CatchMark Timber Trust, Inc.
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Good morning and welcome to the CatchMark Timber Trust Third quarter 2018 Earnings Call and Webcast. All participants will be on listen-only mode. [Operator Instructions] I would now like to turn the conference over to Brian Davis, Chief Financial Officer. Please go ahead.

[Brian Davis:]

Thanks, Austin. Good morning and thank you for joining us for review of CatchMark Timber Trust results for the third quarter 2018, the three month period ended September 30th. I'm Brian Davis, the Chief Financial Officer of CatchMark. Joining me today on the call, our President and CEO, Jerry Barag and Senior Vice President of Forest Resources, Todd Reitz. During this call, CatchMark management will make forward-looking statements. These forward-looking statements are based on management’s current beliefs and the information currently available. CatchMark’s actual results will be affected by certain risks and uncertainties that are beyond its control or ability to predict and could cause our actual results to differ materially from expectations. For more information about the factors that could cause such differences, we refer you to our 2017 annual report, on Form 10-K and subsequent reports that we file with SEC. Today’s presentation may also include 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. Todd and I will join Jerry to answer any of your questions after this presentation. Now I turn over the call to Jerry Barag.

[Jerry Barag:]

Good morning and thank you for joining us this morning. The third quarter for CatchMark was extremely busy and especially productive. We sharply increased revenues year-over-year by 32%, boosted adjusted EBITDA by 60%, completed two major Timberland transactions investing a total of $290 million which significantly expanded and diversified our nationwide operations. Made substantial progress in integrating these acquisitions into operations and we remain on course to meet our guidance for adjusted EBITDA for the year. And yesterday, we also declared a cash dividend of $13.5 per share for stockholders payable on December 13th, 2018. Our strong third quarter performance resulted directly from our consistent and disciplined approach to invest our capital prudently in top performing markets and in prime timberland assets capable of outperforming in those markets. These assets are poised not only for ongoing near-term growth, but will also continue to provide durable long-term earnings for our stockholders and importantly, will support our dividend. In pursuit of aggregating the industry's highest quality Timberland's portfolio. We're very pleased to close Triple T joint venture which added a managing interest in 1.1 million acres of prime Texas Timberland's to our holdings and we completed our first transaction in the Pacific Northwest Bandon acquisition. We move quickly during the quarter to integrate both Triple T and down that into our operations and are meeting our operating targets for both. We also acted to recycle assets by entering into a disposition contract to sell more than 56,000 acres of timberlands in Texas and Louisiana. This sale has the dual purpose of reducing our exposure in the Southwest region post Triple T and reducing outstanding leverage. Triple T had an immediate positive impact on our third quarter results providing $2.7 million in asset management fees. As has been the case with our first joint venture with the major pension fund, Dawsonville Bluffs Triple T's immediate contribution shows the benefits of our investment management strategy and partnering with leading institutions like capturing this accretive and reliable management fees and diversifying our income streams. At the same time, Bandon will begin making a meaningful contribution to overall timber sales revenue, help to increase the small timber share of our harvest and begin to diversify CatchMark holdings outside the U.S. South. Third quarter results were also supported by meeting our targets for Timberland sales. We sold 1900 acres of timberland for $3.8 million during the quarter that calculates to just under $2,000 per acre. With all the activity during the last several months, we kept the relentless focus on Timberland operations. Third quarter operating results were helped by daily tactical decisions and deliberate operating strategies. Specifically, I want to emphasize three important points. First, the very positive impacts of our supply agreements. Next, the decision earlier in the year to defer our harvest and finally, delivered wood sales strategy. Our focus remains on cash flow stability, predictability and low volatility which has been extremely valuable in funding our business and supporting our dividend since CatchMark inception. Our extensive supply agreements continue to ensure ready access to no markets -- no market customers for our harvests to moderate volumes during periods of market volatility and to help ensure consistent cash flows. We decided earlier in the year to defer some harvests in anticipation of better pricing environment. While harvest volume declined year -over-year as a result of these tactical deferrals our per ton gross timber sales revenue increased and help to offset the decline by capturing higher pulpwood pricing and continuing to execute upon our delivered sale strategy. Delivered wood sales have been an important component of our achieving higher pricing. Over nearly 36 months, we have strategically increased our prudential delivered wood sales volume to solidify our standing as a preferred supplier to our customers. Keep material control of our supply chain and secure stability and predictability of cash flows. Delivered sales volume as a percentage of total harvest increased from 65% in the third quarter of 2017 to 78% during the third quarter of 2018. While this is a more intensive operating strategy, we believe the benefits and results are apparent. From a pricing perspective, we realize premiums stumpage prices for all five product categories above self wide averages due to the strength of the micro-markets in which we operate. Our pulpwood stumpage price for the quarter increased 4% over the second quarter helped particularly by strong performance in our coastal Georgia property acquired late last year. I understand that our pricing success may surprise both investors and analysts given some of the recent published information about lumber market pricing trends. But understand over the short-term, lumber and timber prices are not necessarily correlated and negative volatility in lumber prices hasn’t impacted timber prices in our micro markets where we see no fundamental evidence of reduced manufacturing for capital investment activity. The best markets typically outperform and by design, we invest exclusively and consistently in those best markets in the U.S. South and now in the Pacific Northwest. The divergence in operating results in the U.S. South has been underway for some time and is likely to continue to become more obvious over the next several quarters as a result of significant excess timber inventories in some local markets a trend that has been expanding since 2009. This phenomenon will likely negatively impact operations, earnings and values in those specific markets as it becomes even more clear that broad based recovery in the U.S. sawtimber prices is not probable in the near-term. I reiterate my call for the industry to seek to provide thoughtful and transparent information that highlights market differentiators and provides participants better decision making tools. I'm personally committed to working toward that goal. As a result of our deliberate supply agreements and wood sales strategies and despite the planned declined in harvest volume year-over-year, we registered only a 2% decline in gross timber sales revenue for the quarter. At the same time, we preserve the opportunity to secure better pricing in the future for those deferred harvest. We're gratified that our acreage and operations in the U.S. South were not materially impacted by either Hurricane Michael or Hurricane Florence. Of our more than 364,000 acres located in Georgia and South Carolina less than 400 acres suffered blowdown damage from heavy winds and we are currently in the process of completing salvage operations on those acres, bringing that timber to market during the fourth quarter. As we said in the past, we consider both the location and management regime we employ to be a defense for our properties to protect against significant hurricane impact. Taking all this into account, we remain very much on track to meet our guidance for expected annual harvest volume for 2018 at between 2 million and 2.3 million tons. Land sales targets are also very much on course for being met by year-end. Now reviewing specific highlights of third quarter operating results compared to the third quarter of 2017, we increased revenues by $6 million to $24.6 million, 32% percent gain. We increased adjusted EBITDA by $4.3 million to $11.5 million dollars, a 60% gain. We generated gross timber sales revenue of $16.7 million, a 2% decrease from third quarter 2017. But as just discussed that was primarily a result of our decision to the harvest for better future pricing opportunities and we paid a dividend of $13.5 per share. As anticipated and signaled, when we entered into the Triple T joint venture that the transaction significantly increased that reported net loss for the quarter. We incurred a net loss of $78.9 million on a GAAP basis compared to $4 million in the third quarter of 2017. This net loss for the quarter was below our initial estimates and we have further lowered our forecast for full year 2018 GAAP net loss into a range between $116 million and $122 million. As a result of transaction costs and distribution preferences, CatchMark continues to expect to incur non-cash GAAP losses from the unconsolidated Triple T joint venture equal to our investment in the near-term. The net loss from the Triple T investment is based on hypothetical liquidation at book value accounting, a method which determines an investor's equity in earnings based on book value not fair value for a hypothetical liquidation as of the reporting date. We covered the benefits associated with Triple T in past calls for long-term potential from the superior productivity attributes and age class distribution. Our expectations to unlock further value to greater operating efficiencies and new tactical strategies and the asset management fee income stream which were already realized. I'm pleased to report that the integration of operations has been smooth and that we're on course to implement our operating plan. Now I'd like to spend some more time reviewing two other important transactions that we have not previously discussed on our calls. Bandon which we completed in late August and the southwest regional disposition which we entered into in late August. Bandon is our first transaction in the Pacific Northwest. We acquired from more than 18,000 acres of prime Oregon timberlands for $90 million. In keeping with our focus on premium quality and durable earnings potential, the acreage features quality stocking of 36 tons per acre and merchant inventory comprised of 87% commercial conifers, 77% Douglas fir. More than 90% of Bandon expected five years average harvest volume will keep sawtimbers, helping increase sawtimber share of our harvest. The Bandon timberlands are located in or near excellent middle Markets experiencing tight supply demand fundamentals approximately 150 miles southwest of Portland Oregon. The squarely within our desirable Douglas fir, Western hemlocks zone between Coos Bay markets and Roseburg Mills. Over time, we will seek to expand this region's foothold and further extend their reach beyond the U.S. South and we're very pleased with this initial investment which establishes a strong beachhead for us in the region. The southwest region disposition is a key part of our capital recycling strategy, following the Triple T and Bandon transactions. Scheduled to close before year-end, southwest disposition involves selling 56,000 acres in Texas and Louisiana and CatchMark will retain merchantable inventory for harvest on the sold acreage. over the next 18 to 24 months, Since Triple T multiplied our acreage in the southwest supplying us higher quality property than our existing assets in the region. This sale will allow us to reduce our regional exposure and provide liquidity to repay debt. Taken together Triple T, Bandon and the Southwest disposition will optimize CatchMark portfolio diversity, improve annual timber sales revenue by approximately $1.6 million and adjusted EBITDA excluding land sales by approximately $2.5 million annually over the next five years. It will also support the Company’s capital structure on a leverage neutral basis. During the quarter, we did briefly study a possible offer for shares of the liquidating U.K. Company Phaunos timber funds. The principal assets of Phaunos are extremely high quality timberlands in New Zealand. After preliminary consideration and initial negotiations, we determined not to make a formal offer. As a result of our disciplined acquisition process, we concluded the deal could not be accomplished at a price that would be favorable to CatchMark shareholders. We confidentially evaluate many possible transactions to come through our pipeline on a daily basis. The Phaunos process was unusual in nature because of stringent U.K. takeover law requirements compelled disclosure at a preliminary stage and limited the amount of information that could be provided to our shareholders. At the end of the third quarter, CatchMark had $86 million of borrowing capacity under our credit facilities consisting of $51 million in the multi-draw term facility, $35 million from the revolving credit facility plus $15.3 million of cash. This followed our funding of the Bandon acquisition through a combination of cash in hand and borrowing under the amended credit facility which closed during the quarter. The amended facility increase total capacity by $75 million, rightsize the company's multi-draw term loan to $200 million and added a new seven year $140 million term loan to refinance existing debt under the multi-draw term loan. Also during the quarter, we mitigated exposure to rising interest rates by converting $150 million of outstanding debt from floating to fixed rate by entering into three different interest rate swaps that effectively fixed interest rates on $350 million of our $557 million of outstanding debt. Post the Southwest disposition, we expect to have 75% of interest rate exposure swap to fixed rates. During the three months ended September 30th 2018, CatchMark did not repurchase any shares under our share repurchase program and may purchase up to an additional $19.8 billion to the program as of the end of the quarter. Looking to our Pulp and lumber markets, we see relatively little change from earlier in the year. Rising interest rates and tariff conflicts are contributing to a choppier background environment, but housing starts are not much below the original consensus forecast of 1.3 million units for the year. That's a good number. It also represents more single family homes under construction versus multifamily and doesn't take into account all the repair and remodeling activity underway. And the overall economy remains a big plus, extremely low unemployment and rising wages create further momentum for the next year. Lumber mills in the U.S. south are running strong and making money albeit at lower margins than earlier this year. Southern yellow pine lumber prices dropped from all-time highs in June, but are still very healthy price points compared to long-term trends and are still positive year-over-year. No raw material inventories and our operating markets are generally unchanged and market pricing across all products is stable. Despite the pullback in lumber pricing, CatchMark saw mill customers continue to run at near capacity levels with a robust production outlook for the quarter. Log exports which are a small part of our business have softened, but we expect to maintain favorable pricing in volumes from our domestic customers based on strong relationships in our key markets. Pulp mills and our markets appear well-positioned for the fourth quarter to run at capacity [indiscernible] are projected. For all product categories, CatchMark pricing remains above timber Martelle south-wide averages. As discussed earlier, we are exclusively invested in top U.S. South markets which remain poised for near-term growth and demand for timber and prices based on capital investment patterns underway in those markets. Mill capital improvement expansion programs and Greenfield construction in these markets are still underway with no signs of slowing down which bodes well for the future. Our focus on investments has concentrated in Georgia, the Carolinas and Texas which gives us an edge in achieving better prices for our timber. We purposely have shied away from underperforming areas primarily in the month in the mid Gulf region, Arkansas, Mississippi and western Alabama and we are applying our same high quality criteria to investments in the Pacific Northwest starting with Bandon. In terms of current transactional activity in timberlands, we see a bifurcated U.S. South just as reference. High quality properties attract strong bidding. Second tier properties take longer to clear and possibly aren't even selling. Lower projected sawtimber pricing growth is weighing on valuations in the region. In the Pacific Northwest, the transaction market remains robust supported by favorable underlying inventory and demand dynamics. So to wrap up before we take your questions. CatchMark had an excellent quarter, registering substantially higher year-over-year revenues and adjusted EBITDA. We significantly expanded our timberland investments and we're integrating new timberlands into operations expeditiously and efficiently to meet our performance goals. We definitely manage harvest volumes through deferrals to optimize the value of future harvests. We use our supply agreements and increase delivered wood sales to our best advantage in driving timber sales revenue. We've benefited from the high quality of our investments and securing superior market pricing. We began realizing significant asset management fees from Triple T and diversifying our revenue streams. We made important moves to strengthen our balance sheet after completing the Triple T endowment investments increasing borrowing capacity, reducing interest rate exposure and entering into a major timberland's disposition to recycle capital and to pay down debt and we're poised to meet our guidance for the year. CatchMark focus has and will remain on aggregating the highest quality timberland portfolio in the industry and managing this portfolio to deliver the best operations. We believe we’ve positioned the company to deliver the promised sustainable growth for our shareholders and support our dividend going forward. I’d look forward to continue to meet our objectives by maintaining this course. Thank you again for joining us on the call this morning. And now Brian, Todd and I are pleased to take your questions.

[Operator:]

[Operator Instructions] And our first question comes from Collin Mings with Raymond James. Please go ahead.

[Collin Mings:]

Hey good morning.

[Brian Davis:]

Good morning, Collin.

[Jerry Barag:]

Good morning, Collin.

[Collin Mings:]

To start, can you talk about the capital allocation clarity, just given the pullback in the stock, you won't active in Q3 as far as the share repurchase plan, but your still had, again, a little under $20 million on the authorization. Based on the 10-Q, it looks like in the share count difference you might have been actively bit in 4Q, but just how are you -- how is the Board approaching share repurchases, just given with the stock is falling and what do you see is runway for buying back stock given where your leverage is?

[Brian Davis:]

Sure, Collin. Good morning. We do have a $30 million program in place currently. We do have $10.2 million that we have purchased under that plan. We've done so at an average purchase price and the kind of low $10 range on historical basis giving us another $19.8 million remaining. As Jerry noted, we didn't have any repurchase during Q3 and we report any activity for Q4 with our fiscal year 2018 results. You're really talking about runway and how we think about it? During the quarter, we really had a lot of strategic priorities to get through. One was the acquisition of the Bandon, transaction and we still need to complete the Southwest disposition which Jerry alluded to which we anticipate closing on during the fourth quarter. But your share price persists upon the conclusion in Southwest disposition utilization of the share repurchase plan may be a compelling use of our available capital demonstrated as we have in the past.

[Collin Mings:]

Okay. So it doesn't sound like, recognizing you kind of give us a full update when you guys report 4Q results, but doesn't sound like you've have been active here in the fourth quarter, but the conclusion of the Southwest region, the stock is still at these levels, which you look to get more aggressive is that fair summary?

[Brian Davis:]

It is we look at opportunities for opportunistic share repurchases, Collin.

[Collin Mings:]

Okay. Switching to the hurricane. You've noted kind of about 500 acres were directly impacted, but just beyond the salvage efforts, what are you seeing in terms of volume and pricing over the next quarter or two, just given the unexpected levels of supply on your wood baskets?

[Todd Reitz:]

Hi, Collin. This is Todd. Yeah, we were very fortunate location played a huge part of that. Just as an update as Jerry alluded to. We’ve been able to salvage or in the process of salvaging that product. Primarily was in the pulpwood stands and we had some early -- not early but recent things that occurred those were the ones that were impacted. As far as impacts from all of the damage that has occurred down there and we've all read the reports and obviously very devastating to the [indiscernible] markets where they exist. A little bit outside of the realm where we typically operate. So I think it's a little early to see where is that product, how far it is going to move. Because some of the salvage is going to be really limited, we're talking with some of the folks that are directly impacted down there and just getting crews in there to start clean that up is going to be very slow. Some estimates have been maybe only 10% of it actually makes it to market which is really low in the overall scheme of things. So we're going to see an impact is probably going to be a quarter or two out at one level it's a little bit difficult to say because where it would impact us it would potentially be in our fiber supply group and that's a formulaic pricing mechanism that's in place and so there'd be a lag to that. Currently, we're not seeing a lot of volume flow into the market as a whole distance issue. You think about the markets down the coast they already have 50% of the procurement service to work with. And now that procurement circle is 50 to 60 miles further away. So they're going -- they're going have to deal with a lot different holocaust issues. The overall ability to source those mills is going to be a different equation going forward. So I haven't seen any impact as of late. I mean as it stands right now anticipate as we move forward having to deal with those things but they'll be very limited in our overall market space to be honest with you.

[Brian Davis:]

Yeah, Collin. Just as a result of geography on the major potential impact would hypothetically be coming to a legacy property that supports mark mill in Alabama. And again, we'll just emphasize, we've got a big supply agreement there and to take prepay and we're going to deliver the same amount of volume and see what impact it has on prices. But even the pricing mechanism there is made up in a way when you get those specific that will inflate us against the impact of cheaper salvage with that comes into the market.

[Collin Mings:]

Okay. No, that's very helpful detail there guys. As far as deal flow, Jerry, going back to some of the comments in the prepared remarks, just can you just maybe update, given how active you were in 3Q and do you have anything else under a contract to acquire or maybe on the flip side of that, given the Southwest region sales progressing, do you have any other notable disposition plans as we kind of round out 2018 and move into 2019, as you have at least shown some indications of increased stability to recycle some capital, anything under contract to basically to buy or sell at this point?

[Jerry Barag:]

There's nothing on their contract other than the disposition of the 56,000 acres in Southwest. The combination of the market backdrop plus the very busy pace that we had through the course of this year and especially, Q3. We are making sure that we're very focused on closing out the year and delivering on all the initiatives and promises that we previously made. So it slowed down quite a bit and I think everybody might have expected that.

[Collin Mings:]

Okay. And one last one for me and I'll then turn over and jump back in the queue. But just stepping back to the company exploring potentially putting out in the formal bid for Phaunos, just maybe update us, Jerry, how are you thinking about our international opportunities recognizing there is some unique circumstances, involving kind of the situation, potential link that from a capital structure standpoint, but just how is CatchMark thinking about going international at this juncture?

[Jerry Barag:]

Yeah I mean let's put it this way. The Phaunos opportunity was unique and while they had some very good assets they were all international assets. They were very good assets. The main attraction to us was not the assets themselves or the opportunity to go international. It was really capital driven and it was really an opportunity to merge together with a great shareholder base that they had. So it was capital lead opportunity not a strategic property or Timberland opportunity. And I think that some of that got misinterpreted along the way. And as we said it -- the U.K. takeover law and the disclosure that we had to make about this made it all very preliminary and made it seem much more tangible than it ever was.

[Collin Mings:]

All right. I'll turn it over. Thank you for the detail. Thanks.

[Jerry Barag:]

Sure. Thanks Collin.

[Operator:]

[Operator Instructions] Our next question comes from Paul Quinn with RBC Capital Markets. Please go ahead.

[Paul Quinn:]

Yeah. Thanks very much. Good morning.

[Brian Davis:]

Good morning, Paul.

[Jerry Barag:]

Good morning.

[Paul Quinn:]

Thanks for the additional color on the effect of the hurricanes. Just curious as to what the timing of that salvage harvest is. I suspect it's got to be done in a certain period of time and that probably limits the effect that that salvage harvest could have on your markets. Do you have any idea what that timing is?

[Todd Reitz:]

Give a little insight or color around that as we visited with other friends around the industry that operate more in that area. Part of the issue has been it will be a little bit slower coming to market, I would think, just because of the availability or the inability to get crews down there in a very quick manner, if you will. Not to mention the way the salvage has to take place, it basically looks like a bunch of Lincoln logs that were pulled out on the ground, you trying to pick through them. It can be slow, it can be dangerous at times. And you're going to have to move in with more of a track type operation and there's not as many of those around. For us where we were at more of the northern end of that, if you will, a lot of the trees were blown over. So we've been able to go in and you can get to those very easily with the traditional type setup, so we'll able to salvage that to market in a very efficient and timely manner. In areas where trees are broken off, it's just going to be a slow go, it's all going to be pulp where there's very little soft timber salvageability coming out of the stems. So time will tell. A lot of it will just be piled up and have to be disposed of, which is very unfortunate, sad for the industry and for those landowners down there obviously. But there are crews moving in there, but it's not just -- you're not seeing a mass flow of logging equipment come into the area as you would -- if you compare that to say the power companies coming in and fixing power and those kind of things. A lot of people are cleaning up their own property first before they really start moving on to other private land owner type setups, if you will. The main focus is to try to get power to mills and those kind of things. So I wouldn't be surprised if this lingers out there definitely for the next three or four quarters just as it begins to move and come into the market.

[Jerry Barag:]

I mean, Paul, it appears that it's not going to be a homogenous kind of salvage strategy because the worst part of it is where the storm came onshore and had the highest winds, the damage appears to be that at about 4 feet up, the trees just snapping and that salvage is really tough. And that's where the most severe damage was. As Todd was saying, we -- the 400 acres that we had impacted was in kind of the secondary zones of where the winds were still strong, but obviously a lot less devastating than they were in other parts of it, and that's where trees came down, got up and would be a more cell more normal salvage operation. So it's just hard right now, and transportation is confounding everybody to get access just into the air to figure out how to get into start the salvage operation. So it's slow and that's part of the reason that the low estimates on the amount of salvage have bubbled up.

[Paul Quinn:]

Yes, 10% it is pretty low. Maybe turning to -- during the quarter we had export taxes or import taxes coming on U.S. logs and lumber for -- into China and just wondering what the effect of that has been on the market, and whether that trade is normalized now?

[Jerry Barag:]

Yes, Paul, for us that would primarily been in and around the Savannah market where we saw that. It's been a -- overall, really small impact because we didn't have a tremendous amount of volume going into there. The overall scheme of things we were looking at maybe 2% to 3% of our overall total solid wood production that's owning to exports, while it's disappointing to see the price drop. It has normalized with the domestic market if you will. We didn't see any major pushback from the domestic customers. They've been able to absorb any of the volume and maybe shifted away from the export side. Good thing is, several -- couple of those customers are still running. So that maintains a little bit of the tension in the market. We are still producing to them, so -- at a reduced level where we were. But no you no major drop in price. No major push back on volumes or anything along those lines was experienced during this time.

[Paul Quinn:]

Very great. Maybe we had a record drop of lumber in the quarter. Just wondering if you've seen any kind of -- or heard of any changes in some of the potential capacity adds that are coming in November space going forward in the U.S. South?

[Jerry Barag:]

Yes. I mean, as an industry it's impacting different places differently and we know given the really strong prices for timber out in the West and the fall particularly in power prices in particular out in the West that it's gotten a little bit more dicey. As I noted in my comments, prices on Southern Yellow Pine, while it come down from big highs, are still -- on a trend line basis are it's still pretty attractive. And so the people that we're supplying, which again by design are in some of the better lumber production markets, and as a result, some of the better timber markets, they have not pulled back at all. We have seen no real impact of lower lumber prices on their current operating rates and their future plans for expansion in the south.

[Paul Quinn:]

Okay. And just last year on Timberland values, I mean you guys are pretty. Just wondering if you are seeing any impact from rising interest rates, lower lumber and sort of this Chinese import tax issue on Timberland values?

[Todd Reitz:]

The quick answer is no. It's still a little early for that to have gone through. As I've noted on previous calls, the big impact -- and it's challenge for the appraisal industry for valuations in general, is that the way the market operates is based on actual recorded sales and it doesn't really take into account no sales. And there have been quite a bit of no sales in weaker and weak Timberland markets. And so those comps really never make it to those appraisers and it's odd process probably a flawed process because of that. But what you've seen is where products have transacted have been in the more desirable market, the better operating market and prices have remained very consistent.

[Paul Quinn:]

All right. Thanks very much. Good quarter. That's all I had. Best of luck.

[Jerry Barag:]

Thanks Paul.

[Todd Reitz:]

Thank you, Paul.

[Operator:]

And your next question is follow up from Collin Mings with Raymond James. Please go ahead.

[Collin Mings:]

Thanks. Just a few housekeeping questions for me here to follow-up. Just as far as interest expense it looks like that you guys are at the top of your pricing grid. Once the Southwest sale is complete, would you expect that to drop down a notch?

[Brian Davis:]

We do. We would anticipate that.

[Collin Mings:]

Okay. And then, the $2.7 million of asset management fees in the quarter, is that a fair run rate going forward or was there anything just a little bit unique given the timing of the Triple T and anything else there to be mindful of?

[Brian Davis:]

No, that would be a going run rate Collin.

[Collin Mings:]

Okay. And then just on -- following up on share account, again, just from the 10-Q, it looks like it kicked down modestly between the July 31, and the October number. Is that has to do with the tax treatment of some of the award shares, so just any color there would be helpful. Since it doesn't sounds like you're buying back stock here.

[Brian Davis:]

That's right, Collin. So our directors receive annual awards it's time over annual shareholder meeting and there is a withholding of those shares to support tax payments associated with them.

[Collin Mings:]

Okay. Very helpful, just actually one other big picture question, Jerry for you. Just as you think, about future growth in the Pacific Northwest, I'm just curious -- I mean, you made comments in response to the Paul's question there about -- maybe a little bit more dicey in some of the markets there given how about the export picture there, may be a little bit more clarity just given how important that export market is for the Pacific Northwest. Just -- how does that impact your making you about further expansion of Pacific Northwest at this point?

[Jerry Barag:]

I would probably tell you we think about it exactly the same way that we thought about how we invest in the USL, which again, Pacific Northwest market is not one big monolithic market. Although, because it's been -- because of dynamics there have been so strong over the last couple of years that it seemed to appear that way. You have better markets there and worse markets there. The better markets tend to be organized around the best-in-class low cost producers of lumber. And I think that trend is going to exhibit itself more apparently where you still have relatively high prices of timber and lumber prices have come off and so some of the second, third, quartile producers of lumber out there are, I would guess, going to start to pull back on some of their production and that will impact local timber markets. But I think in the better markets throughout Pacific Northwest, they will get through this period of time from a timber standpoint unscathed.

[Collin Mings:]

Okay. I appreciate the extra color there.

[Brian Davis:]

Thanks, Collin.

[Operator:]

Thank you. And this will conclude our question-and-answer session. I would like to turn the conference back over to Jerry Barag for any closing remarks.

[Jerry Barag:]

Thanks everybody again for joining us for the third quarter. We will talk to you early next year.

[Operator:]

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