CatchMark Timber Trust, Inc.
Q2 2019 Earnings Call Transcript

Published: 2 Aug 2019

[Operator:]

Good morning. Welcome to the CatchMark Timber Trust Second Quarter 2019 Earnings Call and Webcast. [Operator Instructions] Please note this event is being recorded.I would now like to turn the conference over to Brian Davis, President and Chief Financial Officer. Please go ahead.

[Brian Davis:]

Thank you, Debby. Good morning, and thank you for joining us for a review of CatchMark Timber Trust results for second quarter 2019. I am Brian Davis, President and Chief Financial Officer of CatchMark. Joining me today on the call are Chief Executive Officer, Jerry Barag; Senior Vice President of Forest Resources, Todd Reitz; and John Rasor, President of Triple T.During this call, CatchMark management will make forward-looking statements. These forward-looking statements are based on management's current beliefs and information currently available. CatchMark's actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectation. For more information about the factors that could cause such differences, we refer you to our 2018 Annual Report on Form 10-K and subsequent reports that we file with the SEC.Today's presentation includes certain non-GAAP financial measures. Reconciliations of these measurements are included in our earnings release, which is posted on our website and our Form 10-Q filed with SEC yesterday, Thursday, August 1, 2019. After our presentation, Jerry, Todd, John and I will be pleased to answer any of your questions.Now I'll turn over the call to Jerry Barag to cover CatchMark's second quarter 2019 results.

[Jerrold Barag:]

Thanks, Brian. Good morning, everybody, and thank you for joining us today. We were very pleased with second quarter performance highlighted by increases in total revenues and adjusted EBITDA year-over-year. The results point to the strength of CatchMark’s underlying operating strategy, focus on assembling prime timberlands in select leading mill markets and benefiting from our delivered wood sales model and supply agreements with blue-chip customers.Significant contributors to quarterly results where asset management fees primarily from Triple T and HBU timberland sales. Our high-demand mill markets again enabled CatchMark to realize better than market average pricing for timber sales compared to TimberMart-South. In relation to our previous results, we also continued to generate significant year-over-year timber pricing increases.Our prices were 3% higher for sawtimber and 2% higher for pulpwood second quarter year-over-year and 4% higher for sawtimber and 3% higher for pulpwood for the six months period ending year-over-year. We were also pleased to see resilient prices in our sawtimber timber from first quarter to second quarter.In addition, last year, Pacific Northwest Bandon acquisition stepped up operations during the quarter, producing $1.2 million in timber sales revenue meeting plan. And we remain very much on track to meet our full-year harvest volume target of 2.2 million to 2.4 million tons.As noted, asset management fees were a major second quarter contributor to CatchMark’s operating results with Triple T producing $2.8 million in revenues. Operationally, the Triple T joint venture is also doing well. The joint ventures operations exceeded budget for the quarter and year-to-date. Contributing to these excellent joint venture results, we are fully meeting our wood supply obligations with our two primary Triple T customers.We disproportionately benefited from weather-related local pricing as conditions depressed local mill inventories leading to increased demand and price increases for our Triple T pine harvests. Triple T land sales are on track to meet 2019 targets and we are benefiting from strong surface use revenues generated by oil and gas related activities.The Dawsonville Bluffs joint venture has been another asset management success story as its reaches its culmination in less than 2.5 years since formation. The joint venture has registered exceptional returns with an investment multiple to date of 1.3x invested capital and produced results at the top end of 2019 guidance. That guidance anticipated the joint venture delivering $3 million to $5 million of adjusted EBITDA.In keeping with our strategic management plan for the joint venture, we have recently sold down substantially all of the remaining 4,400 acres of Dawsonville. That $8.7 million transaction was completed on July 15 and provided CatchMark with a $4.4 million cash distribution during the third quarter. The distribution includes a performance based management promote in recognition of the joint venture exceeding investment hurdles.Moving back to CatchMark's second quarter results, our HBU timberland sales also net plan and the execution contributed to improved year-over-year performance. We sold approximately 4,000 acres of timberland for $8.2 million, compared to 3,100 acres for $6.8 million during the second quarter 2018.The Company's cash flow remains solid and yesterday, we declared a quarterly cash dividend of $0.135 per share for common stockholders of record on August 30, 2019 payable on September 13, 2019. Year-to-date dividends had been fully covered with cash available for distribution.Taking a closer look at CatchMark's second quarter operating results, we increased revenues by 9% to $28.7 million compared to the second quarter ending June 30, 2018. We incurred a net loss of $30.6 million on a GAAP basis, primarily due to a $28.6 million allocated loss from Triple T.We increased adjusted EBITDA by 8% year-over-year to $15.1 million. We generated gross timber sales revenue of $16.3 million and 8% year-over-year decrease resulting primarily from a 12% reduction in timber sales volumes, which was mitigated by the higher pricing previously discussed.We sold approximately 4,000 acres of timberland for $8.2 million. We completed $5.5 million timberlands disposition to recycle capital, which paid down $5.3 million in debt after quarters end. And Brian will talk more about our recycling efforts in a moment.We are in $2.8 million in asset management fees and finally we paid a dividend of $0.135 per share to stockholders on June 14, 2019. Overall, we had a very good quarter and continued to meet expectations for adjusted EBITDA within the range of $52 million to $60 million.So now I will turn it over to Brian to discuss the balance sheet and capital recycling.

[Brian Davis:]

Thank you, Jerry. During the second quarter and since the quarters close, we have made significant progress on our capital recycling program, spearheaded by selective larger land sales. These sales and subsequent debt repayments are returning us towards targeted debt levels.The proceeds also provide additional capital for share repurchases, acquisitions of prime timberlands, and potentially entering into new joint ventures. There are two transactions that we completed recently.In late June, we sold 3,600 acres of less productive, wholly-owned Georgia timberlands receiving $5.3 million in net proceeds, which were used in early July to pay down existing debt on CatchMark's multi-draw term facility. We realized a GAAP gain of $764,000 on the sale.Last month, we also executed a $19.9 million sale of 10,800 wholly-owned acres in Georgia and Alabama and use proceeds to repay $15 million of our outstanding debt balance on the multi-draw term facility.We expect to use the remaining proceeds from the sale to fund general corporate purposes, including share repurchases. This sale achieved attractive pricing in timberlands, just outside of CatchMark's desire procurement range.These transactions will be fully reflected in third quarter results. If you include last year's Southwest disposition, which facilitated the Bandon acquisition, we have now completed nearly $105 million in capital recycling transactions.Turning to our balance sheet and the wake of the large timberland sales and after consideration of the debt repayments, which occurred since the end of the second quarter, we have $185 million available under our credit facilities for acquisitions, working capital and share repurchases. We maintain our appropriate debt mix of 76% fixed to 24% floating rate and the pricing of our low cost that remains highly favorable at 3.5% net of patronage.With regard to share repurchases under CatchMark's $30 million share repurchase program, we repurchased $1.4 million worth of common stock and open market transactions during the second quarter.As of June 30, 2019 CatchMark may repurchase up to an additional $16.3 million worth of shares under the program. By all indicators, we have been successful in our capital allocation as demonstrated by our fully covered dividend, the opportunistic share repurchases, funding of capital expenditures from cash from operations. The management of our long-dated wealth staggered debt maturities are low floating rate debt exposure and a very attractive low cost of our debt.And now we'll turn it over to Todd for a review of operations.

[Todd Reitz:]

Thanks Brian. Our second quarter harvest volume and pricing played out largely as we anticipated in our 2019 planning guidance. Even though harvest volume decrease compared to prior year results. We have prepared for the seasonal mill outages and wet weather in the U.S. South which decreased harvest volumes during the quarter across the region.From favorable standpoint, wet weather conditions in the Southeast also contribute increased pricing across our products as Jerry pointed out earlier. We were able to capitalize through our delivered sales strategy as well as through opportunistic stumpage sales in our select outperforming markets.As a result, pricing for all our pine products has remained substantially above TimberMart-South South-wide Averages. In the second quarter, CatchMark's pulpwood average $14 versus $9.51 and our sawtimber averaged almost $25 versus $20.87 for TimberMart-South. Our resulting higher per ton gross timber sales revenue helped mitigate the decline in harvest volumes and kept us on track to meet full-year guidance.In the Southeast, we continue to be well positioned with our fiber supply partners and our delivered sales customers to have a productive third quarter. The ongoing shift of lumber capacity from British Columbia to the U.S. South further improves our outlook. Overall U.S. South position as dominant North American timber region has been enhanced and we are extremely well situated to take advantage long-term.The economy is holding its own and then the short-term lower mortgage rates it should help improve home purchasing and potentially new construction as well. For the second half of the year we anticipate increases in volumes as compared to the first half and we approved we are well positioned to secure pricing premiums in our markets.In the Pacific Northwest the recently acquired Bandon property, stepped up operations in the second quarter and we harvested 14,500 tons of which 90% with sawtimber, generating approximately $1.2 million in gross timber sales revenue. Bandon harvest volumes will continue to increase over the remainder of the year, enhancing our overall sawtimber harvest mixed as well. So we have good reason for confidence about our operating results going forward and expect to meet our harvest plans. Jerry?

[Jerrold Barag:]

Thanks Todd. As Brian discussed in the second quarter, our main focus was on capital recycling, paying down debt to return to targeted levels after last year substantial investment activity. We continue to monitor our investment pipeline and evaluate opportunities that will augment our high quality portfolio, focusing on premier properties in the most liquid markets. At present however, there are few acquisition opportunities as new office offerings have dwindled to a trickle.So in summary, the year's playing out as we planned and our results have been on target despite volatility in the lumber markets and with lumber prices. The wet weather conditions and mill maintenance outages are abating and we're on track to see improved demand across our markets that will lead to greater harvest volumes. As a result, we remain competent about meeting company guidance for full-year results.Our strategic focus provides us a strong foundation for the future based on disciplined acquisitions of the highest quality timberlands, which will produce durable revenue growth. Locations in high demand mill markets which provide reliable outlets for available merchantable inventory at favorable pricing. And superior management operations which seek to maximize cash flow throughout the business cycle.This strategy underlies the positive results we have delivered, including the pricing premiums we have been able to attain. Our asset management business is delivering as promised; Dawsonville Bluffs produced not only superior investment returns in asset management fees, but also a very attractive performance space promote.We profitably managed and sold down the assets in a shorter than expected investment period and generated returns significantly above expectations. Triple T asset management fees which are not volatile have helped diversify our revenue streams and the joint venture is operationally performing better than expectations. Timberland sales are comfortably on track with plan for the remainder of the year.Our capital recycling program has helped to achieve our goal of reducing outstanding leverage as well as supplemented our available resources for further share repurchases and for new investments.Our capital position is sound and our capital allocation has favorably positioned us to cover our dividend, undertake share repurchases, and manage our debt in terms of cost, staggered maturities and floating interest rate exposure.We continue to monitor acquisitions and joint venture opportunities in prime timberlands investments that can expand their extremely high quality portfolio, but remain disciplined regarding purchases in this opportunity constrained market. And we continue to deliver a reliable, fully covered quarterly dividend.All of us at CatchMark, maintained a total focus on growing sustainable cash flow and supporting our dividends by executing a strategy based on performance excellence.Thank you, again for joining us today. Your time and attention has been appreciated. One last thing before we conclude and take questions. I just wanted to take the opportunity to thank Henry Zigtema for his service and dedication to CatchMark over the past seven years. Earlier in the week, Henry retired as an Independent Director and the Chair of our Audit Committee. Thank you, Henry. And all of us on the management team extend our sincere appreciation.Now, Brian, Todd and I, and John will take your questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Collin Mings with Raymond James. Please go ahead.

[Collin Mings:]

Thank you. Good morning, guys.

[Jerrold Barag:]

Good morning, Collin.

[Collin Mings:]

First question for me just on Triple T, what's the latest update on the sawlogs supply agreement negotiations and any update in terms of timing on when we could get some more visibility on that front.

[Jerrold Barag:]

Collin, this is Jerry. So we are still working through it. As we've said, it's a complex issue and it's taking a lot of time and attention, and we are still on track as we've previously said to conclude up or down whether we're going to get there, but we're still working through the issues with GP.

[Collin Mings:]

Okay. Shifting gears to guidance, just to make sure I understand that the prepared remarks, we should still think about adjusted EBITDA and call it the $52 million to $60 million range for the full-year, but potentially towards the upper end of that range just given the contribution from Dawsonville now?

[Brian Davis:]

Collin we're not changing our guidance range, it’s still going to be $52 million to $60 million of adjusted EBITDA. We'll defer to you in regarding what part of that range we're going to hit.

[Collin Mings:]

Okay. Well maybe coming at this a different way, recognizing you're keeping the harvest numbers the same, is the contribution that you're expecting from Dawsonville, is that above or below what you were thinking to start the year?

[Brian Davis:]

Dawsonville Bluffs will perform at the high end of the range for adjusted EBITDA. At the beginning of the year, we anticipate a range of $3 million to $5 million for Dawsonville.

[Collin Mings:]

Got it. Okay. And then to just recognizing you guys have done a lot of work here and call it, end of second quarter and into the third quarter on the asset sale front. Just curious, do you have any other timberlands under contract to sell and kind of that large disposition bucket as you think about it?

[Jerrold Barag:]

No. We've completed what we had initially planned kind of at the beginning of the year and we continuously evaluate opportunities to do that, but there's nothing pending right now.

[Collin Mings:]

Okay. And then just one last one and I'll turn it over. Just curious, Jerry, your thoughts on why deal flow has slowed so significantly and given that maybe normal course deal flow has slowed so meaningfully this year, does that maybe increase the opportunity or appetite, particularly now with Dawsonville winding down for an additional kind of joint venture partnership or some other opportunities on that front? Just given that maybe more traditional acquisition opportunities aren't really emerging?

[Jerrold Barag:]

Yes. So my observation and this kind of pervades all aspects of what's going on in the timberland market and whether it's fair or not, people can decide for themselves. Sentiment has just gotten very, very negative around the sector primarily as a result of all the volatility, which is for the most part then to the downside in the lumber markets.And the lumber markets have been very unsettled. My personal belief is, they are about to find some footing, and the foundation to build off of, particularly in the west, which is not only the Pacific Northwest, but it goes into the Canadian West, and that will be helpful.I think owners of timberland. It has not been unnoticed by owners of timberlands who think that that the potential optimism around timber prices given the volatility in the lumber prices might be hard to produce at this point.So they have just quite frankly chosen to sit on their hands, and wait out the volatility that's in the lumber markets and presumably a better backdrop for optimism about the timberland markets.Now again, the U.S. South has been far and away, the shining light in that part of the market. And we have seen a couple of smaller size transactions, smaller to medium sized transactions that have been at very, very buoyant prices.In one case, we've seen one that's been at eye-popping prices in the U.S. South. And so there's been a kind of a rotation through North America of where timberland transactions have some support, which for the last couple of years have really been primarily in the Pacific Northwest. And today it's really more focused on the U.S. South, which is gratifying to us, given the composition and the makeup of the portfolio that we have.We also think that potentially there is some opportunity on a go forward basis. And as you said, Collin, we're going to evaluate those opportunities and as Dawsonville is winding down, we would love to find a new opportunity on the joint venture front. But it's going to be disciplined based on what the dynamics in the market is and what opportunities are there from pricing standpoint.

[Collin Mings:]

Okay. I'll turn it over. Thank you for the extra color there, Jerry.

[Jerrold Barag:]

Thanks. Collin.

[Brian Davis:]

Thank you.

[Operator:]

The next question is from Anthony Pettinari with Citibank.

[Randy Toth:]

Good morning, guys. This is actually Randy Toth sitting in Anthony.

[Jerrold Barag:]

Good morning, Randy.

[Randy Toth:]

Good morning. Just doing the quick math on the divestitures you've announced and winding down of Dawsonville, and using the midpoint of EBITDA guidance. I'm getting something just under 8x for leverage, and I think you guys said previously, you were looking in the year had something with a seven handle, should I take that as capital recycling will ease in the second half or how should I think about that? Thank you.

[Brian Davis:]

You've come up with the right math, Randy. That does come up with something that begins with the seven in front of it. But as Jerry alluded to, our mindsets always review our portfolio for capital recycling opportunities that ultimately do an upgrade of our asset base. But we don't have anything currently under contract.

[Randy Toth:]

Okay, fair enough. Thank you. And then kind of switching gears, you've had the Bandon property for nearly a year now. Is there anything that has surprised you or wasn't expected about operating your business model in the Pacific Northwest versus the U.S. South?

[Todd Reitz:]

Hey, Randy. This is Todd. Nothing really surprising, there's been some timing where you've had to work with, like say the BLM on road access agreements and issues there. The one thing that we had no control over was the government shutdown. That slowed up some of that process, getting things in place there.But overall, it's a market we were familiar with. I had been familiar with in previous places I had worked, so no major surprises in that regards. Just having to get things in place, working with AFM or our manager out there, they got folks in place on the ground. So no looking forward as that continues to move forward and trying to plan the harvest out of course then the market and timing with fire season and those kinds of things as well.

[Jerrold Barag:]

Yes. I mean fortuitously, Randy, when we bought the property and made plans for its integration during 2019, it was meant to be a more heavily loaded towards the second half of the year, just to get a contractors and management operations up and running out there.And so obviously from pricing standpoint, there's been a lot more volatility that has gone on than expected when we bought the property. But it seems that the markets are readjusting out there and we'll get back to a more normal operating environment during the course of the second half of 2019.

[Randy Toth:]

Okay. That's very helpful. Thank you. Maybe just one last one, can you talk about your U.S. sales micro-markets just on any anecdotes about tightness or price improvements? I know we have had a couple of saw mills ramping up in the past six months, so just curious your thoughts there?

[Jerrold Barag:]

Sure. It’s some – what we have seen coming out of Q2, you had a lot of the maintenance outages that were in place. You additionally had some saw mills that we're continuing to work through some of their capital placement and getting their mills up and running at a continuous consistent rate that was a little slow coming out of Q2. But the Q3 outlook and what we're seeing is very positive.Maintenance outages are over, pulp mills are going to run really strong that's what we're hearing from everybody and have planned around that. We're beginning to see some extra production coming out of various customers, saw mill customers that is and been able to secure good volume, solid production, as part of our Q3 plan.And so we feel very good about that. And our pricing really quarter-over-quarter Q1, Q2 we're relatively flat, coming in, we haven't seen any major drops we had a couple of upticks in a few places, but from a market perspective, we're being more seeing very consistent pricing quarter-over-quarter.

[Brian Davis:]

Yes. So if you recall, we had some pretty significant sizable price increases during the first quarter of 2019. Some of that was demand related, some of that was weather related. And I think we're really pleased that the weather related portion of those price increases has really not abated through the second quarter. So we've held pricing pretty much first to second quarter slightly up or are more significantly up over the last six months.And from a market-by-market aspect we're really pleased with pricing that's going on the Texas markets and I think that's reflective of what you've seen in terms of operating results out of Triple T. And Southern Georgia has been really strong from an operational standpoint, from pricing standpoint as well. Those would be kind of the two standout markets in the USL.South Carolina has improved over this quarter as we've gone through there's been some significant maintenance operations and outages that were rolling through there earlier this year and so as though come back online, the mass picked up in that market as well. But outside of those three markets and maybe portions of North Carolina. People are feeling better, but you haven't necessarily seen it translate into the actual numbers so much.

[Randy Toth:]

Gotcha. That's very helpful. Thank you. I’ll turn it over.

[Jerrold Barag:]

Thanks Randy.

[Operator:]

The next question comes from Paul Quinn with RBC Capital Markets. Please go ahead.

[Unidentified Analyst:]

Hi, guys. It's [indiscernible] for Paul. Thank you for taking my question. First, I just wanted to ask a little bit about your mix that you're seeing between saw logs and pulpwood in the South and how you see that changing over the second half of the year and towards 2020?

[Jerrold Barag:]

Coming out of Q2 we had an increase in some of the pulp production as we started to see more of our thinning operations come online. But going forward, the balance of the year we'll see a little higher mix of saw timber and chip and salt product being moved. So as we look out, we'll be meeting in account of the guidance line we had there of that moving more towards a 50/50 mix there in the southern region.Additionally, we can't overlook the Pacific Northwest addition to the overall program for us, which when that all rolls in, we'll be closer to probably a say up the 45% saw timber as compared to previous years. So I mean there's some seasonality there, which as the wet weather is abated, there's less wet weather rebated box demand has kind of flattened out a little bit.So there's not nearly as much pressure from a demand standpoint on the pulp and paper side, call it or pulpwood side for the, for the balance of the year. But we continue at least in this operating regions where we own properties. We continue to see capital investments deliver at lumber mills that are increasing procurement and demand for timber, and that's definitely putting a positive outlook on our ability to, from a volume standpoint to sell more timber into those markets during the second half of 2019.

[Unidentified Analyst:]

Okay. Thank you. That's very helpful. On the timber side, we've seen timber transactions in the marketplace has been very late over the past few years. I'm just wondering if you guys could touch a little bit upon the changes in valuation if you're seeing any changes or if you're seeing them being stable for the past few years?

[Jerrold Barag:]

So valuation has been for the most part pretty stable for us, which is underlined by the fact that we have very high quality premier properties and they have been sought after type of properties. And so the appraisers I believe have started to get more discerning from a price standpoint and a valuation standpoint of the difference between markets and quality of properties. And we think that that is entirely appropriate. We kind of monitor appraised values as it stands and it's an important concept for us with respect to our lending agreements that have covenants about appraisal.And in fact, they have been pretty much flat for us for the last couple of years. And our expectation going into the reevaluation process that'll be underway later this year is that those property valuations would remain more or less flat for the better quality properties. I think you will see some further declines in worse markets and poor quality properties and that'll become – may become a headline, but it should become more evident across the industry by the end of this year.

[Unidentified Analyst:]

Perfect. Thank you. And just one last one for me. Can you talk a little bit about what you're seeing in the repair and remodeling market? We are getting some different reports, some suggesting that the market is probably not as strong as it was just from what you're seeing from your customers, how do you see that market going over the next year?

[Jerrold Barag:]

It looks like – again, I'd probably categorize it in a similar fashion to what's going on in the box market and containerboard where it seems to have leveled out. There's not nearly as much potential growth. I mean, it's not continuing to grow at the same rate and that clearly is leveling out or sagging just a little bit. But the dynamic, which is really the important one to keep track of, is the fact that lumber usage out of the repair and remodel market has now eclipsed lumber use for new housing. And we don't see that really going backwards anytime soon. I mean they're not that far away from parody, but clearly repair and remodel has taken the lead in terms of lumber usage.

[Unidentified Analyst:]

Okay. Thank you, guys. That was very helpful. I'll turn it over. Have a good luck for the next quarter.

[Jerrold Barag:]

Thank you. Appreciate it.

[Operator:]

The next question comes from David Rodgers with Baird. Please go ahead.

[David Rodgers:]

Yes. Good morning. Jerry, maybe just tie in some of those comments that, pricing being pretty stable, it seems like it's a good assets and pricing maybe declining or set to decline at the lower quality assets. But you guys have had the view of kind of rising prices over the next couple of years. So I guess one, what do you expect for pricing in the second half now that you'll be kind of hitting higher volumes and maybe a little more specifically on that. And then two, you're obviously seeing something in the market or maybe more hopeful in the market is regarding kind of long-term pricing. So you kind of update us on your thoughts regarding long-term lumber pricing or timber pricing?

[Jerrold Barag:]

Sure. Okay. I'm going to have to separate the comments by region. So because the regions are operating fairly differently between the U.S. South and Pacific Northwest. So in the U.S. South where we were doing business where we primarily do business in those markets where we do business, I'm not going to tell you we projected this at the beginning of the year, but it's the way the market is played out is that the combination of more capacity leading to more demand, especially on the sawtimber side and wet weather made price increases during the first quarter or the first – in the beginning of the second quarter pretty good for us.And that was by and large either as much or in some cases more than price increases that we would have expected for the full-year. So the goal for us at this point is to maintain pricing where we have got it to for the balance of the year. It is not necessarily to be pushing on pricing or have the expectation that we're pushing on pricing in those markets for the rest of the year. And as you can see by the numbers, we were really successful in doing that for the second quarter because by and large, the wet weather conditions portion of the price increases should abate because it should dry out now.If you lived in Atlanta last night at one very dry. But having said that, we're feeling pretty confident that that we should be able to maintain. We're not seeing anything on the horizon. We're not having customers come at us trying to drive down prices in the markets we operate and in the south. And so we're feeling pretty good about that right now.But in terms of setting expectations, there shouldn't necessarily be this expectation that we're building quarter-over-quarter, during 2019 for price increases. We had a happy experience of kind of getting it upfront in the U.S. South.Pacific Northwest is really kind of the opposite story. It's dramatic how different it is and how quickly it's turned. And a lot of that is coming as the result of the dislocations that are coming out of Western Canada, particularly in the interior of British Columbia where you've had the beetle kill and now you've had somewhere plus or minus 2 billion board fee of capacity that's been permanently shuttered.The dynamic there has been that lumber prices were exceptionally high. They came downs. Timber prices got high in sympathy with those lumber prices. They were a little bit slower to come down. And that's created a lot of dislocation around the lumber manufacturers in the Pacific Northwest.So you've seen and across the pullback in the manufacturing capacity that is going on in the Pacific Northwest and all the way into Canada. And it's the right sizing itself right now. And the participants in that market, I think are conducting themselves rationally, and it's recalibrating itself.And my experience would tell me that when a market needs to recalibrate, it's not usually even and happy experience. And I would probably tell you that that's exactly what you're seeing right now today in the Pacific Northwest markets.The good news is that they will get themselves back to what I believe is the right basis and where timber prices are today specifically in the Pacific Northwest is below where I think they should be for the new reality of where a lumber production and lumber prices will end up in the Pacific Northwest.Now the variable that's involved in that whole situation is how long is it going to take to get there? Okay. And I can tell you that it's not tomorrow, and our experience, on the small property that we have in the Pacific Northwest tells us that, it's not tomorrow.And – but it feels like it is later in 2019 for the market to regain its footing where you'll see lumber prices get better as lumber inventories drawdown. And as those lumber prices get better, you're also going to see timber prices that get better because, long-term supply demand fundamentals of timber in the Pacific Northwest are still really positive. There is no excess supply of timber. And so we don't see that those shouldn't react the same way that lumber prices do once the inventory issues out in the west have resolved themselves.

[David Rodgers:]

Thanks for the added detail on that.

[Jerrold Barag:]

Sure.

[David Rodgers:]

I appreciate that. And then maybe just to follow-up for Brian. Brian, can you just kind of talk about capacity maybe in two senses. One is, the iterative acquisition capacity if you were able to find some things that you like to do, and then on the flip side of that, maybe the iterative stock buyback capacity that you have and your thoughts around buying stock back given you've done some and the stock remained pretty weak?

[Brian Davis:]

Yep. So there's a couple of things in there. So first, as we think about acquisitions, we messaged began this year. We have very active 2018 and as Jerry alluded to, we're monitoring all opportunities out in the marketplace today and we have plenty of liquidity. We've $185 million of capital capacity including billability for acquisitions and share repurchases.So from our standpoint right now, we're monitoring our bias is actually to delever given again that activity that we had during 2018. So really the question is it becoming how we think about the application of proceeds through our capital recycling program?And really our bias right now is for supply against their outstanding debt, which allows us to remain in position to take advantage of future growth opportunities and inconsistent with our past practices. We'll to be opportunistic with a share repurchase program, which we were active in the second quarter.As you noted, we're really, we want to do it on a leverage neutral basis. For example, with this last quarter, we had about $25 million a quarter as well as subsequent quarter and about $25 million in capital recycling activity, which we target an allocation about 80% of debt reduction, which brings us within our target levels on a net debt to adjusted EBITDA basis with the remaining 20% of proceeds applied towards share repurchases.And as you noted, Dave, given our share price during the second quarter in a given in neo, that's over 5.25% versus our cost of debt around 3.5%, we believe in a certain amount of share repurchases as a prudent capital allocation strategy. Hopefully that gives you the color you're looking for.

[David Rodgers:]

Yes. Great. Thanks guys.

[Jerrold Barag:]

Thanks Dave.

[Operator:]

[Operator Instructions] Next we have a follow-up question from Collin Mings with Raymond James. Please go ahead.

[Collin Mings:]

Thank you. Two follow-up from me? Just one on as far as latest - thinking about your latest thoughts regarding log export activity out of the U.S. South and just in context of obviously the tariffs currently in place, but then also the long-term desire, an effort on CatchMark's part to maintain a presence in the Asian markets. So just maybe talk a little bit more about that that effort and initiatives you can?

[Todd Reitz:]

Sure Collin, this is Todd. That main area of the South and we've operated in it's primarily been out of Savannah and we've seen that pull way back really when the tariff went into effect, we saw a slowdown and then that's just continued to pullback a little bit. Again, that has been a really small portion of what we do. So the overall impact to our – as far as market presence with those has been minimal.In those areas as that's a really strong area within the country. And it's one of those things that while the tension is nice to be there, the market's strong enough that it has absorbed any of that volume that was there. So we haven't seen a major push back on overall market pricing and the overall scheme of things.We've maintained a little bit of a presence where customers have stayed in, just to keep your foot in the door so to speak. But again, at a very, very light level, long-term if they get the whole trade and tariff discussions squared away and, and that can come back strong. We'd love to see it, you know, but ultimately it hasn't been a major impact for us there.

[Collin Mings:]

Got it. So some of the customers you're selling in to still play in that export market, but it's pretty diminimous at this point in terms of impact. But I guess the, if I'm interpreting your comments correctly, there really hasn't been a big shift in pricing dynamics in those markets.

[Todd Reitz:]

That's correct. There has not.

[Collin Mings:]

And then Brian, I was just curious from going back to a little bit to the guidance discussion as well as just the asset sales. I mean are there any additional or guideposts that you can provide us regarding the dilution versus the accretion associated with the asset sales that you completed in 2Q and 3Q. I know last two year but provide all ops a much larger transaction, but some great detail around how to think about the entry into the Pacific Northwest and kind of the impact of that to the financials.So just curious, recognizing these are much smaller transactions, but any other guideposts? Because I know that when the assets sale capital recycling discussion has come up before the goal was to minimize dilution from asset sales. So any additional guideposts on that front would be helpful.

[Todd Reitz:]

You're correct Collin, you are listening to us. Our goal is really a neutral, better on a cap per share impact basis. And we're not changing anything with that mindset. These two assets distinct characteristics about them, the $5.5 million transaction that closed during the second quarter was really low stocking with kind of a poor mix, had it stocking a per acre basis, about 20 tons per acre. The other transaction was at stocking levels that were consistent with our portfolio.I was selected to do really operational challenges associated with everything from typography to proximity to urban areas and longer than average haul distance is resulting in lower realized product pricing. But the end of the day given the price in which we realized associate with that asset sale. This ultimately brings us full circle back to really, minimal just slightly better on a cap per share impact given that our application of those.

[Collin Mings:]

Okay. In other words, at least over the next couple of years, there's not really, these asset sales don't really swing around that your cash flow very much one way or the other, but maybe if anything given the interest expense savings, maybe slightly beneficial, but that fair.

[Todd Reitz:]

That's fair.

[Collin Mings:]

Okay. All right. I appreciate it. Thank you.

[Todd Reitz:]

Great. Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Jerry BaragBarod with the CEO for any closing remarks. Please go ahead.

[Jerrold Barag:]

Thanks again for joining us today. I wish you – that I hope you enjoy the rest of your summer and we will be back with you for third quarter.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.