA and 10 million of CAD.

And then broadly as it related to the equity issuance we looked at this very carefully and we didn't take it lightly and we said in the past we would considering issuing equity at the right price for the right opportunity.

We do believe that this particular opportunity represented a compelling use of equity capital and we believe that the acquisitions is going ultimately be accretive to our NAV per share over time well beyond any NAV dilution that we may have realized from the equity issuance and we employ a fairly rigorous analysis regarding our own internal view of NAV.

And we were constantly weighing capital allocation alternatives such as this on the basis of this NAV tool and when we’re valuing acquisitions we compare them on an apples-to apples basis with how we internally value our own assets in terms of both price forecast and discount rate.

Ultimately we concluded that these properties were very attractive assets that have upside value relative to our purchase price. And so the markets with in which these are located are also the strongest three markets in the U.S.

South and it kind of gets back to the earlier discussion on the call in terms of being in tensioned markets and we’re always happy to add more assets in tensioned markets and recognize as well that we’re the largest player in these markets.

And so we know these markets and we feel that were uniquely positioned to maximize value from these acquisitions. So we believe it's important to consider the merits of an equity issuance relative to the use of capital.

Our thinking on the merits of this particular equity raise were predicated on the value opportunity we saw in this particular set of acquisitions and we think as long as we can continue to be disciplined on that front that we can use our currency to generate value accretion over time.

And it's worth noting that also that in the last two years that we repurchased 4.2 million shares of our stock at an average price of $23.76 and so in issuing stock at $27.75 we realized about $4 spread and we continue to believe that it's important to always maintain the nimbleness and some dry powder as we stand ready to capitalize on any value accretion opportunities that we see available to us whether it's in the context of acquiring new assets or re-purchasing our own shares in the market..

Okay, that’s very helpful, and one more quick one.

As you look out over the 2018, 2019 and 2020 period do you directionally and certainly it depends on how among other things [indiscernible] kind of unfolds but do you think the $52 million to $60 million kind of EBITDA range, is that likely to be moving more upward more downward or just kind of choppy around that range.

And then maybe lastly when you think about the 95,000 acres you bought they all seem to be relatively close to I95 and I know there is some very empty spaces still along the highway. But that doesn't mean that in five or 10 years whether it’s warehouses or other types of development could occur.

Is there some optionality on these 95,000 acres in your mind, you might not have valued it as such when you made your deal, but do you think it's reasonable that if things progress that you could see some HBU potential among these acres?.

Yes, this is Mark, I’ll take this question.

Your first of all on the $50 million to $60 million of EBITDA, I think that that’s a pretty reasonable expectation of run rate and we certainly expect some price growth over time that would generate some growth there but when we talk about our HBU business we generally talk about it in terms of expecting to sell 1% to 1.5% of our [fee] [ph] land base in the South annually and that translates into you kind of just look at how the business has developed over the years.

I expect that we’re going to sell probably 20,000 to 30,000 acres a year into those HBU markets. And you kind of see the price premiums.

I think the last couple years we've averaged 2500 to 2750 an acre, so that kind of gives you a sense as to our kind of run rate expectation for that business and I think it was generally kind of translate into a similar range to what we're forecasting for this year.

And so as it relates to the upside potential in the recent acquisition you know it’s absolutely something that we see is creating some upside over time. We didn’t underwrite it into our acquisition underwriting. We didn’t need to.

This was a property from a timber standpoint really supported the valuation without that but clearly these markets are again in that sort of path of growth in the I95 corridor and so we do see some upside there over time keeping in mind that because the timber value here is so high it’s sort of hurdle rate to actually sell into that HBU market is going to be materially higher as well..

Chip another thing to think about it is that there's a portion of those assets that actually have HBU value from an agricultural conversion and that's not something that you see very often, but it speaks to when you have site index that’s that high and you see surrounding lands that are in active agriculture, it’s suggestive of that.

So that's another thing that will certainly look at over time but again we didn’t build any of that into our underwriting?.

Great, thank you..

Our next question comes from Mark Weintraub of Buckingham. Your line is now open..

Thank you. I was hoping to delve a little bit more into the lumber side, the implications on getting more tensioned into the U.S. South, and in particular you have a sense - because obviously the sawmills are making a lot of money now down in South.

What are the constraints of your customers to producing more, and there is always kind of this concept that you could add shift and things like that and while you are seeing some increase in production maybe it hasn’t been quite as fast as what I might have anticipated given the levels of profitability, did you have a sense what the constraints are for your customers?.

I think that one of the things that the lumber business in particular has had times in the past where folks have been burned by moving too quickly and I think that to their credit a number of them are being cautious and you also look at a number of facilities that have been acquired in recent years.

And those facilities have undergone quite a bit capital infusion to improve operations on an existing one shift basis and I think that we’re likely to see this in increments where you see first of all the one shift operations improve from a productivity standpoint, and then you’re going to see increased hours and you’re going to see both of those things before you see the addition of shifts.

And I do think there's in certainly talking to some of our customers there some labor constraints; sawmills are much more specialized from a labor standpoint now than they were a few decades ago. And so you're dealing with the need to bring in some specialized skill sets in order to add incremental shifts.

And so I do think that that plays a role in moderating the pace at which new capacity can be put in place, but nevertheless note the numbers that Doug cited earlier in terms of the capacity additions that we were aware of they are kind of marching forward at a pretty steady drumbeat right now..

And do you have a sense as that profitability has gotten even higher at least in the immediate, but there is a potential for fairly quick supply response or anything that’s going to happen it’s going to impact the market 12 months, 24 months ahead as opposed to there being flexibility in the system to take advantage of what is increasingly high profitability?.

I mean to some extent we’re a little agnostic on that. We have been trying to make all of the portfolio moves and asset management moves on our end to be flexible and to retain that flexibility to be able to respond whether it’s short-term as you suggest or longer term.

I think that our own internal view is more moderated that we believe it's not going to happen overnight, but when it does happen we’re going to be ready for it..

Okay. And then lastly….

Hi Mark, this is Doug. So I was just going to add when I talk with customers the thing that Dave brought up primarily was around labor and that is one of the constraining factors [indiscernible] to gear up to the second shift and things like that is finding skilled labor, so that’s often one of the first things I hear.

So they’re realizing that the probability but they are also trying to figure out how to staff up and get there. So that is still a concern..

Okay, great.

And then actually and obviously you got out of the sawmill business; if there were an acquisition alternative that might include some converting asset is that something that you wouldn’t be interested or you could be interested in with the idea of getting – of selling that asset or does it make it a non-starter?.

Well, we generally don't want to comment on M&A but I go back to the tenets of our capital allocation is to be nimble and opportunistic.

And so you never want to say never but I think that we certainly like our pure play timber posture, we think it gives us a lot more focus as this market and this industry has proven over the decades it's very hard to manage an integrated operation well..

Okay. Thank you..

Our next question comes from Paul Quinn of RBC Capital Markets. Your line is now open..

Thanks very much and good morning gentlemen. Just had a couple of questions, one on U.S. saw log pricing just because you haven’t had enough questions on this, but you signal that price is down in the quarter on mix. And if I look at timber [indiscernible] it’s really been down for the last three years maybe flat in some markets.

Maybe you could give us an idea of how that's moved around on a regional basis especially for where you've got timberland located.

And then just on the export side you mentioned that there's premiums in the export market just wondering what those premiums are and why they're not showing up in your realizations?.

Paul this is Doug, I'll handle that question. So what we’ve seen in particular over the last two or three years is a lot of import of [plywoods] [ph] in South America, so that’s decreased the demand for the large [sawlog size logs][ph] in the South where primarily are Gulf state regions support that market.

So we seen a reduction in mix of our large [sawlogs] [ph] which carry often $5 or $10 premium over regular kind of chip-n-saw type lumber because they are much larger log and you grow it longer time.

And so as we’ve seen less of that volume we actually had more volume coming on in the Atlantic Coast and so it's a matter of that geographic mix where we’re seeing premiums, I don’t to want say too much about the premiums of the export side because we create the market we’re in and don't really want to give away too much the secret sauce there.

But that helps to offset the weakness and the demand for the large [sawlogs] [ph] and that’s why I think it’s been relatively flat. If we look at that way so we’ve been lower volumes on the large [sawlogs] [ph] and more volume in kind of the 7-8 inch [indiscernible] higher pricing than historical..

Okay. And then I guess just taking a look at I think Mark you made a comment that U.S. production on the lumbar side is flat line over last couple years and I don’t know the data I’m looking at is WWPA which shows a 3.4% increase in 2016 and 1.1 billion board feet and I guess the question I've got is more around what you're seeing in the U.S.

South in terms of lumbar capacity additions, because that production was up according to WWPA anyways somewhere around 700 million or 4.1% of production gain in 2016, just wondering if you think that's sustainable or do you think that accelerates going forward specially with respect to the trade fall?.

Paul we can compare notes on data sources but on we got a slide on our investor deck basically showing it’s been relatively flat in the last couple years and I think that’s looking at aggregate U.S. lumber production. And that’s relative to obviously housing market that’s continued to improve modestly year-over-year.

And so look there has been a pretty discernible trend in the growth of Canadian lumber imports and I think that’s taken up a lot of the incremental demand that’s come from housing.

And we do believe that that the expiration of managed trade has impacted the market and that’s obviously had a disproportionate impact on the markets in the South in terms of the volume of production. Again, we can kind of compare notes on data sources there but that’s what our data is showing..

So far as the lumber production or lumber capacity increases that you're seeing in 2017 and 2018 do you think like I guess I'm trying to understand whether that production you see that accelerating going forward or declining or being stable or how do you look at that going forward?.

Paul this is Doug, again like I mentioned before we’re taking about 9 million tons of increased capacity for logs across our southern footprint and I see that there's a lot of interest right now moving forward with that so I think it's still moving forward as we go.

Of that 9 million tons around $5 million of its kind we have direct exposure to, so these are customers in markets close to our land that we interact in and another 4.5 million of that we’re working with that wood basket, so we sell wood and they [indiscernible] mills but they’re secondary to our standard supply..

Okay.

And then of that five direct is that split 50/50 between pulp logs and sawlogs?.

That’s all sawlog demand..

That’s all sawlog. Excellent, thanks so much guys. Best of luck..

We have two more questions in the queue and the next question comes from George Staphos of Bank of America Merrill Lynch. Your line is now open..

Hi, good morning, this is actually John Babcock on the line for George. Just wanted to clarify, did you say earlier that you expect at some point to sell 25,000 to 30,000 acres into the HBU markets.

This seems like little bit of an uptick from here and then I was also wondering if that’s correct generally when we should expect you guys get to that run rate?.

What I said is I think we generally expect to sell 20,000 to 30,000 acres annually. It’s going to be in that range and if you look at last five years it’s typically been in that range and so I think it’s not that we’ll get there at some point that’s more or less our run rate volume in that segment..

Okay.

That was all real estate, not necessarily HBU specifically?.

Yes, although most of our real estate business because we exclude large dispositions, we consider the sales that flow through our real estate segment as primarily being HBU..

Okay, I appreciate that.

And then since most of my other questions have been answered, the only one I had was just if you can provide ending share count?.

It’s plus the 5.75 million shares that we just issued so it’s right about 129. There will obviously be in the cover of the Q when it comes out in a couple days, but it's just going to be the last quarter’s ending share count plus the 5.75 million shares that we issued order of magnitude..

Okay, that's all I had..

We still have two more questions in queue. And the next question comes from Mr. Collin Mings from Raymond James. Your line is now open..

Thanks great. Just two follow-ups from me.

First one, I’m just curious Doug and Dave, how you think about the availability of logging crews and how that could play into the whole dynamic here of kind of the- if we do get some more lumber production and some more demand for logs, how you think about some of the benefit flowing to some of those third party crews versus actually back at the stump given some of the reduction in that work force over the couple of years now?.

Good question, Collin. What we’ve seen typically the industry because it’s working under wet conditions unlike a little bit right now in the at least in the Atlanta Coast although it’s flooding over in the Gulf state is that there is about 20% kind of surplus of logging capacity to overcome the impact of wet weather and things like that.

So right now it feels like there's still some additional capacity to move things but as we go forward if things really do ramp up and get going two or three years out and we don’t see increasing in log supply, I think it’s going favor those of us who have large landholdings and large volumes because typically we’re able to offer a year round work for the folks and we believe that’s important to being a large landowner.

So we think we’ll be on the right side of that and have access to those crews and capabilities..

And just a follow-up I know you addressed Mark’s question earlier as far as the timberland values in the U.S. south but just curious especially given that you guys seem to have a bias toward some of these off market deals and some of the stuff that [indiscernible] see packages on or the details out there in public.

Just curious deal volume not so much just in terms of pricing but just what are kind of deal flow coming across the desk right now?.

I think we’ve continued to see quite a bit of deal flow. I think that it’s still is a heavier deal flow in the South and then less so in the Northwest and then even less in New Zealand, but I don't know that we've seen a material change in the gross deal flow..

All right, I'll turn it over. Thanks again guys..

And our last question comes from Mr. Mark Weintraub of Buckingham. Your line is now open..

Thank you. Just one quick follow-up, on that 9 million tons of incremental demand for sawlogs in your southern wood basket.

What’s the existing pull on sawlogs in that basket right now?.

Mark, I don't have that number handy for you right now but someone would try and get back with you offline..

Okay. Thank you..

We show no further questions at this time. And I will turn back the call over to Mr. Mark McHugh..

Thanks everybody for joining and feel free to follow up with me if you have any additional questions. Thank you..

That concludes today's conference. Thank you for your participation. You may disconnect at his time..