Rayonier Inc (RYN) 2013 Q1 法說會逐字稿

Welcome, and thank you for joining Rayonier's first quarter 2013 teleconference call. At this time, all participants are on listen-only mode.

(Operator Instructions)

Today's call is being recorded, if you have objections you may disconnect at this time. Now, I would like to turn the call over to Hans Vanden Noort. Thank you, sir, you may begin.

Thank you, and good afternoon. Welcome to Rayonier's investor teleconference covering first quarter earnings. Our earnings statements and presentation 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 federal securities laws. Our earnings release, as well as our Form 10-K filed with the SEC, lists some of the factors which cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page 2 of our presentation materials. With that, let's start our teleconference with opening comments from Paul Boynton, Chairman, President and CEO. Paul?

Thanks, Hans. I'm going to make a few overall comments before turning it back over to Hans to review our financial results. Then we're going to ask Lynn Wilson, Senior Vice President of Forest Resources, to comment on our timber results. Following our review of timber, Charlie Margiotta, Senior Vice President of Real Estate, will discuss our land sales results and Jack Kriesel, Senior Vice President of Performance Fibers, will take us through the results of our Cellulose Fibers business.

We are pleased to report our first quarter earnings from continuing operations of $103 million, or $0.79 per share, as each business unit had stronger performance than in the prior year first quarter, and we benefited from $19 million in tax credits. Our operating cash flows continue to be strong, with cash available for distribution well above our $0.44 per share dividend. In addition to excellent financial performance for the quarter, we executed on our strategy of becoming a specialty chemical manufacturer, as we completed the sale of our commodity Wood Products business, and made good progress toward a midyear completion of the cellulose specialties expansion project at our Jesup mill. We integrated the December acquisition of 63,000 acres of highly productive timberland in Texas, with strong HBU potential, into our gulf region operations. Finally, in April, we acquired two of our three partners' ownership interests in a New Zealand joint venture to increase our ownership to 65%, as we further position ourselves for long-term play in the Asia-Pacific basin.

In all, our balance sheet and cash flows are strong, providing us the financial flexibility to execute our strategic objectives. With that, let me turn it back over to Hans to review the financials.

Thanks, Paul. Let's start on page 3, with the overall financial highlights. As Paul noted, we kicked off 2013 with a solid first quarter. Sales totaled $394 million, while operating income totaled $115 million, and income from continuing operations was $103 million. The sale of our Wood Products business resulted in its first quarter earnings and gain on sale being treated as discontinued operations income, which totaled $45 million. We will use income from continuing operations for the comparisons throughout this call.

On the bottom of page 3, we provide an outline of capital resources and liquidity. Our cash flow was strong, with pro forma EBITDA of $151 million. Cash available for distribution of $67 million was below the prior year, as a result of our election to exchange black liquor tax credits from the AFMC to CBPC. This exchange generated a $19 million tax benefit, but required us to pay $70 million of taxes this quarter. On a cash basis, we will realize a $19 million benefit through $89 million in lower future cash tax payments, with approximately $60 million realized during the remainder of 2013 and $29 million in the first half of 2014. We ended the quarter with $1.2 billion of debt and $266 million in cash. So on a net-debt basis, we finished at $934 million. We feel very comfortable with our current balance sheet and liquidity.

Now, I'll run through the variance analyses. On page 4, we prepared our sequential, quarterly variance analysis. In Forest Resources, as expected, operating income decreased. The negative variance primarily results from lower recreational license income, which is largely recognized in the fourth quarter of every year. We had price improvements in all regions, although our volumes were lower. Real Estate income was stronger, reflecting a $20 million sale of timberland in Washington. Moving to Performance Fibers, you can see the overall price impact was neutral, as increased cellulose specialty prices were offset by weaker fluff pricing. Volumes were unfavorable due to the timing of customer shipments. Corporate and other expenses were $4 million below fourth quarter due to a favorable mark-to-market gain on New Zealand dollar hedges and lower compensation expense.

Let's move on now to page 5 and the year-over-year variances. In Forest Resources, the year-over-year improvement was driven by higher pulpwood and sawlog prices in all regions and increased volumes in our Atlantic and Northwest regions. The Real Estate results in the first quarter reflect the previously noted Washington state timberland sale. In Performance Fibers, operating income increased $11 million, reflecting price improvement from cellulose specialties and significantly higher volumes due to the timing of customer orders. Finally, our corporate and other expenses were $4 million below last year, which included stock incentive compensation expense related to the previous CEO's retirement.

If we move now to page 6, where we reconcile our GAAP metric of cash provided by operating activities to our non-GAAP metrics of cash available for distribution, or CAD. As you can see, our first quarter CAD was $67 million, which was after making the $70 million tax payment for the final black liquor tax credit exchange. With that, let me turn the teleconference over to Lynn Wilson to cover Forest Resources.

Thank you, Hans, and good afternoon. Let's start with page 8 and the Northern region, which is primarily our Washington state operations. Average stumpage prices increased 20% over the fourth quarter, as export and domestic sawlog demand strengthened. With consistently strong US lumber prices and our ability to capitalize on China demand, sawlog prices increased steadily throughout the quarter. Volumes declined over fourth quarter due to seasonal weather conditions, but were comparable to first quarter of the prior year. In 2013, we believe overall demand will remain strong, driven by improving domestic log markets and continued demand from China. Sales results in the Pacific Northwest and New Zealand continue to support our expectations of improving markets. As markets continue to strengthen, we are positioned to maintain the 2012 volume levels in 2013. Overall, based on current pricing, we expect delivered log prices will be up 5% to 10% in 2013.

In the Atlantic and Gulf regions, on page 9, pine stumpage prices increased from fourth quarter. We experienced an improved harvest-mix percentage of sawlogs to 35%, slightly higher than the 2012 average of 30%. Prices were also higher than the same period last year for both sawlog and pulpwood as we continue to capitalize on more competitive markets. Volumes seasonally declined from the prior quarter, but were higher than the first quarter of the prior year. For the full year, we continued to anticipate that 2013 pine harvest volume will be comparable to 2012 and that pine prices will be 5% to 10% above 2012. Overall, Forest Resource's operating income should be well above 2012 due to stronger demand, driving higher prices. Now, let me turn it over to Charlie Margiotta to cover Real Estate.

Thanks, Lynn. Real Estate operating income was up from the prior period and year due primarily to the sale of 5,450 acres in Washington state for $20 million and solid rural markets in our Gulf region. We are also continuing to see increased interest in development property in our coastal corridor.

Page 10 details Real Estate rural HBU and development acres sold, indicating a relatively low quarter compared with our typical run rate driven by the timing of closings. We expect the balance of the year to have a quarterly run rate of 3,000 to 5,000 acres. We also expect development acres to accelerate somewhat. Page 11 details per-acre pricing. Rural prices were solid, driven, as I noted, by Gulf region sales in Texas, Louisiana, and Mississippi. We are pleased with our recent Gulf region timberland acquisitions, which included very good HBU properties. The spike in average development prices resulted from the sale of four acres on our east Nassau property for a road and infrastructure project for $242,000 per acre. Page 12 is the non-strategic timberland sales chart. First quarter consisted primarily of the 5,450 acres northwest sale at $3,700 per acre that resulted from an unsolicited offer. We expect non strategic acres will be above the prior two years.

I would like to also note that we expect formal confirmation this quarter that our 1,800 acre Crawford, Florida industrial site near Jacksonville has been awarded mega-site certification, which will enhance its visibility and marketability to industrial users and make it our second site to receive this important certification. I'll turn it over to Jack to cover Performance Fibers.

Thanks, Charlie, and good afternoon. Performance Fibers continues to report strong earnings, driven by robust cellulose specialty business. On page 13, you see net selling prices for our two Performance Fibers product lines. Cellulose specialty prices were up $65 a ton, or 4% compared to the same quarter prior year, and $24 a ton, or 1% from the fourth quarter of 2012, primarily due to our 2013 price increase, partially offset by a lower quality mix this quarter. As expected, prices for absorbent materials, which consists principally of fluff pulp, declined $91 a ton, or 12% from the same quarter in the prior year, and $62 a ton, or 9% from the previous quarter, as market conditions weakened.

Moving on to page 14, and looking at volumes, our first quarter cellulose specialty sales volume was approximately 15,000 tons above the first quarter of 2012, reflecting the timing of customer shipments. Absorbent materials sales volumes increased 5,000 metric tons. Remember, absorbent materials production will cease in mid May as we begin our annual shutdown and complete our CSE project. As a result, absorbent materials sales volume will decrease throughout the year as inventories are depleted.

During the first quarter, we successfully completed our annual shutdown of the Fernandina mill. The mill is up and running and we are now preparing for the Jesup mill extended annual shutdown and CSE conversion. The CSE project continues to progress toward a mid summer startup after the completion of the shutdown. We have completed and started up 13 of the 29 project components. Six additional projects are to be completed before the shutdown and the remaining 10 are to be completed during the shutdown. The cost of the project continues to track to the previously stated range of $375 million to $390 million. Overall, we expect that Performance Fibers operating income will be 10% to 15% below 2012 record results, primarily due to additional costs, lower volumes from the CSE transition, and weaker absorbent material prices. Now, let me turn it back over to Hans.

Thanks, Jack. The acquisition of an additional 39% of the New Zealand joint venture resulted in Rayonier owning 65% of the JV. Accordingly, we now will have to consolidate the joint venture. To assist you in updating your models, page 15 gives our current estimates of the income statement and liquidity impacts for the remainder of 2013. As with most timberland acquisitions, there's very little net income initially, due to the depletion expense after writing up the timber assets to fair value. On page 16, we've included our estimate of the balance sheet impact. We will be adding about $543 million of timberland values. On the liability side, we will have to consolidate long-term bank debt of approximately $196 million.

Now, I would like to provide estimates of some key metrics, including the impact of the New Zealand joint venture consolidation for the remainder of 2013. We expect depreciation, depletion, and amortization of $187 million and a non cash cost basis of land sold of $8 million, for approximately $195 million in total. Capital expenditures, excluding strategic investments for timberland acquisitions in the CSE project, are expected to total about $153 million. We continue to expect 2013 spending on the CSE to range between $130 million and $145 million. We expect interest expense, net of interest income, of about $47 million, which is net of $5 million of interest capitalized for the CSE project. With respect to income taxes, we expect our effective tax rate from continuing operations to range between 18% and 19%. When you put all of these elements together, we again anticipate very strong cash flow. We expect operating income and CAD all to be slightly above 2012. Also, we continue to expect that 2013 earnings will be weighted more heavily to the first half of the year, reflecting the realization of the tax credits, the first quarter $20 million timberland sale, and the impact of the CSE on the back half of the year.

Now let me turn it back to Paul for some summary comments.

Thanks, Hans. So, as you've heard, we're off to a great start in 2013, and we expect to achieve slight improvements in operating income, pro forma EBITDA, CAD, and EPS, even during this transition year for Performance Fibers, as we complete the CSE project to position that business for further growth and high margin specialties. In the first quarter, we realized benefits from the early stages of a recovering US housing market, as sawlog prices and sawlog pulpwood mix improved. As the home building market gains momentum, we expect to see further strengthening in sawlog demand and prices in the US South, as well as increased interest in our real estate development properties. In the Pacific Northwest, we expect improving domestic demand and solid export markets to continue to support strong log prices.

We remain committed to expanding our timberlands over time, with a disciplined acquisition approach and optimizing their value through exceptional management practices. Our acquisition of additional ownership interest in our New Zealand joint venture, at an attractive price, is consistent with this strategy and positions us to benefit to a greater degree from a growing demand for wood fiber in Asia and particularly China. In short, we are confident that we're well positioned to drive cash flow and value creation in 2013.

Now, on a final note, I would like to thank Charlie Margiotta, who after 37 years with the Company, has announced this past February his retirement planned for this July. We wish Charlie and his family all the best in retirement and thank him for being a key part of the Rayonier team. With that, I would like to close the formal part of the presentation and turn the call back over to the operator for questions.

(Operator Instructions)

Mike Roxland, Bank of America, Merrill Lynch.

Congrats on a good quarter, and Charlie, congrats on your retirement.

Thank you.

Just a quick question first on southern log pricing. Obviously came in a little better than we had been expecting. Are you actually starting to see better demand for sawlogs in the US South? Or were there any one-time issues, let's say, like, weather, which positively benefited pricing?

Well, right now, we're feeling optimistic as compared to where we were six to nine months ago. While some of our customers have extended their hours worked, many have not added a second shift or returned to full capacity. We continue to have conservative optimism, but we have seen in certain markets a translation back to the stump.

From better housing, Lynn, right? That's what you mean in terms of the -- ?

Correct. Lumber and solid woods, correct, Mike.

Lynn, can you call out what markets you're seeing that in?

Yes, our best markets right now are in our Gulf states, Alabama and in what we call our Southwest resource unit, primarily west Louisiana and east Texas.

Got you. Thank you for that. Then, Jack, quickly, on Performance Fibers, cellulose specialties' volumes came in a little bit higher than we had been expecting. I know you guys had an easy comp last year, but wanted just to get a sense from you as to what drove the 13% year-over-year increase? Were any customers ordering ahead of the C-mill conversion just to make sure they had enough supply?

No. The big difference Q1 2012 to Q1 2013 is the carry over in 2012. We had quite a bit of volume that was on the sea and that counted in 2013.

Just a higher proportion of international shipments, Mike.

Got you. Okay. So it was more shipments that did not get reflected in 4Q, just accounting, like in transit?

That's right.

Okay. Got it. Okay. And last question, Paul, can you just remind us of the Company's long-term plans concerning Performance Fibers? Is it a key part of the portfolio? Could it ultimately be divested or spun at some point? And really, if it's held onto, and given the expected acceleration in EBITDA, what are some of the tools the Company has, or that it can use, to really get cash out of the TRS and into the REIT rather than having it all trapped at the TRS?

Yes, Mike, thanks for the question. I'll probably divide this up and Hans can jump in here. Clearly, Performance Fibers is key and strategic to the Company, hence our investment in it. We've got 85 years of rich history. We're the leader around the globe in Performance Fibers' cellulose specialties. Therefore, we're going to continue to invest and keep our leadership position. We expect the value of that business to continue to grow, and as such, we will continue to look at structuring opportunities and a variety of other things to make sure that we always stay within our REIT metrics. Hans, I don't know if you want to add anything to that?

I would just say, over time we've come up with a variety of methods, such as doing internal like-kind changes. We've done some structuring of some of the higher and better use properties being sold down under installment notes, which allow us basically to generate interest income, if you will, between the two entities. We've got some other structuring possibilities to move properties up and attach cash and kind of internal spin. Over the years, we've come up with a variety of methods, so that we really haven't had the situation of cash trapped. In fact, we're -- actually, the majority of our debt, as you look at it now, is actually in the TRS.

Got it. Good luck in the quarter and the balance of the year.

Great. Thanks, Mike.

Chip Dillon, Vertical Research Partners.

First question is on the timber value, or pricing moving up, can you tell us to what extent some of that is, or if any of it is, mix sawlogs versus pulpwood, especially given that we have -- you mentioned the recovery in lumber production? How much of it would be of the 5% to 10% - is it just that you're actually getting that much in pricing on a like-for-like basis?

Chip, right now what we've seen is a 30% to a 35% shift in sawlog based on that mix between thinnings and clear cuts and the total volume that we had in the first quarter. So, that is a portion of the transition and the remainder of that is in the pricing.

Got you, okay. Very helpful. Then on the land sales, and I'm sorry this will be the last time I can ask Charlie this question, but -- and best of luck to you. But what do you see as a rough idea of the total acres that you think will be sold in the year by category, or total? And what should the basis be for the year?

I'll take a run -- thanks, Chip. I'll take a run at the acres. We noted that the run rate for the balance of the year should be 3,000 to 5,000 acres. With land sales, it's always hard to hit it on the number, because it's so driven by closings. If you add that up and add the first quarter, I think the rural and development will be somewhat similar to last year, last two years. As we noted, non-strategic will probably be up. We had that really good start in the northwest with that unsolicited offer. So, I'll just repeat. Rural and development, probably at a run rate of the last two years.

And the basis?

Yes, Chip, as far as basis, we're estimating the non cash cost of land around $8 million. Then the depletion on that, I would say, roughly in that $17 million, $18 million range. That could vary quite a bit depending on the specific properties that are sold.

Of course. Got you. On the ramp up of the CSE project, I know in the last couple years, you've had some pretty good guidance in terms of how the transition would work as you actually enter and maybe already have some of the lower end of the dissolving pulp markets as that gets ramped up. I think it's around the end of '15 you might be completely back up to the high alpha only? Is that still roughly the plan? Or has anything in the marketplace allowed you to accelerate the transition or decelerate that?

No, Chip, that's roughly the plan. Nothing significant has changed with those ratios.

Got you. Okay. I don't know if you have any comment, but do you sense that, or have you -- what are your initial thoughts about the change in ownership of your main competitor in the high alpha business? Do you have any views about that? It's kind of ironic that your former chairman actually worked in that entity. It still had a different owner.

Chip, maybe I'll take it. First, Buckeye for decades has been one of our great competitors. The expertise of dissolving pulp and cellulose specialties does reside within Buckeye and not their acquirer. We think that they have had a full offense against us in the marketplace. We don't expect that to change in any way with the new ownership. They were well capitalized before and obviously they will be well capitalized in the future. I think the second point with that is just to recognize that we compete head to head with Buckeye in a very narrow space, and as you think about it, it's really just in the markets that required a soft-wood fiber using a Kraft process, which is their sole capability, but just a small part of our Jesup operation. In fact, when you look at the overlap of our entire cellulose specialty business and Buckeye, it's probably in the range of 6% to 8% of our volume. So in other words, 92% or more of our volume is not significantly in a head-to-head competition with Buckeye. Just a couple thoughts on it.

Got you. That's very helpful. Thank you.

Mark Wilde, Deutsche Bank.

Charlie, enjoy retirement. This Company has changed so much over the last 37 years.

Correct. (laughter)

Particularly, I think, since it got spun out of ITT and you did the REIT conversion. Few questions, first, just to kind of follow up on Chip with the CSE conversion, has there been any change to timing there?

No. We're still on schedule for the mid summer startup.

Okay, and any significant impact from that outage you had earlier this month?

No. We had actually most of that issue focused in our recovery boiler area, and it impacted us about 6,000 tons. A big chunk of that was on the fluff line. We kept at least one of our dissolving lines running during that time. So, we should be able to make up the balance of that volume throughout the year.

Okay, all right. And then turning next to New Zealand, Hans, how is that New Zealand land, now that it's going to be consolidated, treated relative to the REIT rules?

It's a good REIT asset. It will be owned by the REIT. Our investment was already owned by the REIT, so there's really no change.

Okay, all right. Then, Lynn, I noticed when you were flashing the slides on timber pricing that there was a real disjoint between stumpage prices and delivered log prices. Is that something that you would expect to narrow over time, such that log prices are moving up more in line with what's happened to stumpage?

That's a good question, but at this point in time, the way that we are selling our delivered logs, we have an extended log supply agreement that's calculated. So, that's a lagging indicator over time because it's recalculated throughout the year. Whereas with stumpage, that's realtime data as we put those sales out and those are capturing the market currently. I would say on an ongoing basis, there would always be a two-month to three-month lag in our delivered price, and it would be muted by the fact that it's a calculated pricing for a portion of our logs for that log supply agreement.

All right. And then just kind of a technical issue. When people buy stumpage from you, that's typically for what? Kind of a harvest over the next 12 months, something like that?

Yes, it is over a 12-month period or in some cases, we actually put a year-end date on those to ensure that it falls within the calendar year. So, typically 12 months or calendar year end.

Okay, all right. That's really helpful. I'll pass it on. Good luck in the second quarter and through the year.

Thanks, Mark.

Mark Weintraub, Buckingham Research.

Following up a little bit more on the New Zealand acquisition, just to clarify, so it's a good REIT asset and so the income is non taxable, is that correct?

That's correct. It would be, it would be subject to local country tax. However, the way we have it structured, the venture has significant loss carry-forwards and then when it comes to the US, it's not subject to income tax, just like any other REIT income. So, for the foreseeable future, we shouldn't be subject to any income taxes there.

Is that somehow unique to this situation, or would that basically be true for any overseas timberland that you might own? Would that be good REIT assets as well?

Yes, it's true for any overseas investment.

Maybe share a little bit, along those lines, would you expect over time to become, to have more of an international presence? I'm not sure that several years ago it was clear that that would be the case. It sounds like you've done some work and gotten very comfortable with the notion that the international assets are a good REIT assets. With that shift, does that make you, perhaps, have a greater appetite to grow internationally?

Hey, Mark, Paul. One, we've long been international, but let me just reiterate what we've stated in the past as far as our priorities on acquisitions. One, it's been in the United States, particularly in the southeast, as well as in the coastal Pacific northwest. Two, it's been New Zealand, and then three, in Australia. We have looked at assets around the globe for a long time. Used to own and manage assets in Chile. We're very familiar with them, but, again, in this particular move in New Zealand was primarily driven by our strong belief that there's a net deficit of wood in the Asia-Pacific basin for the long term. We know that's going to go up and down in the short term, but we really like the position in the long term. So, places like New Zealand, like the Pacific northwest and like Australia, are in great opportunity to capture that value as time goes forward.

Great. That probably leads into the next question, or partially answers the next question. As I look at, I think it was page 15, where you give the financials on the JV. It looks like cash available for distribution of $5 million, is that related to -- would that be your prior interest? The 65% holding? And I mean, $5 million versus the amount of money spent looks very low and presumably it's something though that you expect to grow substantially over time. Is there any way to give us a way to model the potential growth in the cash generation?

Let me start with the first part of your question, Mark. The $5 million of CAD is a venture. But recall, or remember that the venture itself has venture-specific debt of about just under $200 million. That's after the associated interest that goes with it. That's a little different than, let's say, your typical acquisition that we do from the States. So, consider that. As far as -- and also, this is just for the remainder of the year here. We just wanted to give you guys some idea of how the metrics will start to change. At this point, I don't think we're really ready to give you any longer-term guidance for '14 or beyond, other than what, reiterating what Paul said, is we're very comfortable in the region and we think the dynamics there between the increase in demand and the deficit in particular in China is going to give us some really good return opportunities there. Also, I would just say by taking out two of the partners that we're going to have a little more operating flexibility with just one other partner and we think we can be a little more flexible in structure and otherwise there as well.

Mark, I was going to add to that, too, just to reemphasize, we had somewhat of a cumbersome ownership structure with the four partners. We got a great opportunity to increase our ownership at an attractive buy-in price and that put us in majority ownership, as well as continue to be the manager of the property. We'll begin immediately looking for opportunities to take out some of the costs and simplify the structure, as well as how we look forward and move on in the future. Again, there's quite a few reasons why, one, strategically and two, just immediately opportunity in taking some cost out, why this was an attractive move for us.

Okay. Thank you.

Josh Barber, Stifel Nicolaus.

I'm wondering if you can talk about the purchase price on those New Zealand assets? It looks like it's a bit of a premium to where you were currently carrying the assets. Was that just because there's some long-term depreciation and depletion there, but that's the overall expectation of market value? What does that equate to on a price per acre basis? Would you be able to fill us in on that?

Sure. You're correct. We have -- our historical basis was lower and so what's going to happen in the second quarter is we do show this under the new accounting rules, we're going to have to fair value this. That's what we're trying to give you an idea on 16. As a result of that, you'll see the increase in timberland assets. Actually, as a result of that, we'll record a gain in the second quarter reflecting the increase in the value from what our previous position was. That will all come out here in the next quarter.

Okay, and I imagine that and any of the other tax savings of the exchange are not included in your guidance? It could make numbers higher, but it's not actually going to be reflected in your guidance?

Yes. Well, again, the New Zealand -- on the acquisition there was definitely not in the guidance. The AFMC is in part of the guidance. You'll recall, Josh, the last couple of years, we've had a series of these black liquor benefits and so that is in the guidance. I think we said that last call as well.

Okay. Sorry about that. Paul, your comments, I think, on the overlap between Buckeye and Rayonier, that -- very helpful. My only follow-up to that is, after Buckeye is finished with their expansion project and after the C-mill conversion is finished, will that overlap still be I guess as limited, or are you guys going to be competing a little bit more directly on some of those markets going forward?

Yes, I would say it's still limited. Their facility is a Kraft process and it's only soft-wood fiber. So, it puts it in a range where we compete with the other -- again, somewhat narrowly, which is in high tenacity tire cord, sausage casings, and filtration. So there's some -- our smallest end markets is where we will have the overlap. They can go other places with it in a limited ability, but for the most part, that's where we'll be head to head. But, again, Josh, that I think in that expansion, they have already sold that 70%, from what we hear in their reports. Of course, our volumes already out there sold as well, at the 85% plus level. Again, I think a lot of that's already factored into how we compete today.

Okay, great. Thanks very much, guys.

Steve Chercover, D.A. Davidson.

I'm afraid most of my questions have been answered. I don't know if you elaborated on where the 5,400 acre parcel was located.

Yes, in Washington state. It was -- we responded to an unsolicited offer from someone who basically surrounded the property and it was somewhat isolated for us and we were able to generate a transaction that made a whole lot of sense.

Great. So, it is timberland? It's evidently well-stocked timberland?

It was okay-stocked timberland, yes.

Okay. Thank you for that clarification.

Paul Quinn, RBC Capital Markets.

Just a question on the timberland side. Maybe you could give a little bit more color on the export mix of what you're seeing in your Northern area? Then how you're going to -- whether you're going to give us additional details in the future on the New Zealand opportunity?

First part, Lynn?

Paul, our primary mix right now as far as export market is that we're delivering about 24% in first quarter to the export market. The remainder, we were very strong in the domestic market. Then for us, on our ongoing operations, that is over 65% Western Hemlock and primarily to China on our exports.

Lynn, just to add to that, we saw again, pretty consistent quarter to quarter, fourth quarter to first quarter export percentage. Perhaps what changed there was, again, the strength of both moving forward. Equally responding, correct?

Correct.

Okay, then. In terms of additional details on New Zealand, is that going to be provided going forward?

Yes, as we continue to integrate the property, as far as the acquisition, we'll give guidance as we go forward, Paul, for sure.

Okay. Then, just on the Performance Fiber side, noticed a drop in fluff pulp prices, and that seems to be counter to some of your competitors. I'm just wondering if there's anything specific in what you're seeing in that market going forward?

When you look at the fluff pulp prices, the list price has really been flat for quite some time until recently, just this month, there were some announcements by a couple of suppliers of a price increase for May. Discounts have been pretty significant across that and pretty consistent. It seems like the NBSK is doing much better, at this point in time, than rolled fluff pulp.

Okay, and just because I've got a lot of questions on this, this Buckeye announcement yesterday. A lot of people have asked whether you guys were able to compete in that process. The way I have described it is limited because of the REIT rules, as well as potential competition issues. Is that a fair characterization?

No, I don't think so. I mean, Buckeye, again, has been there for a long time. They've been public. We, certainly if we had an appetite, we could have gone that direction. We just have strategically decided not to. We put our strategic expansion dollars into Jesup, as you know, Paul. We thought that was a better return for our shareholders, particularly given our knowledge in acetate and ethers, where we think we can pick up on some higher margin business than some of the other parts of the cellulose specialty business. Therefore, we've just chased some other things with our strategic dollars than that opportunity.

Great. Thanks for the answer. Best of luck.

Thanks, Paul.

Stewart Benway, S&P Capital IQ.

I just want to make sure I understand the tax credit situation. You're saying, I think, $79 million this year from a benefit and $29 million in 2014? So, that's a $50 million hurdle to overcome for 2014? Is that the right way to look at it?

No. When we file the amended return, effectively we had to pay in the $70 million as part of the exchange for the credits. We'll then get back $60 million of reduced tax payments this year and $29 million in '14. So effectively, $70 million going out in Q1. You are realizing $89 million in total, with the split of the $60 million and $29 million that I just mentioned.

Okay, but you said $60 million for the remainder of 2013, that does not include the $19 million?

The $19 million is the net difference in our favor between the $70 million that we're having to pay and the total of $89 million that we're going to realize.

Okay. Thank you. Just on the fluff pulp, the issues there, do you think it's because of the new capacity, or there's conversions of capacity have been added? Is demand -- end-market demand still -- to me, that is a pretty stable market for end-market demand, so it's probably the capacity that's making the price issue?

Certainly, the new capacity that's come on over the last year or so is what's causing a good chunk of that, but the demand overall continues to be probably about 4% or so on the 4 million to 5 million-ton market.

You mean growth?

Correct.

Okay, good. Did you say that the Fiber's earnings would be down 10% to 15% this year? Is that what I heard?

That's correct.

Okay. Just one quick question on Asia, on the New Zealand. Do you see that demand, is that coming more from home building from sawlogs or is it more in pulpwood?

Most of that business is headed to China, is for concrete formation in construction. It's used for, again, the pouring of concrete in the construction of cement concrete buildings. That's where, by and large, most of that is headed into. Some of that certainly into plywood. Some of it into some decking kind of products, but by and large, it's concrete formation for construction.

Thank you.

Collin Mings, Raymond James.

Congrats on the quarter. Just a quick question, Jack. I was curious if you could comment on what you're seeing in the commodity viscose market? I know you don't plan to be in that segment longer term, but just wanted an update as it relates to the phasing in process of that higher grade product over time?

As noted earlier, it would be a few-year process in terms of the phase in, where the majority of that is taking place early on. The overall market, right now, certainly the supply from a commodity viscose pulp has continued to increase. Some numbers are ranging from 2 million to 3 million tons of additional capacity over the next few years. At least that's announced. As you know, a lot of that probably won't happen, especially if the pricing stays south of $1,000 type level. The demand for viscose-stable fiber continues to grow at, oh I don't know, 9%, 10% or so. There's a little bit of an imbalance between the demand growth versus the supply, which will probably keep some pressure on the pricing for the next year or so, unless something fundamentally changes in the marketplace in terms of cotton supply or some other factor.

Okay, great. No, very useful color. Switching gears real quick, guys, can you maybe comment a little bit more on just the interest in the real estate properties, particularly on the development side, and maybe how that momentum has built over the last three or six months?

Yes, this is Charlie. Sure, I think I said this last quarter, and versus last quarter it's gotten better. I'll explain that. Certainly from a year ago, it's gotten a lot better. We're just really beginning to see serious interest in land for residential development and to some extent, commercial and industrial. Converting those to transactions is always challenging, but we really are seeing a material difference in interest. There's a whole variety of reasons for that, but, yes, we're feeling a whole lot better today than we were feeling six or nine months ago.

As far as the level of interest, would you say some of it's more in the Bryan County area up near Savannah, or the Florida markets that you have land in? Can you just maybe break the interest level in those two markets out a little bit?

yes, the three -- we really think about it on a county level. The three areas are the Bryan County area, Nassau County, and St. Johns County. I will say the interest is in smaller properties than say, three or four or five years ago when we were selling multi thousand acre properties. We are pleasantly surprised by the discussion around price. It's along the coastal corridor where we have property.

Okay. All right. Well, thanks, again, for the color, and congrats again on the quarter.

Thanks, Collin.

Mark Wilde, Deutsche Bank.

Yes, just a little bit of follow up on down under. One, with those New Zealand holdings, I think those are scattered around one or both islands and I wondered if there would be any plans to try to consolidate those holdings over time?

Mark, you're right. We've got property from the north end of the north island to the south end of the south island. They are all good assets. We know them very well and we've managed them for a long time. Certainly with a consolidated ownership, it will give us a little bit more flexibility to take a look at them. We don't have any plans at this point in time.

How do you think about volatility down there? It just seems like over time, these New Zealand timber markets have had some of the wildest swings that I've seen globally.

Yes, certainly as you compare that to the US market, where we'll use one discount rate, given the market volatility in New Zealand in Australia, as we look at property there, we would have to use one that's a little bit higher than what we're using now. Yes, we definitely note that. We do have to factor that into anything we do in terms of acquisition.

Yes. Then Hans, I think in New Zealand, the convention is to revalue timber, like every other year to a market value. Is that something you're going to have to do on those properties?

Well, we have been doing that for the local financial statements under IFRS.

Okay.

That will continue, but it won't be implemented into our GAAP statements. Once we record the acquisition, we do have to write up to fair value. We just do it one time.

Okay.

Then we'd start the normal depletion.

Okay. Finally, you mentioned Australia, and I know that there have been a lot of these busted investment schemes down there, plantation, forest reinvestment schemes that people have been looking at and some of the TIMOs have actually done some stuff with. Is that an area that you're still interested in?

Mark, we do look at it. We have yet to get comfortable with a property set in Australia for some of those reasons you mention there. And also, some of the markets are fairly one dimensional. As you know, as a Company, we really like multi dimensional properties. Like in the US, we talk about good markets for sawlogs, as well as pulpwood, as well as HBU, as well as any kind of biomass. Some of the properties we've looked at in Australia really lack a lot of the flexibility. So, we tend to be pretty gun shy. We would have to put on such a volatility discount there that it just has not materialized in anything for Rayonier.

Okay. Reasonable and rational, it seems to me. Again, good luck through the balance of the year.

Thanks, Mark.

At this time, I have no further questions.

Great. Well, thanks for your participation and please contact Ed Kiker with any follow-up questions.

Okay. Thank you. That does conclude the call for today. You may disconnect your phone lines at this time.