Mark McHugh - Senior Vice President and Chief Financial Officer Dave Nunes - President and Chief Executive Officer Doug Long - Senior Vice President, U.S. Operations Chris Corr - Senior Vice President, Real Estate.

Collin Mings - Raymond James Paul Quinn - RBC Capital Markets Ketan Mamtora - BMO Capital Markets Mark Weintraub - Buckingham Research Group Chip Dillon - Vertical Research James Armstrong - Armstrong Investment Research.

Welcome and thank you for joining Rayonier’s Second 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 second quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com.

I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities Laws. Our earnings release and 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. Good morning, everyone. I will make some overall comments before turning it back over to Mark to review our financial results. Then we will ask Doug Long, our Senior Vice President of U.S. Operations to comment on our U.S. Timber results.

I will 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. We are pleased to report solid second quarter results reflective of the quality and diversity of our timberland and real estate portfolio.

For the second quarter, we achieved EPS of $0.20 per share and adjusted EBITDA of $86 million, which represents a significant increase from the prior year second quarter. While adjusted EBITDA in our Southern Timber segment was relatively flat, all three of our other key operating segments registered meaningful increases in adjusted EBITDA.

In particular, our New Zealand Timber segment continues to generate strong operating results, which were further aided by timberlands sale in the second quarter. Our Southern Timber segment results reflect modestly higher volumes, but lower average stumpage prices relative to the prior year quarter.

Pricing in our Southern Timber segment was impacted by salvage volume from the West Mims fire as well as $1.1 million of related costs, of which Doug will provide some additional details as part of his remarks.

Our Pacific Northwest Timber segment results improved versus the prior year quarter driven by increased sawtimber pricing in a more favorable species mix due to the Menasha acquisition. Lastly, our Real Estate segment had a very strong quarter based on a higher number of acres sold and higher pricing.

With that, let me turn it back over to Mark to review our financial results..

Thanks, Dave. Let’s start on Page 5 with a review of our financial highlights. Sales for the quarter totaled $195 million, while operating income was $47 million and net income attributable to Rayonier was $26 million or $0.20 per share. Pro forma EPS was also $0.20 per share as we had no pro forma items in the quarter.

Second quarter adjusted EBITDA of $86 million increased by roughly 90% relative to the prior year quarter adjusted EBITDA of $45 million driven primarily by significantly higher results in our New Zealand Timber and real estate segments.

As Dave noted, New Zealand results were positively impacted by a timberland sale, which contributed $23.8 million of adjusted EBITDA and $8.2 million of net income attributable to Rayonier or approximately $0.06 per share.

On the bottom of Page 5, we provide an overview of our capital resources and liquidity at quarter end as well as a comparison to year end.

Our cash available for distribution or CAD the first 6 months was $97 million compared to $57 million in the prior year period primarily due to significantly higher adjusted EBITDA partially offset by modestly higher capital expenditures.

A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 8 of the financial supplement. We closed the quarter with $137 million of cash and roughly $1.1 billion of debt. Our net debt of $932 million represented 20% of our enterprise value based on our closing stock price at quarter end.

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

Thanks Mark. Good morning. Let’s start on Page 9 with our Southern Timber segment. Adjusted EBITDA in the second quarter of $22 million was $5 million favorable to the first quarter essentially flat compared to the same period in the prior year.

Second quarter harvest volume of approximately 1.4 million tons was 22,000 tons lower than the prior quarter, but 174,000 tons higher than the prior quarter primarily due to additional volume harvested from recent acquisitions.

Overall, we kicked our harvest levels in the first half of this year as a more typical run-rate as compared to last year and we had accelerated harvesting early in the year due to some wet weather conditions. As Dave mentioned, during the quarter, we were impacted by the West Mims fire in Georgia and Florida.

In total, this fire has spread over roughly 152,000 acres after starting the Okefenokee National Wildlife Refuge and affected approximately 10,000 acres of our neighboring ownership.

Our crews with the assistance of contractors and state and federal firefighters did a remarkable job of containing this fire for several months under pretty extreme conditions. I am very proud of how they professionally and safely assisted government agencies and things like wildfire.

Ultimately, we sustained damage to approximately 6,000 acres of plantations, which we are currently salvaging. We also incurred $1.1 million of cost in the quarter related to the fire, of which $800,000 was a write-off of pre-merchantable timber inventory and $3,000 which were firefighting costs.

This fire salvage volume impacted our pricing in the second quarter and we anticipate that it will continue to impact pricing in the third quarter as well. Second quarter pine pulpwood prices of $15.62 per ton were 10% and 15% unfavorable compared to first quarter and the same period in the prior year respectively.

The decrease in prices relative to first quarter was heavily impacted by lower price salvage volumes whereas the decline compared to same period in the prior year was largely due to continued ample supply from extended dry weather conditions.

Excluding the impact of fire salvage volume in the second quarter, we estimate that weighted average pine pulpwood pricing was down roughly 5% versus the first quarter and 10% versus the prior year quarter.

Pine sawtimber prices of $25.66 per ton were 3% and 5% unfavorable as compared to the first quarter and the same period in the prior year respectively. Excluding volume from salvage sales, pine sawtimber prices were up about 2% versus the prior quarter and roughly flat to the prior year quarter.

Regionally, we continue to see some variability in sawtimber pricing with lower demand for plylogs in our Gulf States regions being offset by increased demand for export logs along the Atlantic Coast, which continues to be a growing market for us.

Hardwood prices of $11.65 per ton are 6% and 7% higher than the prior quarter and the prior year quarter respectively. In both cases, the increase in prices was primarily due to variable changes in product mix and some slight improvement in [indiscernible] pricing.

Now moving to Pacific Northwest Timber segment on Page 10, adjusted EBITDA in the second quarter of $5.5 million was $4 million unfavorable compared to the first quarter primarily due to the strong first quarter harvest volumes and $700,000 payable compared to the prior year quarter, primarily due to the higher softwood prices.

Second quarter harvest volume 225,000 tons were 31% lower relative to the prior quarter and 3% higher in the same period in the prior year. Delivered sawtimber prices of $81.93 per ton were 9% and 10% higher than the prior quarter and the same period in the prior year respectively.

We continue to experience improving export and domestic markets across all species in our Pacific Northwest segment. With the unfortunate fire cease in British Columbia and the recent imposition of fire restrictions on harvesting in portions of Oregon and Washington, we believe that markets will remain tight for the balance of the year.

Delivered pulpwood prices of $39.38 per ton were 2% favorable to first quarter due to geographic mix and a 8% unfavorable to the prior year quarter due to the combination of increased availability of residual chips in the open market and increased volume for Oregon which generally commands lower pulpwood pricing.

Now Dave will review New Zealand Timber results.

Dave?.

Thanks Doug. Page 11 shows results in key operating metrics for our New Zealand Timber segment. Our New Zealand Timber segment delivered another strong quarter driven by continued strong market conditions as well as the timberland sale during the quarter.

Adjusted EBITDA of $42 million was roughly $26 million favorable to both the prior quarter and the prior year quarter on the strength of higher domestic and export sawtimber prices as well as non-strategic timberland sales totaling $24.3 million for roughly 9,600 productive acres of leased timberland.

These properties are [indiscernible] non-strategic to Matariki as they were geographically isolated from Matariki’s core holdings and customers. Export sawtimber prices increased 2% and 16% compared to the prior year – to the prior quarter and prior year quarter respectively due primarily to strong demand from China.

Similarly domestic sawtimber prices in U.S. dollar terms increased 1% and 11% compared to the prior quarter and prior year quarter respectively as a result of strong local demand for construction materials, robust lumber export market as well as a modest increase in the New Zealand to U.S. dollar exchange rate.

Our trading segment generated adjusted EBITDA of $1 million in the second quarter on sales volumes that were roughly 21% higher compared to the prior year period due to increased volumes from existing suppliers and stumpage blocks purchased from third-parties coupled with improving export market demand which translated into a 15% average price increase relative to the prior year period.

I will now turn it over to Chris to cover real estate..

Thanks Dave. Our real estate segment had a very strong quarter with sales totaling $26 million which consisted of roughly 7,600 acres at a weighted average price of $3,356 per acre excluding improved development.

Adjusted EBITDA for the quarter was $21.5 million, market interest remained strong particularly in Florida and Texas and our current pipeline of opportunities is robust. Page 12 provides an overview of sales by category.

The improved development category reflects our first closing on Wildlight, 1.3 acre site for $425,000 on which the purchaser intends to construct an office building adjacent to the new Rayonier headquarters building.

Activity in the unimproved development category reflects a sale in Florida of 130 acres to a national homebuilder for $2.5 million or roughly $19,200 per acre. In the rural category sales totaled $5.5 million on approximately 1,700 acres at an average annual price of $3,178 per acre.

This included a significant sale in Texas of 1,000 acres for $3,150 per acre. In the non-strategic and timberland category we sold 5,700 acres for an average price of $3,050 per acre, which included a conservation sale 1,994 acres for $3,200 an acre as well as a timberland sale of 1,327 acres for $4,000 an acre. Both of those were in Florida.

Looking ahead, we have the strong pipeline of HBU opportunities with a number of prospects either under contract or negotiation. In particular, we are excited about the pace of activity in our wildlife community development project.

We recently announced the first two homebuilders for the project and we look forward to providing additional news as the year progresses. I will now turn the call back over to Mark..

Thanks Chris. As noted in our earnings release, we are increasing our full year adjusted EBITDA guidance to $255 million to $270 million and our pro forma net income guidance to $50 million to $55 million.

With respect to our individual segments, we generally expect Southern Timber, Pacific Northwest Timber and real estate to achieve adjusted EBITDA in line with the original segment guidance provided in our Q4 2016 earnings supplement, while we expect New Zealand timber and trading to contribute adjusted EBITDA significantly higher than our original segment guidance.

Please note that in our earnings release we have a detailed reconciliation of our adjusted EBITDA guidance for our pro forma net income guidance [indiscernible].

As we look into the second half of the year, we anticipate continued strong performance in New Zealand export and domestic market as well as strengthening sawtimber prices in the Pacific Northwest. With respect to our Southern Timber segment, we expect harvest volumes towards the higher end of our prior guidance.

Our near-term product pricing will continue to be impacted by additional fire salvage volume and changes in regional mix as our summer harvest shifts more heavily to the Gulf States region.

In our real estate segment, we expect to achieve our prior full year sales and adjusted EBITDA guidance, however we expect relatively light closings in the third quarter followed by a strong fourth quarter.

As we stated in the past, our real estate results will be lumpy from quarter-to-quarter as we seek to enter into transactions opportunistically in an effort to maximize long-term value. I will now turn the call back to Dave for closing comments..

Thanks Mark. Overall, we are very pleased with the quarter and optimistic about our outlook for the balance of the year. While the sawtimber price recovery in USL has been slower to materialize the most would have anticipated. We remain optimistic about the long-term prospects for the U.S.

housing market and believe we are well positioned to capitalize on the recovery with great timberland assets located in strong markets. Despite softness in USL, our overall performance has continued to improve based on the quality and diversity of our timberland and real estate portfolio.

We continue to be intensely focused on active portfolio management, while maintaining a disciplined and nimble approach to capital allocation. Before we close our prepared remarks, I would also like to update you on the progress we have made on our Wildlight project.

I am pleased to report that we recently completed construction of our new headquarters facility and received the certificate of occupancy on June 1. We have since successfully moved more than 100 employees into the new building, consolidating two of our three leased offices with the third office scheduled to move in mid-August.

As we have discussed before, we believe that having the company’s management and operational personnel together in one office will promote more efficient communication and decision making as well as contribute to a stronger organizational culture.

We are appreciative of the dedication and commitment of our team in achieving this significant milestone. And we are also excited about our new office serving as a cornerstone for the Wildlight development project. We recently announced the selection of two homebuilders [indiscernible] and Dream Finders Homes to build the first homes in Wildlight.

We expect our first residential lot closings and the start of model homes in the second half of the year. Lastly, construction of the Wildlight elementary school is complete and it will open with approximately 600 students next week.

Wildlight is an important catalyst for unlocking the value potential of our landholdings in Northeast Florida and we are very pleased with our progress to-date on this project. I would like to now close to formal part of the presentation. And we will turn the call back to the operator for questions..

Thank you. We will now begin the question-and-answer session of today’s conference. [Operator Instructions] And our first question is coming from Collin Mings of Raymond James. Your line is now open..

Thank you good morning guys..

Good morning Collin..

Starting with New Zealand, it looks like you guys both sold and bought some land in New Zealand during the quarter, can you maybe just put a little more color on what drove the per acre pricing and the decision [indiscernible] in New Zealand maybe talk about what you acquired during the quarter there as well?.

Sure as the – as t relates to the harsh portion of the question regarding pricing you are going to always have considerable variation in pricing based primarily on H+ distribution and so just as we discussed in the U.S., we tend to not want to focus too much on the per acre valuation, I think the main driver in both what we bought and what we sold in New Zealand really had to do with the fit with our – with the balance of our portfolio.

We sold some isolated parcels that were both further away from our existing operations as well as having longer haul distances to customers and the lands that we bought were also much more centrally located to our existing operations as well as having better logistics with customers and fit with our other harvest operations.

So, we saw it as a nice operational trade in terms of managing those assets..

Alright.

And then maybe just Dave looking ahead as we think about New Zealand, can you discuss the potential implications of your JV partner in the region looking to liquidate its fund and the potential acquisition opportunity that might present itself to you guys?.

Yes. As you know, the shareholders of Phaunos Timber Fund, our minority partner in the New Zealand JV recently voted to wind down the fund by liquidating its assets and the Matariki stake is Phaunos’ largest holding comprising roughly half of the appraised value of the fund.

And generally, our policy is not to comment on M&A until there is something specific to comment on, but of course this is a unique situation that we are monitoring closely. And I’d say that at the right price we would certainly be interested in consolidating our ownership position in New Zealand..

Okay. Then just one more for me and then I will turn it over. Chris, can you just maybe expand a little bit as far as the potential timing and volume as it relates to residential or any other potential commercial real estate sales and Wildlight to go through the remainder of the year.

How does the kind of the arrangement you have worked out with Dream Finders and DS aware as far as the take down of residential lots in Wildlight?.

Sure, Collin. We’ll look at just back up to some of Dave’s comments I think we have always focused on this fall as significant kind of milestone with the opening of the Wildlight elementary in the Rayonier headquarters building.

So, those strategies are catalysts for the project and so we are getting significant amount of traffic in people through the project now with the school opening 600 students next week, the Rayonier office building and that just enhances the exposure along with the traffic that’s already there on a A1A and I-95, so as a follow-through all of that is promising and on track.

In terms of overall construction timing where we are focused on the first set of residential lots that’s where Dream Finders and DS were we will be starting model homes over the next 60 days or so. So as models and specs get going through the fall we will be positioned for showing really well in the spring next year, the spring selling season.

Those guys are committed to taking down a portion of that first set of about 80 lots that happened and then we kind of roll from there. We have also got good interest on the commercial properties.

You know that remember the way this works is we are focused on this kind of core commercial area to be a catalyst for the bigger residential, because you are creating a quality of living here and that little core village we have got a number of properties that have active interest with the opportunities in various stages are becoming, so on track the market remains good, the marketing center is scheduled to open soon and so ramping up well..

Appreciate the color, guys. I will turn it over. Thanks..

And our next question is coming from George Staphos of Bank of America/Merrill Lynch. Your line is now open..

Good morning. This is actually John [indiscernible] for George.

Just to start out, I was wondering if you could talk about the corporate relocation there, any potential impact on the income statement and if there is an impact how we should kind of think about that going forward?.

In terms of impact, the financial statement, what we said last year is that we expected to save about $0.5 million in terms of the carrying cost of our new office building relative to the lease cost associated with our lease offices. And so there is not going to be a material impact to our P&L as a result the office move.

Really, the impact is more organizationally around the culture and having everybody under one roof in faster and more efficient decision-making..

Okay, thanks for that.

And then can you remind us also with regards to the seasonality across different regions from a harvest viewpoint as well as typical price entrants?.

Sure, John, this is Doug Long.

Typically, what we see is as we go into third quarter in summertime conditions that our operations in Arkansas are areas that we typically pickup volume removals and so the Gulf States we shift them, harvest over that region and that’s typically one of our lowest price regions for our stumpage sales results and so that’s where you have kind of given little bit of guidance there towards that.

So, it’s about the weather as much as anything. Lot of land we purchased there are on old farm fields and until they dry out, it’s hard to have harvesting and then we see a shift if you look back last year at our kind of financials and look at this year, you will see it’s a kind of a Q3 ship leasing..

I mean, I’d say John we generally go into the year with the expectation that we don’t have a lot of seasonal variation but invariably weather events will impact that to some degree. So, for example, last year we had a very strong Q1 that was weather driven this year Q1 was I would say the more normalized level.

And so I think across all of our segments, if you look at kind of first half results were generally trending in line with our full year harvest volume estimates..

Okay, thank you.

And then if you could talk about real estate, you mentioned that volume is maybe a little bit late in 3Q, I was wondering if you could provide some quantification there, if at all possible? And then also generally I assume it’s timing, but if there is anything else involved there, that will be great?.

Yes, it’s really just timing. We had a very strong Q2. We had a number of larger transactions closed in the quarter. Based on our current expectations, Q3 is going to be fairly light.

We don’t like to give – look, generally we don’t give quarterly guidance at all around real state, because it does tend to be pretty lumpy and it’s difficult to say with precision when transactions are going to hit, but our current expectation is that Q3 is going to be relatively light.

So, we did want to provide some color on that, but then we would expect to make up the balance of that in Q4, so again not providing any specific guidance, but I would say we expect it’s going to be heavily back-end loaded. We still expect to achieve full year guidance, so that should give you some color on sort of what the balance is there..

Okay, great.

And then the last question I had is I was just wondering if you could talk about some of the demand trends that you are seeing from on the pulpwood side from some of the paper containerboard mills, etcetera?.

Yes, I would say we are pleased that we have seen lot of the mills coming back online and particularly have a lot of downtime typically you do have in the spring, but then also some of the explosions of the things we had.

So, as you mentioned, containerboard in particular being those markets are all going well for our customers and so we have seen continued demand there. It’s really more about downtime that we had from unexpected shutdowns and things like that in the first half of the year.

So, we are expecting stronger demand as we go into the second half of the year..

Okay, thanks for your help..

Thank you. And our next question is coming from Paul Quinn of RBC Capital Markets. Your line is now open..

Yes, thanks very much and good morning, guys. Just maybe an overall question just on your timberland markets, it looks like New Zealand is obviously doing incredibly well here with the strong China demand and Pacific Northwest is also benefiting from that. It looks like the USO continues to lag.

I guess I am just trying to understand where you are expecting pricing to go, would you expect flat for the remainder of the year on the sawtimber side? And I guess because of the containerboard mills coming back, you will see a little bit of improvement on the pulpwood side if they got that right for the balance of the year?.

Yes, Paul, this is Doug again. I would say if you take out as we mentioned kind of the impacts of the fires and you look at things where we have been – I will start with a great side of things. We were up on the quarter kind of 2%, but relatively flat as you mentioned I think to prior year.

And we see things have kind of stabilized at that point in time and we see some upside possibly as the export market opens up for us in this area, but again, that’s a small market at this point in time in the south and growing.

So, I think on the sawtimber sides, things we think – things have a pretty stable area we are at and have stabilized and have some opportunity for potential upside, but we also have some geographic ships in our harvest.

On the pulpwood side, our numbers are really impacted by the fire salvage but we do see increased demand coming online as we go through the second half the year. So I think we have seen those see those also stabilized this point in time..

Okay. Then maybe a question for Dave, I mean lots of rumors right now around a potential softwood lumber agreement between Canada and U.S. and I am here in a quota of somewhere around 30%.

How do you expect that to affect overall pricing for lumbar and then also for your logs in your areas?.

Yes, I guess I will start, Paul by saying that we don’t have a seated table, so we are not as close to that as others. And so I think our perspective has always been to focus on the price elasticity in the markets, which we believe is heavily influenced by relative inventory built.

And when we look at and think about our operations and think about managing our portfolio we are always looking to get into the markets that are tighter, because we believe those markets are going to have – are going to experience more price elasticity as the market recovers.

So irrespective of how the softwood lumber agreement is ultimately resolved, we think that being in some of these tighter markets is going to be better for us and that’s really been our focus..

Alright. Thanks very much. That’s all I had. Best of luck..

Thanks..

Thank you. And our next question is coming from Ketan Mamtora of BMO Capital Markets. Your line is now open..

Thanks Dave, Mark.

First question, I want to come back on New Zealand M&A, there is a very big piece of land of sale in New Zealand, can you talk about your interest in kind of growing in New Zealand outside of how things develop with your JV partner?.

Yes. I mean we are always interested in growing in all of our geographies for the right pricing and the right fit. And we have done some small acquisitions in New Zealand. The deal flow in New Zealand tends to be thinner than both the U.S. Pacific Northwest and in the U.S. South. But we really are – we really take a look at everything.

So we don’t like to comment on specific M&A. But we are pretty aware of the potential transactions in all these markets..

Okay.

So is it fair to say that you all are opened to both bolt-ons and of larger acquisitions?.

Yes. I mean you look at over the last year, we did large. We did large acquisitions in the Northwest. We did a large acquisition in the U.S. South. And so where we have a good fit, we are certainly comfortable stepping out and completing that.

But I would say it really is going to be a function of the attributes of the property and as well as the competitive process in acquiring those assets..

Got it, that’s helpful.

And then any impact on your wood baskets from West Fraser’s recent acquisition of Gilman sawmills?.

Yes. This is Doug again. Both Gilman and West Fraser are good customers of ours and so we have delivered to the six of the Gilman mills in last year and probably six of the West Fraser [indiscernible].

So what we do think is the Gilman mills have a different occasions maybe undercapitalized and so we think it’s a good opportunity for West Fraser to take a look at those mills and consider how they might deploy some more capital on those.

And so we are looking forward to seeing how West Fraser [indiscernible] with them, we have great work relationship with West Fraser and so we look forward to staying that with them..

Got it. that’s helpful.

And then I just want to come back to kind of just housing in general, it seems like you are off a pretty strong start in 2017, notwithstanding June numbers, Q2 seem like had slowed considerably, as you see, can you just talk about kind of what your expectations are and has that changed from what it was at the start of the year?.

Yes. I think that our focus is less on kind of the quarter-to-quarter and really more in being prepared for the at a more macro level the broader recovery. And so we have always said whether that takes 18 months or a few years to really get cranked up. We want to be ready for that.

And I think that a lot of our – a lot of our activity on the M&A front has really been designed to make sure that we have got some dry powder with respect to merchantable timber inventory that we can bring to market. And we are really more focused on kind of that longer term trend recovery than we are necessarily the pace of the recovery..

Okay, that’s helpful. Good luck in the back half of the year..

Thanks..

Thank you. And our next question is coming from Mark Weintraub of Buckingham Research Group. Your line is now open..

Thank you.

Just a couple of quick ones, so I just wanted to just confirm I assume that the land sale in the New Zealand that had not been in prior guidance and now is, is that correct?.

Yes, that’s correct..

Okay. And is it fair to say that New Zealand has maybe been the timber markets are a little bit stronger than you would have expected, the Pacific Northwest maybe a little bit stronger and then the U.S.

South up maybe not quite is as strong, is that a fair assessment?.

Yes. I think that that’s a reasonably fair assessment, although our expectation for the South is still reasonably consistent with our initial guidance going into the year.

I think kind of going into this year, we had generally guided to relatively flat pricing and I think that that’s what we are seeing with some of the variability really being more driven by higher salvage volume and some regional mix..

And you mentioned that there is potentially a little bit more the way of exports from the U.S. South would seem to be to take advantage of kind of these spreads that are developing, I mean can you also see that on the margin in the U.S.

or is it just the transportation costs are too high and you really need the facilities to be built so that that sawtimber gets converted where its cut or are there ways to build some transportation networks in the U.S.

that can start taking advantage of what are widening spreads?.

Yes. This is Doug. We have been pleased the growth we have seen in the U.S. South from the export markets and as you say a lot of it has to do with the backhaul going back to China. And USDA’s foreign act service to support that as of May about 440,000 tons of logs have been exported from the South.

So if you look at that thing as run rate, that’s about 1 million tons and that fits in well with kind of our market intel. With out that there is still a wide number of containers are still there but they are going back empty. So we think there is plenty of room for growth.

And there is a premium to the domestic market even with that all the haul with the China. So there is still room for growth in that market and we continue to get demand for it..

And I guess is the possibility of wood moving from the U.S.

South to really kind of the markets, they overlap each other in different places, it’s - are you, I guess I am just a little surprised that the market have continued to move a little bit out of sync, I would have thought that they would have been dynamics at work that would have helped pull out the U.S.

South as we start seeing improvement in the Pacific Northwest, it’s just that the geography is such it just doesn’t work that way?.

I would say one thing is that where we have seen price increases for our soft timber particularly Belmont Atlantic Coast. So regionally there are differences when we start to look at how prices were impacted.

And so if you even look at some of it from start date and see where some of the higher prices have been in that Florida and costal border regions. So we do see some impacts had a more micro market along the Atlantic Coast where that export options are operating..

Okay, thank you..

The other thing to keep – the other thing to keep in mind Mark is that in China, the Southern – the Southern buying is really competing more Western China whereas Pacific Northwest volume is in a different geography. There is not as much pure market overlap in China as you might expect..

Okay. And then maybe one last quick one to is if something were to come about in New Zealand with the JV just for mine – if you would – do you think pay taxes on income generated in New Zealand or is that also treated favorably from a tax perspective like that the U.S.

timber income?.

It’s not, New Zealand is subject to a corporate tax rate. However, we have we have a buildup of some NOLs and some structuring that’s taking place with respect to debt that allows us thus far to have a fairly efficient – to have fairly efficient operation from tax leakage standpoint.

So when you see, when you see our financials, we have got GAAP tax expense, but relatively modest tax, excuse me – cash tax expense..

Okay, great.

And then presumably when you go through the NOLs, etcetera then you would refer to the relevant tax rate?.

That’s correct..

Okay, thank you..

Thank you. And our next question is coming from Chip Dillon of Vertical Research. Sir, your line is now open..

Yes, thank you very much and good morning. Just wanted to get clarification on the New Zealand sales, I know that you recently created a number I think $20 million where if land sales were north of that, you would not included an adjusted results.

And my guess is that you did – you kept the New Zealand sales even though it was over 24 million because it was more than one or could you explain your thinking behind that?.

Yes, really, there were two sales, but the vast majority of it was one sale which did exceed that $20 million. We defined large dispositions as transactions that exceed the $20 million in size, but also those that did not have a demonstrable premium relative to timberland value.

And recall that we created this category really in order to maintain the flexibility to monetize timberland assets at timberland prices for capital allocation purposes without distorting that recurring earnings and cash flow.

However, timberland sales that occur at premium valuations have always been reported as part of our segment operating results either in the New Zealand segment or the real estate segment.

So with respect to this New Zealand timberland sale in the second quarter, we felt as though the premium achieved was such that it significantly exceeded our timberland to whole value and therefore the transaction did not meet our definition of a large disposition.

That said recognizing that this transaction was somewhat unique and not the type of sale that we see regularly in New Zealand. We did provide details on the net income and EBITDA impact of the transaction.

So to put the value in context, I recall that when we increased our equity stake in the New Zealand joint venture last year, we did so in an implied value of 1,540 per acre. Our New Zealand timberland sales in the second quarter transacted a price of about 2,520 per acre.

That’s roughly a 64% premium to that investment basis when we recapitalized the JV last year. So, even though this was a large transaction we felt that the premium achieved precluded its characterization is a large disposition.

And really in many respects, we saw this transaction similarly to the towns in bombing range sale last year, which totaled about $48 million at about $2,700 per acre in the south due to the premium on that transaction, we similarly do not characterize there is a large disposition.

So we think we are being consistent and transparent in our approach to this, but that’s really kind of how we thought about it..

Okay, I got it. So differently it was over 20, but it had HBU and you were very clear when you made this definition that if they had HBU, you would count it and that makes sense given that you have all those acres in Florida and Georgia that we should see flow-through over the next decades.

Then thinking about the New Zealand situation and I might have missed something here, but as I understand it the owner I think of all of the minority position or most of it, I think you said had voted to liquidate.

And I know at least in the United States and most states when you are a minority investor in something that’s essentially closely held, which the joint venture is typically at the end of the day things can get resolved by a judge, because the state – certainly U.S.

law recognizes that there is not really an open market for half a house than a divorce proceeding or if three kids are inheriting a beach house, there have to be some arbitrator and typically if they can’t get together a judge does.

And so I am just thinking what is sort of the process for the New Zealand not that you have to reveal everything, but is that sort of one option that could come about if you guys have too big of a bid/ask spread where it goes to some kind of a third-party under some kind of legal proceeding to determine a value if you decide to move forward?.

Yes, really, it’s – this is a situation that’s really going to be based on the decisions of our JV partner, Phaunos. And there are plenty of examples out there in the timberland environment, where you have had similar minority interest, that have sold either privately or in a more public auction format.

And so it’s highly unlikely that something like this would get resolved in a judicial manner as you are describing. We see it really as a market transaction and the balls really in Phaunos’ court in terms of how they want to proceed both from a timing and form standpoint..

And just to be fair one reason it might not go that route is, I take it there is no real put option, they would have it all right that you would have to – you have no obligation to buy that interest out.

Is that fair?.

That’s correct..

Okay, very helpful. Thank you..

Thank you. And our next question is come from James Armstrong of Armstrong Investment Research. Sir, your line is now open..

Good morning.

My first question is on the salvage volume, how much salvage volume in tons roughly is left and how long do you think it will take to complete that salvage, we get it all done by a third quarter or is that likely to bleed into the fourth quarter and beyond?.

No, I believe we will get this done in the third quarter if the weather cooperates with us, but in total, we had approximately 200,000 tons of salvage volume and maybe a little bit more. We are still evaluating as the weather continues through and as we go forward. And of that in the second quarter we have done approximately 70,000 tons of salvage.

So, we still have a lot of salvage volume to work through in the third quarter.

So it’s impacts, we mentioned we had $1.1 million impact kind of on the write-off in the fire cost, but then also there is the impact and the difference in value which we salvaged for and what we would have got if we have been harvesting green timber and that can be somewhere around $3 million difference in kind of pricing that we are impacting there too.

So we have had a pretty considerably impact, but there’s fire in our Florida resource unit. So, we should work through that in the third quarter..

And James recognized too that we are not the only landowner affected and so you get some the broader market implications and we don’t really have a good feel for the timing of other landowners..

Yes, there was approximately 32,000 acres I believe was burnt outside of the Wildlife Refuge, so quite a few other folks also incurred losses..

Has the fire risk subsided in that area, I mean, in other words is the risk now gone and you now just need to salvage it or could there be further fire in the region..

No, it’s absolutely. As soon as the fire, we got 20 inches of rain essentially in couple of weeks. So, the fire risk has gone way down to the point now where it’s impacted the ability to salvage it. So, we went from extreme drought to flooding conditions in the matter of weeks. So, thankfully the fire conditions are definitely down in this area now.

The drought has been broken..

Okay, awesome. Switching gears to New Zealand in the export market, do you see any evidence that the mix of product at China is changing specifically as the region demanding higher quality logs.

On the other end, are you seeing any pulpwood demand out of China yet?.

We see pulpwood demand really more out of India than we do in China. And I think with the China market recognized, I would say probably one of the biggest drivers in terms of the change in mix has been some of the substitution that we have experienced, where Radiata has taken market share away from domestic supply in China.

And you will recall from prior calls, the Chinese put in place a ban on the harvest of native forest in Northeast China and that had a big impact on domestic supply. So, we have seen a number of kind of ripple effects in terms of substitution from that..

Fair enough.

And then lastly on the real estate segment, the non-strategic realizations were up quite a bit, should that continue as we go into the back half of the year just wondering how the mix will change?.

Yes, really it’s – that just going to be heavily driven by individual transactions. And so I wouldn’t put too much weight into one quarter, but I would say generally meeting we have seen a positive trend in pricing on our HBU sales..

Okay, thank you. That helps..

Thank you. [Operator Instructions] And our next question is from Mark Weintraub from Buckingham Research Group. Your line is now open..

Thank you. Just two quick clarifications if possible.

First – and I apologize if I had missed something said before, but on the New Zealand sales, was there much in the way of HBU property or is that more reflective of the New Zealand timberlands just the values of the New Zealand timberlands having been increasing in the last year?.

Well, it’s more a statement of our perspective on premium relative to our hold value. And so typically when you see a big disconnect between hold value and transaction price in the U.S. it is and HBU end use. In New Zealand because it’s largely a lease land regime, I wouldn’t say that there is necessarily HBU uses that are typical in New Zealand.

But again we saw what we thought was a pretty widespread to whole value..

Okay..

This is more focused on the premium and less focused on the HBU end use,.

Okay.

And then on that the $3 million difference on salvage pricing that was referenced, was that estimate for that the total 200,000 tons or a portion I wasn’t quite clear on that?.

That was for the entire 200,000 tons of an estimate based on difference..

Got it..

We are saying that there were $1.1 million of real costs associated with the fire, but really there is also a price spread that they were seeing relative to market value of Greenwood on the salvage volume that we are selling and that’s $2 million to $3 million that Doug referenced..

Right.

And so $1 million of that showed up in the second quarter and so presumably…?.

No there are two different things. You got $1.1 million of costs and that was an $800,000 write-down of pre-merchantable timber inventory at about $300,000 of firefighting cost.

But then on the top line, we are experiencing about $2 million to $3 million of revenue hit relative to what we would have sold that volume at sort of market Greenwood prices..

We expect to see over the Q2 and Q3 timeframes..

But the total values were still generally above depletion rates there. So again it’s an impact to the P&L, but it’s not a write-down or….

I just took 70 over 200, which I saw you took a third of the $3 million and said so probably about $1 million in the second quarter?.

Well, but again, it’s going to show up on the price per ton line and not as a sort of extraordinary cost..

Understood..

We are realizing lower prices on that salvage volume was than we would for Greenwood..

Okay, thank you..

We show no further questions in queue at this time..

Well, thanks very much for your time this morning. And do you have any follow-up questions, please feel free to reach out..

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