Rayonier Inc (RYN) 2004 Q3 法說會逐字稿

Please stand by. We’re about to begin. Good day everyone and welcome to the Rayonier third quarter earnings release conference call. Today’s call is being recorded by Rayonier and is copywrited material. It cannot be re-recorded or rebroadcast without our expressed permission. Your participation on this call constitutes implied consent. Please hang up now if you do not consent to being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President and Chief Financial Officer, Mr. Gerald Pollack. Please go ahead, sir.

Thank you and good afternoon. I would like to, once again, welcome everybody to Rayonier’s analyst teleconference, this time covering our earnings for the third quarter of 2004. Our earnings statement was released this morning and supplemental materials soon thereafter. If you have not received this material, please call our Investor Relations Department at 904-357-9177 and we will add you to our fax or email list.

This conference is being broadcast live over the internet and is open to all shareholders and interested investors. Instructions on accessing the live web cast were given in our press release. Simply go to our website at www.rayonier.com (http://www.rayonier.com) and link to the conference.

With me today is Lee Nutter, Chairman, President, and CEO. We will be following our typical routine with Lee opening the formal presentation, followed by my review of the financial highlights for the quarter. Lee will then cover markets and operations and I will close our presentation with a discussion of earnings per share trends.

As usual in these presentations, we include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Our 10-K, earnings release and supplemental materials, list the factors which we believe to cause actual results to differ from those projected and which do change from time to time, as our investor communication is updated. Please familiarize yourselves with them.

In our earnings release, supplemental material and also in this conference, we use non- GAAP measures, such as cash available for distribution or pro forma earnings per share giving effect to our December, 2003, special earnings and profits dividend. Footnotes explaining definitions and reconciliations of those non- GAAP measures and other items are included in our presentation.

With that, let’s start the program with opening comments from Lee. Lee.

Thank you, Gerry. Let me just make a few overall comments now and then we’ll go back to Gerry for his review of the financials.

With 9 months behind us, we are well into our first year, and a year with results that show balance in earnings and the cash flow that this Company can generate. Results through September reflect the strength of our business, our resources and our people. While to date we have unlocked meaningful value for our shareholders, we see continuing opportunities to further enhance that value. Strong cash flow, a hallmark of this Company, has allowed us to complete an $89 million timberland acquisition, pay $83 million in dividends, and end the quarter with $42 million in cash.

Land sales, as we’ve noted before, have a quarter-to-quarter variability, although our year-to-year results are fairly consistent. Year-to-date sales this year have generated operating income of $64 million compared to $80 million last year. Our year-to-date operating income of $144 from land sales, as compared to $95 at this point last year, reflects the overall strength of this business.

In timberland , on the harvest side, while we saw the usual seasonal slowdown in the Northwest, it was offset somewhat by continued strong demand. In the Southeast, while weather conditions were more normal this year than last, for most of the quarter, hurricanes began to impact our operations last month and will continue to do so into the fourth quarter.

Year-to-date operating income from harvest operations of $56 million compares favorably to $37 million for the same period last year.

Fourth quarter timber harvest volumes in the Southeast will be above third quarter and fourth quarter ’03, but prices will likely be down 8 to 10 percent, due to the hurricane impact that I just commented on, resulting in an impact on the market.

Performance fibers had another solid quarter with operating income of $16.7 million. As you can see from the financial data we provided, versus last year, prices were up in both absorbent materials as well as cellulose specialties, and costs were down.

Demand remains strong for performance fibers, especially in sale of specialties, as evidenced by higher prices and volumes. Year-to-date performance fibers had operating income of $41 million and an adjusted EBITDA of $101 million. The ongoing strength in our lumber business has continued to contribute to our results as we move through the year.

Looking ahead to the fourth quarter, we should see -- and let me conclude here by saying that we’re off to a very solid start as a REIT and well positioned our business to continue to move ahead.

Let’s go back to Gerry to review the overall financials for the quarter.

Thanks, Lee. Let’s start on Chart 3. Third quarter results reflect somewhat mixed comparisons of business performance against prior periods. Although we were down from the second quarter 2004 results, due to some seasonal patterns, higher manufacturing costs and lower land sales, we were much improved over the prior year third quarter results, particularly, as Lee indicated, in lumber, Northwest timber and corporate expenses.

As a reminder, results for the second quarter of this year include approximately $24 million in operating income from the sale of a timber lease, which contributed $.29 per share in net income in that quarter.

This year’s third quarter results include .20 per share from like-kind exchange transaction tax benefits, as we discussed in our press release, while last year’s third quarter includes $.08 per share for REIT conversion costs. Nevertheless, as we try and adjust each of the results for unusual items, the bottom line still represents strong performance in these uncertain economic times, with more positive signs of earnings growth showing up than adverse ones.

Earnings per share of $.47 for the quarter was down from the second quarter by $.39 per share, but up $.31 per share from a year ago on pro forma basis.

Notwithstanding the mixed comparative results on income, cash flow remained very strong. For the 9 months ended September 30th, cash provided by operating activities was $234 million, resulting in cash available for distribution of $147 million. I’ll review the derivation of that cash available to distribution metric a little later in the presentation.

Debt remained basically flat from quarter-to-quarter at $616 million and our debt to capital ratio of 43.7 percent is well within our target range.

Let’s go into the comparative operating performance analysis starting on Page 4. In this chart, we start out with the second quarter earnings per share of $.86, coming down to this quarter’s results of $.47 per share. Let me note a heading error in the material that was sent out. A line was cut off at the top. The first column should read pretax. The second column, net income, and the third quarter obviously is EPS. We regret that error.

The largest component in the comparative decline was $30 million in pretax income from land sales, lower this quarter than last. As Lee indicated, and we have from time to time, the complexity and timing of land sales, and particularly large land sales, makes it difficult to compare results quarter-to-quarter, and even at times, on a year-to-year basis. This observation is particularly felt or seen in this quarterly comparison.

Beyond the land sales change, lower timber volume in both the Southeast and Northwest regions contributed to the sequential quarter-to-quarter earnings decline, while most other product areas operating variances offset one another. At the bottom of the charts, you can see the impact of the $10 million in like-kind exchange tax benefits that were realized in the quarter upon consummation of our $89 million timberland acquisition, offsetting the normal tax provision against operating results.

As a result of the above items, earnings in the quarter declined to $24 million in net income and, as I mentioned, $.47 per share.

Let’s turn to the year-over-year comparison shown on Chart 5. As I mentioned, the year-over-year comparisons reflecting longer-term favorably improving business conditions, showed an increase from last year of $.16 per share in the third quarter, to this quarter’s $.47 per share, including like-kind exchange benefits and $.27 per share excluding them.

Other than the comparative decline in land sales year-over-year, all product areas and corporate expenses showed improvement. Strong timber pricing in the Northwest, higher negotiated prices in sale of specialties and absorbent materials, improved manufacturing costs and pricing in lumber, and the absence of prior year’s REIT conversion costs in corporate, all contributed to a $.13 per share improvement in operating income.

Once again, at the bottom of the chart, you can see the contribution of the like-kind exchange tax benefits for the third quarter.

Bottom line, once again, we achieved $.47 per share, which brought our year-to-date total to $1.84 per share. And as a reminder, these results, presented for the year-to-date, omit the net tax benefit of $.98 per share realized in the first quarter, related to favorable deferred tax liability adjustments as a result of our conversation to a REIT on January 1.

Before I go on to a brief description of cash flow, I do want to mention that as a result of the REIT structure, there will be certain inter-company transactions engineered periodically over the years that do not necessarily completely eliminate in consolidation, as would have been the case for us in prior years. It can have a temporary effect on our external financial reporting and cash.

Let’s turn to Chart 6 for a brief overview of what is now necessary. This is a typical chart that we have used to present our new REIT structure, showing REIT qualifying activities, in other words, our U.S. timberland activities, apart from the taxable activities held in a taxable REIT subsidiary. The only point I want to make here is that in order for us to market higher and better use land, or non-core timberlands, it is critical that we do that within a taxable REIT subsidiary. It is therefore necessary for us to periodically, every 2 or 3 years, reload the land inventory in the HBU business unit by either contributing or selling land from the U.S. timberland entity to effectively the right side of this chart, the TRS.

Some minor complications arise because the REIT entities and a taxable REIT subsidiary are two separate tax entities. And inter-company transactions between the two can generate an immediate tax liability. This year, to reload our dealer inventory but meet re-qualification rules, we have elected to sell approximately $100 million of timberland from our REIT timber base to the TRS, so that we can begin marketing land that will drive land-operating income for the next several years.

We have elected to make that transfer on a sale basis this year, rather than as a capital contribution and, as a result, a taxable REIT subsidiary will purchase those timberlands for cash. Approximately half of that sale came from internally generated cash flow, with the other half to be completed in the fourth quarter, will be financed through our credit facility, which we expect to repay over the next 10 to 15 months from operating cash flow.

Two reporting anomalies arise as a result of this. First, as a taxable transaction, the REIT parent company will be liable for some taxes on the sale in 2004. All things being equal, it’s in effect an advance payment of taxes that would eventually be due over the next few years when that land is sold to third parties. The sale creates a higher tax basis in the TRS, and excluding the additional appreciation that we expect will occur over time, no further taxes will be due on a third party sale.

The second anomaly arises in that the TRS will have to borrow approximately $50 million, but the equivalent cash, less taxes due, will be sitting at the REIT parent company until needed for strategic purposes. These two aspects do not eliminate in consolidation and therefore both our gross debt and cash balances will increase when the transactions are completed in the fourth quarter. I just want to mention this now, inasmuch as much as fourth quarter results more likely will show the impact I described. Debt to capital, as a result of this increase in debt level, will be higher by 1.9 percentage points, keeping us still well within our target leverage range.

Let me complete the front end of our conference presentation by just briefly reviewing our key cash flow metric, cash available for distribution on Page 7. In this presentation, we start with adjusted EBITDA and work our way toward CAD. As we’ve described in our definitions of non-GAAP measures, adjusted EBITDA is basically the EBITDA that you know and love, but with non-cash cost basis of land sold that is deducted from cash proceeds added back.

That cash component is a very important part of recovering our investments in our timberlands, when they are sold. We reduced that adjusted EBITDA by typical capital spending, income taxes, accrued interest expense, and then modify it for changes in the balance sheet.

Bigger ticket items in the balance sheet changes for 2004 include semi-annual interest payments on the timberland acquisition notes, not due until year end, off-set by contributions of $13 million, above $8 million of pension expense and disposition spending of $5 million.

In this presentation, we’re also pulling out the like-kind exchange tax benefits on third party sales, in as much as we can anticipate that those benefits will be recurring. And therefore, to come to a cash available for distribution, which is a measure of our sustainable cash available for strategic decisions, we subtract them from the overall cash generated.

With all the puts and takes, you can see that for the 9 months ended September 30th, cash available of $147 million, or $2.88 per share, is much improved over the prior year. And after having paid $83 million, or $1.68 per share in dividends for the 9 months, contributed strongly into that $42 million in cash on our balance sheet at the end of the third quarter, that Lee mentioned.

With that financial overview, let me turn the conference back to Lee for discussions of our markets and operations. Lee.

I’ll just take a minute to review the operations in our markets, the businesses and make a few more comments on the outlook for the fourth quarter.

As I noted earlier, land sales in the third quarter were below the first 2 quarters, reflecting, as we’ve said, the inherent variability in this part of the business. Year-to-date operating income from land sales was $64 million compared to $80 million last year. However, as you may recall, 2003 was unusually strong.

Looking at the balance of this year, land sales will likely be somewhat below 2003, but certainly above the level of 2002.

Moving onto the timber harvest side of our business, you can see on Page 9, Northwest timber, the impact of shifting, as we mentioned before, the volume from the fourth quarter of 2003 into 2004. This was done to take advantage of our conversation to a REIT and its very significant tax advantages.

In the fourth quarter, we should see sales volumes at about last year’s fourth quarter level. As you can see, prices have held nicely, and as we expect, we should see some slowdown in sales volumes in the fourth quarter, but demand will remain strong with some likely modest price increases.

For the year, the volume shift from late ‘03 into 2004 should see a 25 percent increase on a year -- or 20 to 25 percent increase on year-over-year basis.

Looking at Southeast timber on Page 10, volumes, as expected, were below first and second quarter levels for third quarter, while showing little change in price. Looking at the fourth quarter, as I said earlier, we should see an average price decline. That’s due to the hurricanes as more timber is put on the market and volumes, or prices, will soften due to the excess volume.

However, for the year, in the Southeast, the price is expected to be slightly above on an average basis, than that of 2003. Due to the hurricanes, as we’ve said, volumes in the Southeast will be down in the 2 to 3 percent range.

On Page 11, our New Zealand operations, you can see the typical ramp-up in volume as we’ve seen before. As I’ve noted in the second quarter call, our 2004 prices shown here reflect the change in our reporting. Prior to this year, we included inter-company sales of low quality timber. Beginning this year, the prices you see now reflect only external sales. The volumes you see reflect our total volume. Prices for the fourth quarter here are expected to ease slightly, while volume should continue the usual, steady, up-tick reflecting about 2 percent for the year, and improvement in volume on a year-over-year basis.

Looking at Performance Fibers business on Page 12, sale of specialty prices, as expected, remained essentially unchanged, as they should for the fourth quarter. As we’ve mentioned on other earlier calls, much of the volume and price for sale of specialties is set in the multiple contracts with annual price adjustments, with periods sometimes extending over 2 or 3 years, for volume, again with the annual price adjustments.

The stronger pricing combined with lower hardwood costs, much better operating performance, and (fluff) (ph) price increases of 7 to 8 percent, year-over-year basis, result in operating income for the quarter of $17 million. With year-to-date EBITDA of $101 million, Performance Fibers is a strong generator of cash for this Company.

Looking at Page 13, let me just say volume for this year sale of specialties should be up slightly from last year. Our mix remains strong, with sale of specialties, representing as you see here, about 65 percent of our volume for the quarter, certainly a higher percent for sales. For the year, the mix should be slightly above that of last year.

Pages 14 and 15 reflect information on our wood products segment. Lumber prices held steady in the third quarter, however, volume was impacted, mainly due to the availability of wood due to wet weather. Volumes and prices were both well above last quarter levels -- or third quarter levels of last year. Results from our lumber business have translated into year-to-date operating income of $13 million, a very solid contributor for us.

For fourth quarter, while lumber prices are expected to pull back somewhat, partially due to the impact of hurricanes, volumes should slightly improve above third quarter levels.

On Page 15, you see the key statistics on our MBF business. Volumes were essentially flat compared to second quarter, and somewhat below last year’s third quarter, partially due to mix, while prices continue to move up from second level and were 18 percent above third quarter level of ‘03. For the fourth quarter, volumes and prices should continue to increase. On an operating basis, while this business reported a small loss, you should note that the weak U.S. dollar had a large impact on this product’s financial results.

Let’s go back to Gerry now.

Thanks, Lee. Let’s turn to Chart 16, with which we typically close the formal part of our presentation and try to give some guidance as to upcoming earnings trends.

As you can see, we are focusing on the fourth quarter expectations, indicating it will be somewhat down from the third quarter, even after adjusting for the like-kind exchange benefits, but up strongly from last year’s $.04 per share.

Another way of looking at it, is if one were to use the First Call estimate as of October 26th of $2.11, which I believe adds back two reported results , first quarter of 2004 REIT conversion expenses of $.07 per share, in effect using $.58 per share for the first quarter instead of the $.51 reported, that under that arithmetic, the First Call estimate would be right in the ballpark of what we currently expect.

With that, let me close the formal part of the presentation and turn it over to our teleconference operator to take questions from our audience. Shavonne.

The question and answer session will conducted electronically. (OPERATOR INSTRUCTIONS) We’ll go first to Mark Weintraub, Buckingham Research.

Thank you. Gerry, if you could just -- I’m sorry, you were zipping through pretty fast right at the end there when you were talking about the fourth quarter guidance and adding back the $.08 or something to the first quarter. Could you just run through it again?

Yes. I believe the (indiscernible) First Call is working for the year. It’s showing $.58 per share for the first quarter, which took our reported results of $.51 and added back the REIT conversion expenses to come to a pro forma first quarter. And then, that adds up to $2.11, which on a reported basis, I guess, would be the equivalent to $2.04. And that’s what we’re saying is right in the middle of what our expectations are, on a reported basis this year.

Okay. So essentially, what you’re saying is that the fourth quarter would be $2.04 minus -- order of magnitude, $2.04 minus $.47 minus $.86 minus $.51?

That’s about the arithmetic, yes.

Okay. Just -- okay thank you. Can you let us know roughly how many acres you are intending to transfer into the HBU land development as part of this roughly $100 million transfer?

I don’t have the acreage right here. Let me just see if -- I had the dollars and the margin, but I’m not sure we have the acreage that are associated with that, offhand , Mark. We’ll have to get back to you on that.

Okay. And do you have handy how much is already in the HBU land development category, either -- ideally dollars and acreage?

Total inventory?

Yes.

I’m not sure we have that at this point in time. We know what the fair market value was at date of transfer of the new reload. I think it would be a little speculative, perhaps, to talk about the fair market value of land that has already been in there for some time, but we can get you the acreage on that. But I think the -- some of the land has been there for a while and the fair market value would be somewhat speculative.

Okay. And then lastly, I just wanted to clarify, pricing in the Southeast in the fourth quarter -- I’m sorry Lee, I thought I heard you say two different things. I probably misheard, but did you say down 2 to 3 or did you say down 8 to 10 percent?

For the quarter?

Yes.

8 to 10 for the year. In fact, talking about the year.

Okay. 8 to 10 was for the quarter and maybe 2 to 3 was for the year then? Was that what it was?

I think the -- Mark, 8 to 10 for the quarter, going from third quarter to fourth quarter because of that extra supply of wood, would be down 8 to 10. But for the year, we’re looking at a 7 to 8 percent price increase on pine, on pine value --

Okay. Thank you very much.

-- pine price.

(OPERATOR INSTRUCTIONS) We’ll go next to Steve Chercover, D.A. Davidson.

Hi. Good afternoon. First question with respect to your dividends. It certainly looks like the cash flows are sufficient to support a higher level. Have you or the Board contemplated raising the dividends from current levels?

Steve, this is Lee Nutter. Well, as we looked ahead when we initially set it, we looked ahead with the idea, we’re certainly going to position ourselves where we could do it and could do it on a timely basis. Obviously, as we look at our cash flow, we’re comfortable with our cash flow. You know, we’re not yet in a position where we’re going to announce it, but certainly I think as we’ve indicated on other calls, our intention is to raise it on a relatively periodic basis.

Okay. Could you also give us a sense of what your CapEx might be in 2005?

A total CapEx in 2005?

Yes, please.

Well what we’ve given in the past is, you know, normal CapEx. It runs about $90 million, $90 to $100 million a year. And that’s probably still the guidance. We haven’t really finalized our budget, looked at the projects that we want to implement. So the $90 to $100 million probably is still the -- a reasonable range to use absent any strategic acquisitions.

And it’s a good segue. -- How are you finding the market for timberland ? . Is it pretty frothy? Are you seeing any deals coming your way that you’d like to participate in or would you characterize it more as a seller’s market?

Well, we’re always looking, Steve, at opportunities that -- we are appraising them. We are, in some cases, bidding; we are, in some cases, negotiating. It is a tight market and you’re probably right. The pendulum is still sitting on the side of the sellers. The advantage, I suppose, of the way of differentiating ourselves from just the general people out acquiring timber, is what we’re looking for on like-kind exchanges is particularly timber that is more mature. The profile is to the mature end, whereas a lot of the other fund managers are looking for a timber profile that’s more uniform over time. So that does give us a bit of an advantage, but in some sense, you know, it limits the opportunities to buy. There’s just, you know, of course, not as much out there as we’d like, but that’s what we’re going for and it does give us -- it does differentiate us somewhat from the rest of the pack.

And final question. With respect to like-kind exchanges, are you compelled to buy anything over the next 6 to 12 months in order to maintain the tax efficiency or are you all squared away in that respect?

We’re in -- we’re fine. We’re not compelled to buy anything in the near term. You know that large acquisition in Alabama, the so called Andalusia acquisition, really put us in good stead.

And maybe I’ll squeeze in one more. Sorry. I hope I’m not being too aggressive. You -- right now, you’re active in the Southeast and Northwest. Any other areas you’ve looked to expand your geographic footprint, Maine or elsewhere?

Well, we haven’t gone that far north, Steve. You get too far out of you areas that you’re not familiar with, and you start to put a bigger discount on some of those opportunities and it -- you begin to stretch it. But we have looked, particularly in the Southeast, at moving out further away from Georgia, Florida and Alabama up to the north and to the west. We’re pretty comfortable with the volume we hold in those 3 states essentially, and moving further to the west, and as I indicated, somewhat to the north.

Great. Thanks very much.

We’ll go next to Frank Denall (ph), Adage (ph) Capital.

I have a few questions, hopefully not as many as Steve, but maybe. After the hurricanes, did you guys have any blow-down timber on your lands?

Well, in Alabama, we, like others, and as I think I indicated, what’s happened is everybody’s out salvaging their timber and putting a lot of it on the market over there. So, that’s one of the reasons for the price softness. But we -- you know, we had a lot, but as quickly as we can, we’re out recovering it.

So, I mean, you know, if you were going to look at the long-term value, is there any sort of hit to value or, I mean, you know, because you have to actually force the harvest out in relatively low prices?

Well, Frank, in Alabama, you know, the Alabama was the acquisition that we had recently and higher cost basis, so in the third quarter, we took about $.5 million pretax hit for having to salvage that timber below cost

Okay.

That’s the range; $500,000 to $700,000 is probably the range that we’re seeing.

Now why -- I guess I must have misunderstood or didn’t quite grasp the logic. Why do you have to sell timber from the REIT into the holding -- or not the timber, the HBU lands from the REIT into the taxable subsidiary?

Because dealer property, or marketing for sale property, is not a qualifying activity. It’s a prohibited transaction. So, to avoid a onerous tax, you sell it out of a taxable REIT subsidiary.

Okay. Now I thought I understood taxables, but I thought you said maybe a little different. If there’s appreciation -- you sell it to the taxable subsidiary, you step up the tax basis. If there’s appreciation subsequent to the step-up in the tax basis, you owe tax on that, right?

You’ll owe additional tax, yes. .

Okay. That’s what I thought. And when you show the chart of EBITDA improvement from the first 9 months of 2004 versus 2003, and this actually might apply to the slide whenever you show the full 12 months, how much is just because we did the -- you know,. we reduced the amount in the fourth quarter of 2003 and slipped it in the first quarter of 2004?

How much cash moved from the fourth quarter -- ?

No, it’s just the -- how much of the EBITDA improvement basically was just, you know, because I moved some of the stuff out of the fourth quarter last year into the first quarter of this year? I mean, how much is the first quarter? (Indiscernible) how much of the first quarter may be overstated?

Well, it wouldn’t be just the first quarter.

Right.

It would have been spread the first, second and third quarter.

Okay.

But we talked about $.06 per share in the fourth quarter.

Okay.

So -- well, once again, that would be so $3 or $4 million of operating income at that point in time.

Okay. Great. Thanks. That’s all the questions.

(OPERATOR INSTRUCTIONS) We’ll have a follow-up question from Mark Weintraub, Buckingham Research.

Thank you. Lee, I was hoping you might just expand upon -- there is a sentence in the press release where you say, “With a strong balance sheet, we continue to explore ways of capitalizing on our REIT structure to further increase long-term shareholder value.” What exactly did you mean by that?

Well, I think -- I suppose one could look at it a couple ways. One, of course, is the opportunity to make timber acquisitions either with using equity perhaps, in some cases, using debt and then turning around and issuing equity to raise the capital. I think those are two opportunities, frankly, just were not available to us as -- back as a regular C Corp. And that’s some of the opportunities we continue to look at. There’s multiple opportunities of course, and, you know, trying to find one that makes sense for both parties is always the challenge. But I -- what I guess we’re saying is, Mark, we have a lot more flexibility and we see more opportunities.

Okay. And it would seem to me that -- particularly that second scenario, where you might do something for debt and then issue equity. Given that you do have a very strong balance sheet, those would be pretty big transactions that you’d be talking about. Am I right there or am I -- ?

You’re right. You’re right, Mark. Those are the big ones. They go from the small ones which, obviously, with the cash we’re sitting on, gives us the opportunity. The small ones are certainly not going to go out and issue equity to pick up something for $50 or $100 million; probably going to be above that before we go out to issue equity. But there’s lots of opportunities from small ones to big ones and, you know, just finding the right ones.

And would they necessarily then be confined to the regions where you operate now, or if they were bigger, could it include, at least part of it being in regions where you maybe are not currently present?

Yes, yes. They could be outside of regions which we’re currently operating in. What you would like to get is, if you do go out of the region, you would like to get a unit that’s big enough to be meaningful. It’s sort of an economic operating block. But we have looked;we’ll continue to look. We think there’s land -- I have seen a lot of opportunities in the Northwest and in the Southeast, and by Southeast, I’m probably meaning almost the Southeast quadrant of the country, not quite that big in the Northwest, looking primarily at Oregon and Washington and the focus again there is on the west side. But we have looked at material on the east side of both of those states.

Okay. Thank you.

And we’ll have a follow-up question from Frank Denall, Adage Capital.

And I’d just like to follow up on some of Mark’s questions. You said earlier that you had a competitive advantage because you were looking for more mature timber, but why is that?

Well, I -- what I meant to say, Frank, if I didn’t, was we differentiate ourselves from the average buyer out there in there in the market. The average buyer is looking for a timber harvest profile that’s fairly uniform over time.

Right.

When we’re doing an LKE, and what you’re always looking for is getting your cash back in as quickly as you can, so we’re looking for timber with a profile that’s front end loaded.

Okay.

There’s more of the timber in the front end so you can get your -- so what you’ve got on a like-kind exchange basically, you’ve moved a taxable asset into a non-taxable position and you want to get your cash back as quickly as we can. And a lot of people are not looking for that kind of a profile.

All right. So, back to Mark’s question, if you were looking for something big, you wouldn’t necessarily have that advantage because -- unless there’s some huge thing with a bunch of mature timber?

You won’t -- yes. You won’t find that in big parcels nor do our like-kind exchanges --

Right.

-- come in big parcels. So that’s a nice fit for us. If you’re just going out for a straight acquisition, no, you’re not going to find a big front end load.

Okay. Great. Thanks.

And we have a follow-up from Steve Chercover, D.A. Davidson.

Wow. It’s a competition. My question, and maybe you’ve already tried not to answer it, but I think it would help, is with respect to your HBU potential. You clearly stated that you want to sell, I think, 4 percent of your portfolio a year, as a regular course of business. But can you quantify what type of HBU potential you think you have within your portfolio?

Well Steve, let me answer it. You know we’ve said 2 to 4. We haven’t put the 4 number out there. We have put together an internal evaluation of what we have. We’re discussing it internally, including our Board, as to whether or not -- how far we want to go in releasing the information, the value we see on it. I think as we’ve said, the number of times we certainly did not start out on this road of selling higher-valued timber, particularly down here in Florida and Georgia, with the idea that after 2 or 3 or 4 or 5 years, the well is going to go dry. We are certainly in a strong position with high valued properties.

Do you think, once the Board has considered it, you might give us the kind of proven and probable reserves, make it sound like an oil company?

Well, I don’t know about the proven and probable. That’s a nomenclature that I don’t think I’m used to. But I think it is something we’d like and we’re considering making a move to do that. We’ve just chosen not to do that at this stage of the game. I guess that probably goes to the conservative nature of this Company.

Sure. Remember, more is always more, so we like lots of information. Thanks.

All right.

And at this time, we have no further questions in our queue. I’ll turn the conference back over to Mr. Pollack for any additional or closing remarks.

Well, thank you. I think with all the questions from Frank, Steve and Mark, we’ve sort of completed the conference. Anything further, please don’t hesitate to call Parag (ph) or myself. I want to thank everybody for joining us today. Thank you.

That does conclude the Rayonier third quarter earnings release conference call. You may disconnect at this time. We do appreciate your participation.