Rayonier Inc (RYN) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Rayonier first quarter earnings release conference call. Today's call is being recorded by Rayonier, and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes implied consent. Please hang up now if you do not consent to be recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President, Mr. Hans Vanden Noort. Please go ahead, sir.

Thank you, and good afternoon. Welcome to Rayonier's Investor teleconference covering first quarter earnings. Our earnings statements and supplemental materials were released this morning, 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 the Federal Security laws. Our earnings release as well as our Form 10-K filed with the SEC, lists some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also repeated on page 2 of our supplemental material. Please familiarize yourselves with them. Also this conference is being webcast, and can be accessed through our home page.

With that let's start our teleconference with opening comments from Lee Thomas, CEO and President. Lee?

Thanks, Hans, and good afternoon to everyone. I want to make a few overall comments, and then Hans will take you through the financials. I have also asked our business managers to participate today. Tim Brannon, our Senior Vice President for Forest Resources and Wood Products, Charlie Margiotta, Senior Vice President for Corporate Development, and also our President of TerraPointe, our real estate subsidiary, and Paul Boynton, our Senior Vice President for Performance Fibers. They will review the market and the operations of those businesses. We will then open it up for questions.

Let me start off by saying how pleased I am to be here. I have been in my new role for a little over a month, and the transition has gone quite well. Given the quality of our businesses and the caliber of our people, I look forward to working with all the people in Rayonier to continue to deliver value to our shareholders. We are off to a good start in 2007. Our results in the quarter reflected the mix and strength of our core businesses. In particular, the strong results were due to several things.

First, improved pricing as a result of strong demand in our Performance Fibers business. Second, good demand for logs in the northwest and pulp wood both in the in the northwest and the southeast, and some of our customers who advanced their harvest to take advantage of those good demands, and then finally good sales in Real Estate, and also benefiting in this quarter from a sale that was moved up. We expected it to close later in the year, and it closed in the first quarter. So overall, a very good first quarter.

Our outlook for the overall year remains good, and we expect it to be comparable to 2006, excluding special items. Speaking of special items, as we noted in our earnings release, the wildfires that occurred in southeast Georgia have affected about 26,000 acres of our timber land. Our preliminary estimate of the impact on second quarter earnings is 5 to $7 million, or $0.06 to $0.09 a share. Once the areas are fully accessible, we will be able to more accurately access the damage, and what salvage opportunities we have.

Before I turn it over to Hans, let me say from a strategic perspective, I believe we continue to have strong market positions in each of our core businesses. We remain well-positioned to opportunistically grow our Timber business, to continue to unlock meaningful value through the execution of our Real Estate strategy, and further strengthen our position as a leading player in the Performance Fibers market. As I said in the beginning, I am excited about the opportunity to be here, the opportunities to continue to work with the Rayonier employees to grow shareholder value.

Now let me turn it over to Hans to cover the financials.

Thanks Lee. Let's start on page 3 with overall financial highlights. As Lee noted, we opened the year with a very solid quarter, sales totaled $300 million, resulting in operating income of $55 million, and net income of $35 million, or $0.45 per share. There were no special items this quarter, or in the first quarter of 2006. However, the fourth quarter of 2006 did have special items that will be discussed later, which we believe should be taken into account when comparing quarter to quarter.

Sales were $29 million below the prior quarter, but $23 million above the first quarter 2006. Tim, Paul, and Charlie will go into the key drivers behind that movement. Operating income of $55 million was approximately $13 million below fourth quarter 2006, but $18 million above first quarter 2006. We will go into more detail on the individual segment variances in the following pages, a comparison to prior periods of reported earnings per share indicates a $0.26 per share unfavorable variance to the fourth quarter, but a $0.15 per share favorable variance to the first quarter of last year.

Note however, that the fourth quarter of 2006 included a $3.7 million tax benefit, or $0.05 per share from the deferred tax adjustment, and a gain of $5.3 million, or $0.07 per share from discontinued operations arising from the approval of a more cost effective remediation plan at a closed facility. We believe both of these items should be excluded for comparative purposes, resulting in pro forma fourth quarter income of $0.59 per share, and this will be the basis of our comparisons throughout this presentation.

On the bottom of page 3, we provide an outline of Cash Resources and Liquidity. Cash provided by operating activities from the quarter of $52 million, was slightly above last year's first quarter amount, reflecting higher operating income, offset by increased working capital . Cash used for investing activities of $47 million was above last year, primarily due to an increase in restricted cash for like kind exchange purposes. Cash used for financing activities of 17 million was $14 million below last year, due to an increase in debt at the TRS.

Adjusted EBITDA of 97 million was $26 million above the prior year's first quarter, while cash available for distribution of $61 million was well above first quarter of '06. We will look at the CAD a little later. Our debt and debt to capital were comparable to year end, and we ended the quarter with approximately $28 million in cash.

Let's turn to page 4 for the first Variance analysis. Here we show a comparison of first quarter to fourth quarter earnings. We begin with $0.59 in pro forma earnings per share from the fourth quarter, and come down to our first quarter results of $0.45 per share. Working from the pretax column, our Timber operations had a $7 million improvement, driven by higher U.S. volumes due to strong export demand in the northwest and from pulpwood markets.

Our Real Estate results were about $15 million below a very strong fourth quarter, primarily because of fewer development acres sold. However, interest in our rural properties was robust. Continuing down the page, Performance Fibers benefited about $9 million from sale of specialties price increases, however, this was more than offset by a $15 million negative variance in volume and costs. The volume shortfall reflects the impact of our planned major maintenance shutdown at the Jesup Mill.

On the cost side, recall that last quarter we settled a property tax dispute, which decreased our costs through the reversal of about $5 million in accruals, related to prior years. Other Manufacturing costs increased this quarter as well. The remaining areas were relatively comparable to the prior quarter.

Let's move on to page 5 to briefly review the year-over-year variances. On this page, we begin with last year's first quarter earnings of $0.30 per share. Overall timber results increased compared to prior year due to higher volumes in the U.S., and improved results from our New Zealand operations.

Real Estate earnings were also up reflecting an increase in acres sold from approximately 3,400 last year to 6,100 acres this year, driven by strong interest in our rural properties. Performance Fibers results reflect strength in prices in both sale of specialties and absorbed materials. Volumes also improved, but were mostly offset by increased manufacturing costs. Finally, with products results were $6 million below last year, reflecting the continued weakness in lumber prices. The amounts bring us to the current quarter's result of $0.45 per share.

Let's now turn to page 6 for a brief discussion of Cash Available for Distribution. On this page, we reconcile from cash provided by operating activities, which is a GAAP measure, to our non-GAAP metric of Cash Available for Distribution, or CAD. We deduct capital expenditures from cash provided by operating activities, and then adjust for any equity-related cash flows, like kind exchange tax benefits and changes in committed cash, to arrive at what we consider operationally generated cash available for distribution. Cash provided by operating activities was $52 million. From this we deduct capital spending of 31.4 million, which was $5 million below last year, which included investments in our Performance Fibers mills, to significantly reduce our fossil fuel consumption.

Next is a $27.8 million change in committed cash. The majority of this item results from the timing of an interest payment on our debt. The interest was related to 2006, but wasn't paid until early 2007. Although the payment wasn't made by year-end 2006, we reduced 2006 CAD reported last quarter, to effectively consider this as a 2006 outflow. Therefore, we need to add it back here, so it doesn't show as a 2007 outflow.

The next adjustment we make is a deduction for like kind exchange benefits, for CAD purposes we consider the LKE benefits to derive from investing activities versus operating activities, since they are only realizable through reinvestment. Finally, the $7 million other adjustment primarily represents an increase in accounts payable related to capital expenditures, mainly during Jesup's planned maintenance shutdown at quarter end. The net of all these amounts resulted in CAD of $60.8 million, versus $23.7 million last year.

With that let me turn the call over to Tim to cover Forest Resources, markets, and

In discussing Timber and Lumber, I will briefly review the first quarter, and then discuss the outlook in general for the second quarter of 2007, and to some extent for the year. We know Mother Nature can certainly affect our plans, and as Lee Thomas commented, we are currently fighting a forest fire in south Georgia, that has already impacted over 26,000 acres, with a second quarter loss estimate of 5 to $7 million. So please keep in mind that much can happen between now and the end of the second quarter, and the end of the year.

For the Northwest on page 8, you will note that in spite of a depressed lumber market, volumes were up sequentially, as well as compared to the first quarter of 2006, as a result of a very solid demand for pulpwood, and an unexpected strong export market. Prices were higher than we expected and came in about equal to the first quarter of 2006, but lower than fourth quarter 2006, as some higher value contracts were harvested at year end. For the second quarter, volumes are expected to be down just slightly compared to first quarter, but below the very strong second quarter last year.

Prices, on the other hand, are expected to be up sequentially, but slightly below second quarter 2006. We expect export markets to remain firm, and demand from domestic sawmills should be seasonally better. For the year, volumes are expected to be down about 8%, and prices on average are expected to be lower by 2 to 3%.

Moving on to the South, page 9, volumes were up sequentially, as well as compared to first quarter 2006, due to strong pulpwood demand, and also due to the acquisitions we made in Texas and Oklahoma last year. Harvest volume on this new property began ramping up in the fourth quarter of 2006. Demand and price exceeded our expectations in Texas, Oklahoma, and Alabama, as wet weather had previously curtailed production there. Prices in the first quarter of 2007 moved up sequentially, although they were still below last year's first quarter.

For the second quarter, we are expecting drier weather in Texas, Oklahoma, and Alabama, and demand and price are easing. Gray temper markets in Georgia and Florida remain depressed as sawmills continue to react negatively to the poor lumber market, due to the significant slowdown in housing starts this year. Volumes are expected to be down sequentially, but above second quarter 2006 levels. Prices are expected to be up sequentially, with a slightly greater mix of grade timber being harvested, and so more in-line with second quarter 2006.

As I mentioned earlier, the south Georgia fire loss is currently expected to be in the 5 to $7 million range. For the year, volumes are expected to be up 6 to 7%, reflecting the impact of the 2006 Timberlands acquisitions. Average prices are also expected to be up slightly.

Turning to page 10, Lumber, which as you know is a small part of Rayonier overall, our prices recovered somewhat from the lows we saw in the fourth quarter. Volumes, on the other hand, were lower sequentially. For the second quarter, volumes are expected to pick up sequentially, but prices are not expected to improve from first quarter levels. We do not expect any substantiative change in price or demand for the balance of the year. As a result, we have cut costs and reduced production.

Now let me turn it over to Charlie to review the real estate business.

Thanks, Tim. Overall, our Real Estate business is experiencing mixed results. In our Coastal counties, which are represented by the development property segment, demand varies from soft due to an oversupply of houses and developed lots in a number of Florida counties, to good demand in other areas in Florida, and generally in Georgia. Medium-sized local and regional residential developers continue to be our best source of sales. The rural market is steady, with interest particularly in Florida and Alabama.

If you turn to page 11, the development sales were modest in the first quarter. We sold commercial property in both Florida and Georgia at high per acre prices, reflecting the commercial property, end use, and location. We continue to target local and regional residential developers for sales in this segment. The rural segment, as shown on page 12, reflects another good quarter. Transactions were spread throughout our three-state operating area, with sales in Florida, Alabama, and Georgia.

Our rural sales are primarily driven by lifestyle purchases, and aided by ample liquidity amongst the buyers. Our program is now extending west, as we begin to market some of the newly purchased rural properties we acquired in Texas, as part of the Timberlands acquisition made in late 2006.

With that, let me turn it over to Paul.

Thanks, Charlie. As noted by both Lee and Hans, our Performance Fibers business continues to perform well, with the benefit of strong market demand for our unique cellulose specialty fibers, and rising market prices for our fluff pulp products.

Let's look on page 13. You can see Performance Fibers net selling prices for both our Cellulose Specialties and Fluff products, along with comparative prices for commodity paper pulp, SBSK. In looking at the Cellulose Specialties business, which represents 64% of our Performance Fibers volume, demand remains very strong, which drove price increases as we entered 2007.

First quarter Cellulose Specialty prices were up 7% on average above the prior quarter, and 11% above the first quarter 2006. As you look at the Fluff net selling prices, you will note the continued gradual price increase trend for Fluff pulp that began in the back half of 2006. First quarter 2007 Fluff prices were 3% above the prior quarter, and 7% over the same period 2006.

Now turning to page 14, it shows Performance Fibers sales volume. You can see our first quarter sales volume of Cellulose Specialty has increased 10%, relative to first quarter 2006, mainly related to a timing shift in customer's requirements, as well as fewer scheduled maintenance days in total at our mills. Our Absorbent Materials volume, which is principally Fluff pulp however, decreased 15% relative to the first quarter 2006. The volume reduction is directly related to a longer planned maintenance shutdown of our Absorbent Materials line.

Now separately, in recent analyst calls, we commented on our efforts to reduce the amount of fossil fuels consumed in the production of our products, and I am pleased to report that in the past year, we have successfully implemented numerous energy projects, including the new Fernandina Mill biomass power boiler, which went into service in January, ahead of schedule and on budget. As a measure of progress in this area, we can look back to 2005, where we consumed approximately 780,000 equivalent barrels of oil between our two mills.

In 2007 we will reduce our usage by more than 40% compared to this 2005 number. In summary, our business saw improved earning results in the first quarter compared to the same period a year ago, driven by strong demand for our Cellulose Specialty products, rising Fluff pulp prices, but offset slightly by higher material costs. We expect that the second quarter will show earnings slightly improved as compared to the first quarter.

With that, let me turn it over to Hans.

Thanks, Paul. Let's turn to page 15 to review earnings trends. Including the impact from the Georgia Timberland fires, we expect second quarter earnings to be slightly above first quarter's earnings of $0.45 per share, and second quarter '06's pro forma earnings of $0.47 per share. On both a sequential and year-over-year basis, the increase is driven primarily by anticipated improvement in Performance Fibers and Real Estate results.

On a full-year basis, again excluding the impact from the Georgia fires, we expect earnings to be in-line with our 2006 pro forma EPS of $1.99 per share, driven primarily by strengthening Performance Fibers results. Before I close, I would like to update you on a couple of key statistics. First of all for 2007, we expect depletion, depreciation and amortization of 151 million, and the noncash cost basis of land sold of 7 million, or approximately $158 million in total. Capital expenditures, excluding acquisitions, are expected to range between 90 and $95 million.

With respect to our investment in New Zealand, for the year we expect 2 to $3 million in equity income from the joint venture. However, because of the way the joint venture is structured, we expect to realize cash flow in the 5 to $6 million range. Our first quarter effective tax rate before discreet items of 16.7% reflects our current estimate of the full year rate. However, this rate can vary based on like kind exchange benefits, and the mix of income between our REIT and TRS business.

With that, I would like to turn it over to Lee Thomas for closing comments.

Thanks, Hans. Let me conclude here by saying that as you have heard from Tim, Charlie, Paul, and Hans, our three businesses are well positioned. As I noted earlier, while it is still early in the year, we expect 2007 earnings to be comparable to last year. Although the softening in certain residential markets will put pressure on Timber and Real Estate, we expect the impact to be offset by the strength in our Performance Fibers business.

We look forward to another solid year, given the unique mix of our three businesses and the overall stability of earnings, and the robust cash flow they provide. That combined with our strong balance sheet, tax efficient REIT structure, should allow us to continue advancing shareholder value.

With that, let's open it up to questions and answers.

Thank you. (OPERATOR INSTRUCTIONS) We will take our first question from Steve Chercover, DA Davidson.

Thank you. One question, please. Just wondering whether the earnings from the taxable REIT subsidiaries, and specifically Performance Fibers is doing so well, does that in any way jeopardize your REIT status?

Hi, Steve, this is Hans. No, it won't. Basically it is up to us to determine the timing of when we actually dividend income from the TRS to the REIT, and that's the main component of the non-REIT piece of that income test. So that is basically under our control and-no requirement for us to dividend any of the amount.

So even if it continues, and we hope it does to perform very well, you can leave the retained earnings in the TRS for many years?

You can. I just say that we look at this every month when we forecast a full year of REIT and TRS income.

Last year we dividended $37 million, this year because the increased REIT earnings, we think that number can be closer to $50 million. There is a pretty fair capacity for us to move cash from the TRS up to the REIT, so we have flexibility there.

Great, thank you.

We will go next to Chip Dillon, Citigroup.

Yes, good afternoon. Talking about the fires and the land that is impacted by that, just using a rule of thumb, it looks like the amount of impact is maybe 1/5 or even less, of the value of that land. Is that because you are basically able to salvage most of the trees that are still on the properties, or why would the impact be so much less than the value of the land overall?

Well, probably two things there, Chip. Number one, yes, we assume we are going to be able to salvage some, though we haven't really gotten in there yet to dig in too deeply, but based on past experience, we had some significant fires back in '98. So #1, that is the salvage component, and #2, it's on our books less than what the market value is, and so what we are talking about here is a write-down for book value.

The Performance Fibers business is doing much better when you X out the down time, given the pricing and you are going to be spending less capital this year. And yet you are not showing an improvement year-over-year in earnings, even as I read on slide 15, if we don't even count the problems in Georgia. Is that mostly because you are being a little conservative, you are being more conservative on where you think the back half of your harvesting is, or is it more tied to the Real Estate business?

In other words, where do you think, if you were to think about when you were planning three, four, five months ago, do you think that what is changing if anything, is Performance Fibers has to be doing better than you thought it would be doing, with the pricing I would think, so therefore the offset is either in harvesting or real estate, which one would you say is more of the offset?

I would say there is an offset, well, the one area I did mention was Wood Products, and the pricing in Wood Products is below than we thought three months ago, so that is a piece of it right there.

And you're not alone in that.

That is certainly an element there, and certainly the timing of harvest, as we mentioned, certainly that was accelerated beyond what we expected when we were on the call three months ago.

The last question is, on the last call, there seemed to be, at least if I read the by-language. And of course, Lee, this wasn't you, so you are not at all on the hook for this, but it seemed like there was some optimism about the dividend. Are you finding it might be wise to sort of see how things shake out with the real estate situation in the United States, before you take a look at raising that again?

Chip, the dividend, our dividend, which is an attractive dividend and I think a good reliable dividend is an important part of returning value to shareholders. In addition to looking at that dividend and where we stand on it, we also look at the other requirements for cash, particularly as we are moving into the entitlement processes on some of our real estate and what is required there, some of the opportunities we have on the Timber side of things, but it is an issue that our Board looks at, and looks at that balance.

I think going forward we clearly will have a reliable and an attractive dividend, but we have to look at how we balance those cash demands.

Got you. Thank you.

We will go next to Christopher Chun, Deutsche Bank.

Great, thank you. Good afternoon. Hey, just following up on Chip Dillon's question about the magnitude of the impact from the fire, can you talk about what the impact would be if we calculated, made the calculation based on market value of the timber that is affected rather than book value?

We really haven't gone through that at this point, yet, Chris. Once we get a little further into it, we will be able to quantify that, but it's just too early yet to get there.

Okay, fair enough. And then on Timber, we have recently had a couple of sales in the Pacific Northwest, at what I think most people would consider pretty impressive valuations, and of course I am referring to the Longview deal, as well as the Menasha deal. Can you talk a little bit about how you feel your land, and the Olympic peninsula stacks up to the land involved in those deals?

Tim, why don't you take that?

Well, I guess obviously, all comparisons that we can make in looking at these new opportunities have come up, and certainly we do. We are always looking at Timber land opportunities, and trying to decide what would be best for us, and making various comparisons. I don't know exactly how to necessarily give you a direct comparison with some of the Menasha or the Longview Fibre with us, but I would just say that we are continuing to look at those opportunities as they come up over the years.

But in terms of our Timber stands, H class, geographic locations, those kinds of things, have you got any feel for it? Charlie, do you want to take it?

Yes, I will take it because Tim and I looked at it together. To be fair, Longview had a lot of [birch] and old doug fir, old doug fir, and Menasha did also. So I would say that their age classes and their species were a little richer than ours.

On the other hand, our productivity on the Olympic peninsula is really high. So I think it is fair to say net/net, a little higher volume but I think, but I would also say that the prices that obviously Longview's public, and Menasha, we just know what we read, surprised us on the upside.

Okay, that is quite helpful. Finally, on Performance Fibers, you guys had talked previously about how this was an improving business, but still I felt like the magnitude of the year-over-year improvement was quite impressive, and last year the performance in that business improved pretty steadily and substantially throughout the course of the year, and I am wondering if it would be fair to expect the same type of improvement throughout the year in '07, as we saw last year?

Hi, Chris, this is Paul. I think that is probably a fair look at it. We had a strong first quarter. We expected a slightly improved second quarter, and building through the rest of the year, and mainly driven as our volume tends to be smaller due to the maintenance shutdown in the first quarter. It kind of goes along with that correspondingly throughout the year. So I would expect a strengthening business throughout this year.

Great. Thanks a lot for your help.

We will go next to Claudia Shank, JPMorgan.

Hi. Thanks a lot. Could you provide just a little bit more color on the northwest log volumes, and where the strength is coming from in the export market? And then just sort of how sustainable you think that export demand will be?

Well, this is Tim Brannon. It is interesting seeing the uptick that we had in the export market out of the Northwest, and frankly, it was a bit unexpected and a very pleasant surprise, needless to say. We are seeing most of that going into Korea, in terms of the length of time that it may last. We feel reasonably comfortable, as I said in my comments, that we feel the export market would remain fairly firm, at least through the second quarter. After that, it's kind of who knows, frankly. But at least at this point, it has certainly been an attractive alternative to the domestic log market.

And how has pricing been in that market versus the domestic market?

Well, pricing has been reasonably strong there, vis-a-vis the domestic log market. And so we are seeing some of our customers coming in and buying away timber and putting it on the export market, as opposed to delivering it to local sawmills.

Thanks. I was hoping you could comment more broadly on the acquisition environment, and what you are seeing out there with regard to opportunities and land values, and how you're weighing the decision to purchase land versus dividend increase or maybe a share repurchase?

This is Lee. I think one of the things that is important for us to do is to continue to look at opportunities to grow our Timber business. We think that clearly the opportunity we took advantage of last year was a good one, and we are seeing the results of that.

So you are aware of some of the large volumes of land and timber that are on the market now, that have been announced. We along with a lot of other people will be looking at that. I think it is a very competitive market, as we have seen. Prices have certainly been strong for Timberlands, but we will continue to look and look hard at what is available.

Thank you very much.

(OPERATOR INSTRUCTIONS) We will go next to Mark Weintraub, Buckingham Research.

Thank you. Congratulations, Lee, on your new responsibilities!

Thanks, Mark.

I guess just wanted to follow up a little bit more on the dividend question, maybe put it a bit differently. Do you look at longer term cash generation and come up with metrics, or percentages that you think are appropriate to be paying back to shareholders through dividend?

Again, I recognize there are always the competing uses, but if there is any way we can get a better sense as to, in an absolute approach, how you think about the dividend, that would be helpful.

Mark, I don't think we can give you a metric that gives you an absolute approach, because we don't use one. We do, however, look at not immediate cash available, but longer term trends in terms of not just cash available, but predicted uses of cash and I think, as I said, we try to balance those out. Our Board looks at that, we work with them on that set of issues.

Having said that, I think Rayonier has clearly had an attractive dividend. It is our intent to continue to have an attractive dividend and a reliable dividend. I am sorry I can't give you anything more specific than that, but we have to look at a variety of factors when we make recommendations, and talk with the Board about what that dividend should be.

Fair enough. And one of the potential uses you talked about was on acreage that might be getting entitled. Is there any acreage at that juncture, which either has been entitled, or is in the entitlement process, and is there any detail that you or Charlie can give us on those projects?

I am going to let Charlie elaborate on this, but I have had an opportunity just over the last couple of weeks to not only visit some of our land that we are moving through the entitlement process, but visit with the teams that are in the middle of that process. We have not completed it.

I think that you have to think in terms, particularly in Florida of 18 months to 2.5 to 3 years to move through the entire process, particularly on some of these really attractive properties that we have, but we are definitely in that process at this point. Charlie, do you want to add to that?

Really not that much I can add. We are in that process, we are spending some money, and it is mostly in planning and analysis and preparing for a submission. And we have multiple projects, a couple projects both in Florida and Georgia, so it is somewhat early, but they are under way and again, it is hard to be specific, particularly when you certainly need to control the flow of information during the planning stage.

Okay. Is there any way to give us a sense of the magnitude of perhaps by acreage or whatever metric you think is appropriate that over a three-year period, you would hope to be pushing through the entitlement process, or anything that can give us a bit more of a sense of the rate at which the Rayonier entitlement pipeline might be expected to flow?

We are in the middle, Mark, of really looking hard at our Real Estate business, and particularly those premier properties. That was a part of why I was visiting the teams that were in the middle of that. There are factors that really we haven't fully defined on some of those properties.

For instance, we have got a 6,000 acre tract that may well break down into several parcels as we go through the entitlement process, and we haven't made that decision yet. So trying to tell you specifically how many acres and what period of time, I think, is premature at this point.

Right. Charlie, I would add, when the permit is filed, it will have an acreage number on it and at that point, it will be effectively public, but we really don't want to tip our hand quite yet.

Sure. Fair enough. Thank you.

We will go next to Peter Ruschmeier, Lehman Brothers.

Thanks and good afternoon. Maybe just a follow-up on Mark's question. In terms of developing some of these 200,000 acres of HBU land, in terms of how you think about the JV opportunity versus going it alone, as you start to get into this process and you think about your larger tracts, doesn't that ultimately require more of a JV approach, and if so, what kind of attributes of partners, and what you would be looking for?

Hi, Peter. I think clearly we do not intend to become a developer ourselves. I think we will partner with developers. We will see some of this property through the entitlement process, and then partner with a developer.

In other cases, I think we will be partnering before we finish the entitlement process, and it to some extent depends on the property, and how much work we feel is needed and expertise is needed to move through entitlement. We have already done some partnerships with good developers. I think we have a series of criteria we use when we think about a developer for different parcels, but clearly I think the partnership issue is a very important one for us on all these properties.

Okay. Maybe a question for Tim, if I could. Looking at the recently-acquired lands, Texas, Oklahoma, how much of the increase in your harvest volumes represents the new properties?

Really, I would say the majority of the increase in volume that we are finding is coming from those new properties, so we have probably pulled back somewhat on our properties in Florida and in Georgia in particular, because of the soft market that we are finding there, so much of this increase that you are seeing in coming from those properties out there.

Can you share anything else that you are learning as you harvest in Texas, Oklahoma, the quality of the timber, the proximity to markets, just how that has been going?

Well, certainly so far we have been quite pleased with it, and it was actually slightly above with a our acquisition model had in it. But part of that is, as I mentioned in my comments, because of the wet weather that was there.

So, I think we benefited slightly from the fact that there was wet weather, people were able to come in and harvest on our property right away, with the good roading system that we had, and so forth, so that was all positive. The timber quality has been quite good. Certainly more saw timber than we are accustomed to in our Georgia/Florida area, which has again been quite positive. So overall I think we are certainly quite pleased.

Okay. Thanks very much.

And there are no further questions at this time. Mr. Vanden Noort, I would like to turn the call back over to you for any additional or closing remarks.

Alright. I would like to thank everybody for joining us. If you have any follow-up questions, please don't hesitate to give Parag Bhansali a call. Thanks again.

This does conclude today's conference. Thank you for your participation.