CatchMark Timber Trust, Inc. (CTT) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to the CatchMark Timber Trust Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'll now turn the conference over to Ursula Godoy, Chief Financial Officer. Please go ahead.
Ursula Godoy: Good morning. And thank you for joining us for our review of CatchMark Timber Trust results for fourth quarter and full-year 2021. I am Ursula Godoy, Chief Financial Officer of CatchMmark. Joining me today on the call, our Chief Executive Officer, Brian Davis, and Chief Resources Officer, Todd Reitz. During this call, CatchMark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and the information currently available. CatchMark’s actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2020 annual report on Form 10-K and subsequent reports that we filed with the SEC. Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our fourth quarter 2021 earnings release and financial supplement, which are posted on our website. After our presentation, Brian, Todd, and I will be pleased to answer any of your questions. Now, I turn over the call to Chief Executive Officer, Brian Davis.
Brian Davis: Thanks, Ursula. Good morning, everyone. And thank you for joining us today for our review of 2021 fourth quarter and full-year results, as well as 2022 company guidance. I also want to reiterate yesterday's declaration of a quarterly cash dividend of $0.07 per share for CatchMark common stockholders of record as of February 28th, 2022, payable on March 15th. With hindsight, 2021 will be viewed as a crucially important year for CatchMark. A culminated in a strengthened company with a simplified business model focused on operations in one of the world's most important and increasingly dominant wood baskets. The U.S. South. We're clearly positioned for success as powerful macro forces are working to drive sustainable product price appreciation, in CatchMark markets. Our operating model based on delivered wood and opportunistic stumpage sales from our prime timberlands harvests and premier mill markets continues to prove out and delivering substantial timber sales pricing premiums. And we continue to achieve the highest productivity per acre among our peer set while maintaining consistent per acre stocking levels. Retail demand for our land sales remains robust. Following the completion of recent strategic large dispositions, in the Triple T exit, we have significantly strengthened our balance sheet and have ample capital available to support a disciplined acquisition strategy. We also are pursuing exciting options for solar, carbon sequestration, and wetlands mitigation banking to maximize both the near-term cash flow potential and long-term value of our timberlands. Recently, we signed a 4,000 acre lease with a solar developer and have option agreements on almost 8,000 acres with other solar developers. From a results standpoint for full-year 2021, we realized net income of $58.4 million or $1.20 per share. We met our 2021 guidance for adjusted EBITDA at the higher end of the guidance range. We generated a record $47.2 million of net cash provided by operating activities, 17% higher than 2020. We produced CAD of $34.1 million and paid total cash distributions of $23.3 million to shareholders. The resulting payout ratio was below our historical range of 75% to 85% of cash available for distribution. We achieved full-year U.S. South pricing for pulpwood and salt sawtimber, 17% and 14% higher than in 2020, respectively, driven by strong market fundamentals. And we concluded a major capital recycling program and refocused efforts on U.S. South expansion. Regional household formation and home construction, mill expansions, and ongoing decline of Canadian market competition due to pine beetle infestation and British Columbia harvest deferrals have helped and should continue to help increase demand in the U.S. South and create sustainable pricing tension, particularly in CatchMark superior markets, where we consistently have outperformed. All indicators point to significant growth in the U.S. South for the lumber, pellet, and pulp industry's leading to tightening wood markets and price appreciation over time. It's the largest wood market in North America and the only region which is appreciably expanding. The pellet industry is the fastest-growing, not only in North America, but also globally, and sawmills are also expanding to meet increased demand, especially given long standing and ongoing population growth in the region. We believe we are strategically concentrating our operations and focusing on prime timberlands and leading mill markets in the right place at the right time. Fourth quarter 2021 results highlight our transition to a simplified, stronger business model, which is bolstered by ongoing product price appreciation. Net income of $33.9 million and earnings per share of $0.70 resulted primarily from the company's exit from the Triple T joint venture, proceeds from which were used to repay debt and further improve the company's capital position. The significant timber sales price increases in our harvest operations cushioned planed lower harvest volume, revenues and adjusted EBITDA following the Triple T exit and Bandon sale. For the quarter, U.S. South timber sales pricing was 32% and 21% higher than prior-year for pulpwood and solid timber respectively. Our branded pricing for pulpwood and sawtimber has increased sequentially for three out of the last four quarters. Lower asset management fees resulted from the Triple T exit, but Dawsonville Bluffs continued to generate fees and incentive-based promotes from managing successful wetlands mitigation banking activities. This is an environmental initiatives. We intend to expand into further as part of our growth strategy. Selling fewer timberlands across the quarter compared to fourth quarter 2020 was due to timing, as most of 2021 sales occurred earlier in the year. During the quarter, we achieved significantly higher pricing year-over-year on acres with lesser stocking levels while contributing to meaning full-year guidance, targets for timberland sales. We have consistently achieved pricing above market averages on timber sales for both pulpwood and sawtimber, and expect this will be a key differentiator in CatchMmark performance going forward, the results have been and will be directly attributable to our investments in prime timberlands and operations in leading mill markets using delivered and opportunistic stumpage sales. We're very confident about generating predictable, stable cash flow and delivering fully covered dividends within or below our historical payout ratio of 75% to 85% of cash available for distribution. At the same time, utilizing our strengthened balance sheet, we're moving forward to grow through acquisitions of high-quality timberlands and leading U.S. mill markets that can capitalize on our successful model. That means remaining disciplined and prudent in seeking investments that can sustain our industry leading harvest EBITDA per acre in market pricing premiums, while also maintaining stable per acre merchantable inventory. Opportunities pursuing carbon sequestration, wetland mitigation banking, and solar energy also remain underway. In summary, 2021 marked the end of a transition period of simplifying and strengthening CatchMark's business model. It marked the end of our capital recycling program, focused on large dispositions, including the successful Bandon sale, and it also marked the end of our involvement with Triple T. We head into 2022 with a clear strategy based on focusing our activities in not only the nation's premier wood basket, but also one of the leading timberland regions in the world; the U.S. South. The U.S. South, more than any other region in North America, is in the midst of a significant expansion supported by economic drivers that should help ensure steady demand for CatchMark harvests and support attractive price appreciation. We're taking full advantage of our investments in prime timberlands and leading U.S. South mill markets, utilizing our very successful delivered wood and opportunistic stumpage sales model. Our focus is on continuing to deliver our sizable pricing premiums on timber sales, sustain our timberlands using superior stewardship practices to maintain their attractive stocking and productivity levels over time, and make new investments that fit our model to grow durable cash flow and shareholder value. Now Ursula will cover fourth quarter and full-year's results in greater detail, as well as review our capital positioning.
Ursula Godoy: Thank you, Brian. Both fourth-quarter and full-year results highlight CatchMark’s, strong operational performance. We catch our higher timber sales prices and achieved continued pricing premiums compared to market. We exited Triple t and concluded our capital recycling program with a very profitable Bandon sale, which allowed us to concentrate activities exclusively in the U.S. South. For fourth quarter 2021, lower year-over-year total revenues and adjusted EBITDA resulted from planned lower harvest volumes following recent large dispositions and lower asset management fees due to the Triple T exit. We also sold fewer timberland acres during the quarter, as most sales were completed earlier in the year. The revenue impact of planned lower harvest volumes was lesson by significant increases in timber sales pricing as we sustain pricing premiums over us south-wide averages. For the quarter ended December 31st, 2021, CatchMark generated revenues of $20.5 million compared to $30.9 million in fourth quarter 2020. Timber sales revenue totaled $16.4 million versus $19.9 million in fourth quarter 2020. As planned, total harvest volume decreased year-over-year by 14% to approximately 500,000 tons. We capture significant timber sales price increases year-over-year, 32% for pulpwood in 21% for sawtimber. When compared to Timber Mart South, U.S. South averages, pulpwood and sawtimber stoppage pricing registered 52% and 38% premiums respectively. We realized net income of $33.9 million compared to a $3 million net loss in fourth quarter 2020, resulting primarily from the Triple T exit. Adjusted EBITDA totaled $9 million compared to $17.3 million in fourth quarter 2020. Breaking out adjusted EBITDA by segments. For the fourth quarter, harvest EBITDA was $8.8 million compared to $9.7 million in fourth quarter 2020. Real estate EBITDA decreased to $900,000 year-over-year from $6.4 million in 2020. Most of our 2021 timberland sales occurred earlier in the year, so fewer acres were sold in the fourth quarter as planned. Pricing and margins for acres sold were higher year-over-year, despite lower stocking levels from sold acres. Investment management, EBITDA of $2.2 million compared to $3.2 million in 2020 was attributable to the Triple T exit and the replacement of its asset management agreement with a transition services agreement effective through first quarter of 2022. The Dawsonville Bluffs joint venture continues to provide asset management fees and register incentive-based promotes for our ongoing mitigation banking activities. We also paid a dividend of $7.5 per share to stockholders on December 15th, 2021. For the full year ended December 312021. Higher sawtimber sales revenues driven by higher pricing helped spur strong operating results despite lower plane harvest volumes. CatchMark generated revenues of $102 million, nearly comparable to $104.3 million in 2020. Timber sales revenue of $72.5 million was slightly higher than prior years, $72.3 million, highlighting the strength of product pricing as harvest volumes were near the low end of guidance at just over 2 million tons. Timberland sales revenue met guidance decreasing 10% to $14.1 million from $15.6 million in 2020 due to selling fewer acres, but at higher pricing and margins. Asset management fees declined 6% due to the Triple T exit and related transition services agreement. Net income totaled $58.4 million compared to $17.5 million net loss in 2020. Primarily the result of recognizing gains on the Triple T exit and Bandon large disposition. We achieved adjusted EBITDA of $49.4 million at the upper end of guidance compared to $52.1 million for full-year 2020. Breaking out adjusted EBITDA by segments. For full-year 2021, harvest EBITDA held steady at $34.2 million. Real estate EBITDA of $13.4 million declined slightly from $14.7 million in prior year. An investment management EBITDA of $12.3 million was comparable to $12.6 million in 2020. Taking into consideration the completion of capital recycling, the Triple T exit in our renewed focus on operations in the U.S. South, full-year 2021 results met or exceeded guidance and highlighted the strength of our business model to continue to deliver premium pricing from our timber sales. At the same time we also have continued to strengthen our balance sheet considerably. And now turning to our review of CatchMark capital position at year-end 2021. All of the leveraging efforts resulting from strategic initiatives, including simplifying our business, capital recycling, focusing operations in the U.S. South after the successful Bandon sale, an exit in Triple T have positioned us well for the next growth base. We have ample debt capital and cash-on-hand to execute on growth opportunities, including acquisitions and various environmental initiatives. The two profitable 2021 capital recycling dispositions, Bandon and Oglethorpe, were particularly impactful. Comprising 23,100 acres and totaling $107.5 million, the two sales generated a gain of $24.2 Million. Bandon in the Pacific Northwest sold for $100 million on which a $23.4 million gain was recognized. Net proceeds of $95.4 million were used to pay down outstanding debt. As a result, liquidity has increased from $180 million at the end of the second quarter to $277 million at year-end. With $254 million of borrowing capacity and $23 million of cash on hand. Borrowing capacity was comprised of $150 million under our Multi-Draw Term Facility, $69 million under our delayed Draw Term Loan and $35 million dollars under our working capital facility. Our $300 million of debt outstanding has an effective 2.9% cost of debt capital with no near-term maturities, and we are well within our financial covenants. In 2021, we paid out dividends of approximately $23.3 million or $0.48 per share. These dividends were fully covered by cash available for distribution of $34.1 million. This was below the company's target CAD payout ratio range of 75% to 85%. We may know share repurchases under CatchMark's share repurchase program during the year and had approximately $13.7 million remaining in the program for future repurchases as of December 31, 2021. In some, CatchMark is in a very strong capital position as we execute on our growth strategy. Now, Todd will review harvest operations and timberland sales. Todd?
Todd Reitz: Thank you, Ursula. And good morning, everyone. The fourth quarter delivered solid performance results for CatchMark’s harvest operations as we turned our focus entirely on the U.S. South. Residual impacts of regional wet weather in third quarter kept pressure on fourth quarter logging production, while customer raw material inventories remained low. The pricing tension benefited CatchMark with favorable supply demand dynamics in our markets, fueled by the strong fundamentals of increase in home building, robust repair and remodeling, ongoing mill expansions, and ownership focused in regions with extremely competitive markets and tight growth to drain characteristics. These fundamental dynamics remain in place in 2022 as well. The flexibility of our operating model using delivered wood and opportunistic stumpage sales continues to produce significant benefits. In a market environment with a finite number of loggers to work with, it helps control our supply chain, allows us to get price premiums for our harvest, while loggers benefit from higher utilization rates and mitigates our risk and there's. We capitalized on greater market pricing tension by negotiating, delivered and stumpage sale pricing increases. Successful negotiations with many of our customers to support delivered price increases helped us offset rising costs and maintain our stumpage values as we passed increases along to our delivered logging contractors. As a result, we continue to achieve substantial pricing premiums. Also, the strategic outcome of concentrating prime timberland holdings and leading U.S. South mill markets. In the fourth quarter year-over-year increases in the U.S. South were 32% for pulpwood and 21% for salt sawtimber. And sequential quarter-over-quarter, 19% for pulpwood and 10% for sawtimber. More tellingly, CatchMark pulpwood and sawtimber stump pricing also scored substantially above Timber Mart South south-wide pricing, 52% and 38% higher for pulpwood and sawtimber respectively. Same kind of pricing advantages were registered for full-year. CatchMark stumpage prices for pulpwood, and sawtimber were 17% and 14% higher respectively compared to the prior year, trending in general with increases in Southwide prices. But we also realized 54% and 20% premiums for pulpwood and sawtimber respectively over U.S. south-wide averages. Land lower harvest volumes followed successful execution of the two capital recycling large dispositions, Bandon and Oregon and Oglethorpe and Georgia. For the year in the U.S. South, we registered a 4% increase in timber sales revenue over 2020 derived from the strong pricing we achieved through negotiations. For delivered volume. Along with opportunistic stumpage sales and despite the planned 11% decrease in harvest volume. Before selling Bandon in August, we harvested 90% of plant full-year Pacific Northwest harvest volumes, generated $9 million in timber sales revenue, and captured a 7% increase in weighted average sawtimber pricing year-over-year. Going forward, customer and product mix will remain key as we stay nimble to meet changing market dynamics. Strong lumber demand and improved pricing during the fourth quarter provide a favorable basis for negotiating with our customers and strong macro demand fundamentals helped too. They're pushing mill production and that translates into improved market price across our regions for chip and saw and pine sawtimber products, especially in the South Central region of our Georgia timberlands where our key customers have invested capital to improve existing mill capacity or build new facilities in the past three years. Now let's review timberland sales, which need to be viewed in the context of our having already met the lower range of our full-year timberland sales guidance by the end of the third quarter. It was a year highlighted by exceptionally strong buyer demand for our timberland sales. As expected, we executed $1 million in timberland sales in the fourth quarter. 400 acres sold compared to 4000 acres sold for $6.8 million in the fourth quarter of 2020. And we achieved significantly higher pricing year-over-year, $2,597 per acre, compared to $1,662 per acre in fourth quarter 2020. Margins also increased significantly year-over-year, 44% in the fourth quarter, compared to 19% in 2020. In addition, the excellent pricing was realized despite lower stocking levels on sold Timberlands compared to the prior year. And is indicative of the robust demand for rural reg property within our ownership. For full-year, we met guidance for T imberlands sales revenue a 10% drop year-over-year selling 19% fewer acres. We also achieved an 11% higher per acre price than 2020, despite a 19% lower total stocking. Margins increased to 31% compared to 21% in 2020. An acre sold had an average merchantable timber stocking of 21 tons per acre compared to 26 tons in 2020. And well below the CatchMark portfolio average of 39 tons per acre. Brian, back to you.
Brian Davis: Thanks, Todd. CatchMark enters 2022, stronger and more focused than ever. Our business models tested, proven, and consistently successful at achieving timber sales price premiums while we maintain industry-leading productivity per acre and stable per acre stocking. Our operations should benefit from dynamic long-term forces driving demand in the markets where we're located. And we are poised for growth as a result of recent strategic decisions to strengthened our balance sheet. After reducing our footprint in the last several years, we see 2022 as a start to meaningful resumed expansion. As we continue to produce durable cash flow to cover our dividend comfortably and create shareholder value. It will be a disciplined, prudent, step-by-step process and will show meaningful results over time as we gather momentum. Looking at full-year guidance for 2022, CatchMark projects a GAAP net loss of between $5 million and $7 million. We expect adjusted EBITDA of between $35 million and $41 million. Harvest volumes are forecast between 1.6 million and 1.8 million tons, reflecting consistent annual productivity on a per acre basis, with a sawtimber mix of approximately 45% to 50%. Harvests are expected to increase during each of the first three quarters, with fourth-quarter volume approximating the average. Asset management fee revenue is projected at approximately $2 million and timberland sales targets are anticipated in the range of $15 million to $17 million, representing about 2.5% of our fee acreage. We expect about 1/3 of our annual timberland sales to occur in the first quarter. Timber sales pricing will be key to driving our 2022 performance. We expect macro demand fundamentals in the U.S. South will continue to produce sustained pricing tension, which will benefit in particular, the leading markets where we concentrate our operations. We expect our solid timber and total weighted average pricing to increase between 10 and 15% year-over-year during 2022. Our markets and many of our customers are expanding operations and capacity as demand for their products is increasing. We all benefit from our superior wood basket prime to support this growth. As I stated earlier, CatchMark is positioned for success in the right place, at the right time. This outlook does not include potential contributions from future acquisitions and investments, including monetization of the company's environmental initiatives, which include opportunities related to carbon sequestration, wetlands mitigation banking, and solar projects. In assessing new investments, we continue to be diligent and disciplined, seeking timberlands that will fit into our growth strategy. We continue to focus on acquisitions with near-term cash accretion or long-term accretive portfolio attributes, as well as potential for providing environmentally focused alternative income opportunities. We see opportunities in the marketplace, including bolt-on local acquisitions to our existing portfolio. We believe smaller acquisitions in the current environment are better, and that's we're, we're concentrating our activity. Now well into the first quarter of 2022, all of us at CatchMark are energized about the year ahead. Our strategic focus on driving predictable and sustainable performance remains underpin by our superior stewardship of prime timberlands and high demand U.S. South mill markets, which maximizes cash flow throughout the business cycle. Seeking to capture the highest value per acre and sustainable yields. We have the capital move ahead with our growth plans. And we are well positioned to continue to fully cover our dividend from cash available for distribution while building long-term value for our shareholders. 2022 is going to be a very productive year at CatchMark. And all of us hope your year is off to a good start too. Now, Ursula, Todd, and I will be pleased to take your questions.
Operator: We will now begin the question and answer session. . At this time, we will pause momentarily to a somewhat roster. Our first question comes from David Rodgers with Baird. You may now go ahead.
David Rodgers: Yeah. Good morning, everybody. Brian and Todd wanted to start with you on the acquisition front and what you might be seeing. You mentioned them right at the end of your comments Brian, but I'm curious on kind of what that pipeline looks like. Now that the portfolio cleanup is largely complete. So what's that pipeline and how do you view kind of accretion of the stuff that you want to buy today over the next year or so?
Brian Davis: Certainly. Good morning, Dave. Well, we really highlighted three aspects of when we take a look at acquisitions, we've got the near-term accretion approach. We've got an aspect that we look at from a portfolio standpoint that helps smooth out or age class. And we're also looking at opportunities with environmental aspects to it not too dissimilar to mitigation bank credits that we've seen in Dawsonville Bluffs. We're building of our pipeline really centered around the markets in which we're operating in. We're looking at -- our pipeline does consist of some off-market and marketed transactions. I do want to talk a little bit about the market in of itself. We think this years market offerings may be a little choppy. It's interesting that we're seeing some institutional owners that have seen some big growth and their values in 2021 expect the same thing in 2022. You combine that with trying to assess valuations associated with carbon value, another initiative, they may look to hold on to their holdings for this period. What we've also seen is that folks who -- institutional owners who sold off in the last couple of years are looking to get back into the market. So you're seeing this really competitive market expressly in the larger offerings and historically, in larger offerings, you see what we call a big deal discount. We think that's really evaporated from a deal standpoint. So for us, when we take a look at market bite sizes, Ursula alluded to, we have easily on our balance sheet being able to deploy about $100 million and really keep our leverage profile at a historical average and really put that to work without having to look at the equity markets. So what we feel is that we've got -- really, we've got a small track program which we're spread out within our marketplace looking the transaction sizes at the low end of the $5 million and then working up to about $15 million. The pipeline does continue to build. And one thing that we've also have done and we haven't been successful to-date, is actually partnering with other institutional investors, but not in the way of a joint venture, but essentially looking at an asset bifurcating that asset and coming in with a joint bid. That way, it's the cheapest source of capital forest in a way that we can get the type of assets that we want. So Dave, when you really talking about how are we building our pipeline, we're advancing on all fronts. It's going to be a choppy market. People are believing in the values and what we've seen on the ground. And when we think about accretion, we really think about it in either a near-term cash accretion relative to what we're doing, or a portfolio accretion that allows us to be sustainable and over-harvesting on a long-term basis and filling our age GAAPs that go along with it. And we also understand what our cost of capital is and that's why it's important for us to have the type of debt capital available to us at this point in time to demonstrate our activity as it relates to acquisitions. But we did also allude to. is it's going to take some time to get that type of momentum. We are going to be very disciplined and putting -- ringing the bell when we take a look at acquisitions. So we're looking at all things at all times.
David Rodgers: I appreciate all the added color there. Brian, maybe on the flip side of that, talk about the land sale activity. I think you may be communicated previously, you'd like to do a little bit more. Pricing is up doing a little bit less. So I don't know if that's a function of some of the solar initiatives or other things that you're looking at, or what you're thinking about in terms of land sales in the guidance. But I guess, talk about what your view is on that 2.5% of fee acreage.
Brian Davis: Certainly. It's really part and parcel when we take a look at our portfolio of assets, we have very strong product price appreciation that goes along with this double-digit last year, we expect double-digit again this year. Land sale pipeline, given that we have a third of that really wrapped up in the first quarter of this year, we have an opportunity to really create additional attention associated with the types of land sales that we'll be making. We have good margins associated with those. And so we didn't feel is necessary to demonstrate the full 3% but we do have that flexibility. We're going to be a seller if it makes the best sense for us on a long-term basis, rather than holding those assets. So I wouldn't read much more into it other than taking a look at our portfolio of assets. That being said, Todd, maybe talk about at the ground level what we're seeing from a demand side on the retail.
Todd Reitz: Absolutely. And it's a mix of buyers, you've got family trusts, adjoining landowners. You've got people out there with some 1031 money, they want to do exchanges. And so it's -- interestingly, you're not seeing a whole lot of people that are looking for something that has to be fully timber. We've been able to maintain timber reservations on these properties. And so it's just -- people are looking to place money in a hard asset as opposed to maybe the stock market at this point in time.
David Rodgers: All right, thank you very much.
Brian Davis: Thanks, Dave.
Todd Reitz: Thanks, Dave.
Operator: Our next question comes from Anthony Pettinari with Citi. You may now go ahead.
Anthony Pettinari: Good morning.
Brian Davis: Good morning
Anthony Pettinari: Brian, just certainly a just circling back to the southern timberland market, I'm wondering -- I mean, we're two years into the pandemic and I guess the pandemic probably froze a lot of transactions or transaction volume was depressed. Between the beginning of 2020 and today, sort of before the pandemic and to-date, how much do you think southern -- good quality industrial timberlands in the South have appreciated on a dollar per acre basis or on a percentage basis? Is there any kind of color that you can give there? And then to the extent that you're focused on bolt-ons, is it safe to say that those would be sort of adjacent to existing lands or could you be interested in a maybe a new part of the South or a state that you're not currently operating in? Thanks.
Brian Davis: Absolutely. From an appreciation standpoint, we take a look at doing a DCF on an asset you're really looking -- especially on larger basis, you're looking over a longer term aspect to it. So product pricing does have an influence regarding valuations itself. I think that before you had a little bit more speculation regarding the expectation or pricing, so you had more risk as we were doing valuations. I know in our market, we're actually demonstrating or experiencing the type of product price appreciation. So what I would tell you is that the areas -- the market still matter regarding what you're seeing in product price appreciation. In some of the Gulf states, you're not going to see the same type of product price appreciation you see in Gulf state. You are seeing mills going into the Gulf state areas. There's a reason for that. It's going to take a while for those to come on. That product pricing is still going to be speculative. So you're not going to see that Notable product price, that acreage appreciation that you would see in some of our markets that we have like in Georgia or the Tirolinas, or eastern Alabama. So what I would tell you is it's still bifurcated, not too dissimilar to what you see in our product pricing would be the same kind of characterization and what I would see in land values. So slight Class a office space, Anthony, it's the same concept on. Having high quality assets should appreciate a greater rate relative to other assets. Other assets and other markets. So as you trying to think about on a per acre basis, I would say ours has appreciated greater than if we had owned something in the Gulf States. Secondly, I think you had asked about bolt-ons. Those are typically going to be in our existing mill market. We have a very strong delivered wood aspect to our business. We have great relationships. Stumpage is another part of which we go along with that. We feel that we can get the operational scale when we really look at bolt-ons in our areas. And so when we look at something, if we want to go outside of our market, it has to be marketed. So not there's somewhere how we thought about Bandon. Bandon, we had -- it was a great asset. We had 18,000 acres. But in order to get scale there we're going to have to really double our size there. And that opportunity relative to evaluations is going to be very difficult for us. So in the near-term, we really feel that -- feel that near local areas is going to be best for us from a bolt-on. We'll look at areas outside of where we're operating only if we can get scale associated with that for our operating model in of itself. And so I'm not saying we wouldn't, but there has to be some considerations that go along with that.
Anthony Pettinari: Okay. That's very helpful. And then just a quick follow-up. Is there anything more that you can say about the solar projects in terms of timeline, earnings accretion, potential for the future. Just any finer point you can put on, the projects that you signed up for or maybe just opportunities through’22,’23. Thanks.
Brian Davis: Yeah. I'll give you a quick read. So we noted one transaction that we have, our 4,000 acres is going through the feasibility stage. We basically get some cash upfront associated with those 4,000 acres. It's not notable other than from the standpoint that you're getting something that would be in excess of what you be getting from a recreational lease standpoint, but we do get the harvest of trees off of it. Really where the jews and these types of transactions is really from the rental income that you would get on a perpetuity basis. We're essentially perpetuity up to 30 years that you get on an annual basis that would be equal to or maybe in excess of what that standing timber would be. And that's really where the opportunities are in these types of solar projects. And so from an earnings accretion standpoint, we're fortunate, we're looking at in the U.S. South, it's much sunnier than where you are up in New York, and so you may not have the same appreciation, but we do get a lot of vitamin D down here. And so therefore, it creates a lot of opportunity in the solar. And so when you expand that, you multiply that out inside of a footprint, that's really where those opportunities are going to come in.
Anthony Pettinari: Great. That's very helpful. I'll turn it over.
Brian Davis: Thank you.
Operator: Our next question comes from Buck Horne with Raymond James. You may now go head.
Buck Horne: Hey, good morning. Thanks for the time. I wanted to ask you Brian on the pricing expectation of for being able to sustain maybe 10% to 15% year-on-year improvement in saw timber pricing. What kind of visibility do you guys have around that -- that outlook? How long forward into the backlog do you have in terms of your contracts or your confidence level and how that's going to play out over the course of the year.
Brian Davis: Well, confidence level is got to be high if we're going included in our guidance Buck. So from the standpoint, it's interesting. So as you're always preparing for these types of calls, you look at what we've been talking about. And I went back to last year and saying we really felt like we are on the precipice of giving these macro factors that's going on in our markets as we've always talked about, timberland is a local market from the standpoint of growth, drain and everything that goes along with that. And we said we just needed a little bit attention and we ended up having double-digit this year given the factors that we experienced during 2021. And Buck, I think you're very constructive in the housing side. We talked about that loss decade of housing and the aging housing stock and the work from home, as I think you put it, untethered, migration for workers coming from the city centers. And so you combine that with a growing economy and additional usage for mass timber, this really supports what the mills are doing, their relocating the capital down to the U.S. South. We're seeing mill expansion that go along with that. You've seen growth train. You got to remember, in our marketplace, we've had a very healthy market, even during not really seeing product price appreciation, but you've seen trees being drawn down during that period of time then. So when you have pulpwood and strong lumber operations, you were too far from really getting the type of product price appreciation where we have today. And so -- and back on the other side, we really get a lot of questions on the supply side and I think it's important to note when you take a look at the U.S. South of the -- of the timberland ownership, 30% is really corporate TMOS. The remainder is either in public lands or private landowners. And the private land owners make a majority of that remaining acreage. And inside of that, and we end up doing a lot of math here but 75% of that Southern acreage is owned by our private land owners is less than 20 acres. So you sit there and say, wow, jeez, I take a look at these growth drains. Lot of that is as a result of these private landowners that are harvesting well, less than what they're getting on a growth basis. And so the supply side we believe especially on a delivered wood model, we have good visibility given these macro factors that gives us the confidence in really taken a look at, we expect to really just double-digit gain going into 2021. And the real questions are becoming what's the duration of the housing need, what's the duration of -- how does mass Timber play into this and how does the environmental aspects into building codes and everything else combine into these things? We really feel like we're on the front end of something really special. Are we going to get to this 60, $70 sow log while the log size is different than it used to be. But never say never. But so from that standpoint, I think we're really on the front end of this by demonstrating what. We got last year and the conviction we have going into this year. Todd, is there anything any other anecdotes you can talk about at the mill level?
Todd Reitz: No really, and that's exactly where it is, Brian, is that you think about where the capital has been placed. You look back’18,’19, all the capital that came into the Southeast and a big portion of that as we've talked about, really sits in and around our holdings. All of that is coming online. That demand tension that's in the markets we operate in is really helping bolster our position and giving us our conviction moving forward. You have, as Brian touched on, this is already in the tightest growth to drain basin really in the country. In addition to, not just the production from the mill side, you also have over the last year, year-and-a-half, you've seen somebody contractor attrition that has taken place. And so it's made a little bit tougher in order to get product -- product to the facilities. And therefore, that's additional attention that's helpful with the pricing outlook that we have. And that helps us too, because of our delivered wood model and the way we can leverage that. And also being flexible with the stumpage sales we have. So all these things coming together are helping build a nice outlook for us.
Buck Horne: That's great, extremely. Extremely detailed and helpful color, guys. Thank you very much for that. That's great. Question maybe on the supply side, going to that -- it's a bit quite the midpoint, the 1.7 million tonnage harvest volume. Can you help me just understand how -- you mentioned that that's a sustainable number. I'm just curious, in how many years into the future is that sustainable at the kind of the 1.7 million number or does it grow from there, does it need to come down at all? I'm just trying to walk through the math, I guess, in terms of the current acreage position of the company times the, call it the 39 tons per acre that you have stocked on the land right now. So it gives you what? A little over 14 million tons on land right now. So help me understand how sustainable the $1.7 million is for how many years in the future?
Todd Reitz: Sure, Buck. So that number, that's right in the middle of what we're looking at the 1-6, 1-8. So you'll be in that range going forward. You can look at that over a 10-year period. There will be fluctuation year-to-year, but in -- on average you're looking at that level and really from a productivity basis, you look at it on a tons per acre per year, if you look into that. We're in that 4.5, five tons per acre per year growth. That's about what our harvest works out to. So we're able to look at that as even flow going forward with a mix similar to what we're seeing today in that 45% to 50% pulpwood sawtimber kind of mix if you will. And so that volume that you're looking at today, that 39 tons per acre merge that that will go up over a period of time year-to-year depending on a number of acres that come into play because you have in growth that that has to be factored in there as well. And so all of those parts you might see some fluctuation at that we could go 38, we could move up to 41 again, recognizing we don't have a forest that's been in place for over 100 years, and so that everything is just perfectly leveled out on and regulated. This has been built up over time, and so you're working through different vintages to get more to that run rate level, if you will. And so that's what we're working with.
Brian Davis: So Buck, if you think your model is complicated as a result -- from your financial model, you come in here, do a growth yield model that goes along with the thousands of flats, with thousands of stems that go along with different geographical considerations that go along with that. So we come out to you with a nice, simple number of 1.6 to 1.8.
Buck Horne: Mad respect for the modeling skills, guys. I appreciate the color. Thanks and good luck.
Brian Davis: Yes. Thanks, Buck.
Operator: Our next question comes from Craig Kucera with B. Riley, FBR. You may not go ahead.
Craig Kucera: Hey. Good morning, guys. You mentioned your guidance doesn't include monetizing any of the environmental components of the portfolio, such as mitigation credits or perhaps solar. But can you give us a sense of how much incremental value those might be worth in a sale?
Brian Davis: Hey, Craig. It's Brian. Good morning. Thanks for joining us. The -- from our standpoint, we did talk about, back in October, that could represent approximately 20% of our cash flow into the future. Really, the carbon aspect of it can be the largest element into that, while solar has the closest front end to it. And we talk a little bit about what the dynamics and economics can be something along with that. Carbon is not too dissimilar from that opportunity, looking at some of actually are less productive properties that can actually operate and under carbon sequestration contracts, that can generate net timber -- generate revenues in excess of what we would generate on a net timber revenue basis. And so that's kind of the scale that we're thinking about. Some of it is still relatively early stage especially as it relates to carbon, but we've been actively involved in exploring opportunities with that. And Todd, maybe you want to expand a little bit more as we think about carbon.
Todd Reitz: Absolutely. And so still a little bit early stages, but we are actively reviewing the portfolio right now. We've engaged a third-party consultant. We're out looking at -- we'll will begin actually cruising and inventorying of potential stands for the program. And then we'll have an idea of what the potential credits could be associated with that part of the portfolio. Again, it's not something that we're going to include the entire footprint in this has to be something that works in conjunction with our daily operating business as well. And so we'll have a better feel for that kind of mid, midyear, if you will. And then hopefully something, call it six to nine months down the road, we might be able to begin to see some monetization.
Craig Kucera: Okay, great. And just one more from me, just circling back to the price increases in the fourth quarter, which were clearly pretty robust. You mentioned your expectation of maybe 10% to 15% this year. Are you seeing that level of pricing power trending here in the first quarter or is that really just an expectation, occurring later in 2022.
Todd Reitz: Right. You could out there, they're just so many, you're up. Thank you. Your question was -- were seeing that trend up in the Q1 and the answer is yes. Q1 could be a pretty strong quarter for us overall, and so you will see some seasonality, I think throughout the year of somewhat similar to what we saw in 21. We came out of first quarter a little bit stronger than expectation. And then that moderated down a little bit going into the third quarter and then it built back up. But the main thing is that the fundamental drivers were there the entire time and we were able to hold onto and maintain a majority of the uplift that we have received. And that's carrying over into the first quarter and anticipate that being the case going forward.
Craig Kucera: Okay. Thanks.
Brian Davis: Thanks, Craig.
Operator: That concludes our Q&A session. I would like to turn the conference back over to Brian Davis for any closing remarks.
Brian Davis: Thanks, Anthony. Well, as you can tell by this call, we're very excited about 2022. And we really look forward to posting some great numbers and some great activity for our investors this coming year, and we look forward to talking to you next quarter.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
