CatchMark Timber Trust, Inc.
Q4 2014 Earnings Call Transcript

Published: 24 Feb 2015

[Operator:]

Good day and welcome to the CatchMark Timber Trust Releases Fourth Quarter 2014 Earnings Conference Call. At this time, I would like to turn the conference over to Mr. Brian Davis, Chief Financial Officer. Please go ahead, sir.

[Brian Davis:]

Thank you, Jamie. Good morning and thank you for joining us for a review of CatchMark Timber Trust results for the fourth quarter 2014 and full year 2014 results. I’m Brian Davis, the Chief Financial Officer of CatchMark. Joining me are President and CEO, Jerry Barag; and Chief Operating Officer, John Rasor. During the course of 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 2013 Annual Report, our Form 10-K and other reports that we file with SEC. John Raiser and I will join Jerry to answer any of your questions after this presentation. Now, I turnover the call to Jerry Barag.

[Jerry Barag:]

Thanks, Brian and good morning everybody. From a very snowy Atlanta this morning kind of an unusual morning. In the next few minutes I would like to review our strong 2014 results, discuss our outlook for the year ahead and update you on the accelerated conversion of the B-3 shares. As we announced yesterday CatchMark registered an outstanding fourth quarter showing substantial increases in company revenues, adjusted-EBITDA and net income over earlier results. We believe our strategy and the execution of our strategy are working and we intend to continue on the same course for 2015. That course focuses on improving operations on existing timberlands, both legacy on those recently purchase and acquiring additional high quality timberlands with the combination of strong inventory and highly productive soils. These physical attributes ensure immediate harvest income as well as the long-term potential for sustainable future harvest for finding durable earnings and higher dividends for the company. When you examine our portfolio closely we believe you will see that we are assembling the highest quality timberlands in the industry, the foundation for potential impressive growth. Speaking of dividends, the company has declared a third consecutive $0.125 dividend per share for shareholders of record as of March 2, 2015, which will be payable on March 16th. Now let’s look at the performance highlights. First for the full year of 2014, compared to full year of 2013, revenues increased to $54.3 million, a 69% increase. Adjusted EBITDA rose to $23.7 million almost a 600% increase. Net income increased to $700,000 from a net loss of $13.2 million. Total harvest volume increased by 49% to 1.366 million tons from 919,000 tons in 2013 and the average net prices for soft timber and pulpwood increased respectively by 20% and 14% over full year 2013. The increase in revenue is results from increases in timber sales revenue and timberland sales revenue. Of the total 52% increase in timber sales revenue, 30% was generated from properties CatchMark acquired during 2014. 17% was driven by higher harvest volumes on the legacy marked timberlands and 5% was due to better pricing on the marked timberlands as a result of improved market conditions. The increase in adjusted EBITDA was primarily due to increases in revenue from timberland sales and net timber sales as well as the decrease in general and administrative expenses, offset by small increases in operating expense and forest management fees a function of managing increased acres stemming from recent acquisitions. Net income increased as a result of increased operating income, a decrease in interest expense and a small increase in interest income. For the fourth quarter 2014, compared to fourth quarter 2013 the company generated total revenues of $20.9 million, a 177% increase. Produced adjusted EBITDA of $11.6 million compared to a negative $800,000 for the fourth quarter 2013. We also registered net income of $2.2 million compared to $6.1 million loss in the fourth quarter 2013. Increased gross timber sales revenues by 60%, increased total harvest volumes by 58% and realized increases in average net prices for sawtimber and pulpwood of 21% and 1% respectively. For the quarter, the increase in revenue and EBITDA resulted from increases in both timber sales revenue and timberland sales revenue. The increases in timber sales revenue again were driven by properties CatchMark acquired during 2014 as well as the combination of higher harvest volume and better pricing on the legacy marked timberlands. In light of these excellent results, we want to stress our ongoing focus for optimizing current harvest yields to meet demand from our mill customers and thereby maximizing profit margins, while managing future biologic growth in our timberlands to sustain our long-term objectives. These objectives of course include increase in sustainable revenues and steadily raising our dividend. It’s important to note that in making significant acquisitions in our target South fiber basket region last year totaling approximately 121,600 acres, we brought these new timberlands into production quickly and further strengthen relationships with our mill customers. Now let’s turn to guidance based on our full year 2015 outlook. Our objective is to build on 2014 results and continue on the same course that means we will employ a disciplined strategy of executing sound forest management practices on existing holdings and acquiring additional timberlands in select areas of the U.S. south where we continue to see the best relative value and pricing compared to other regions in North America. For full year 2015 we expect adjusted EBITDA of between $27 million and $31 million up from $23 million registered for the full year of 2014. We anticipate harvest volumes to increase in a range of between 1.7 million and 1.9 million tons. Harvest volume mix is anticipated to shift to a higher proportion of sawtimber, approximately 45% and a lower proportion of pulpwood approximately 55%. Planned land sales are expected to total between $11 million and $13 million. We project the net loss of between $13 million and $14 million due to non-cash charges related to depletion expense driven by higher harvest volumes and changes in product mix. Employing proceeds from the company’s recent refinancing we are carefully and deliberately evaluating our acquisitions pipeline and continue to target U.S. South markets that demonstrate favorable long-term demand, timberland properties with superior productivity characteristics in soil attributes and forest genetics, which can provide durable harvest revenue and sustained long-term growth and finally properties with desirable age class distribution profiles to complement our existing holdings and support sustainable harvest volumes. As an important side note, since our last major purchase announcement in November, we closed on or entered into agreements on series of smaller acquisitions totaling approximately $25 million. These ongoing purchases are designed to supplement and to complement nearby existing holdings. So we continue to be active on the transaction front. Our 2015 results should be supported by the ongoing modest recovery in the housing markets, with expected moderate increases in timber product pricing. While we improve our portfolio mix and increase the share of sawtimber we are benefited from solid demand for pulpwood for manufacture into wood pellets and consumer packaging. Finally, before moving on to the Q&A, I also want to announce the accelerated conversion of Class B-3 shares into common stock to Class A shares for trading on the New York Stock Exchange. Coming out of our IPO a year ago December, we used the recapitalization and subsequent creation of the B shares to help stabilize the share price and reduce volatility through staging liquidity of the shares into the public markets. Staging has succeeded in its objective and the Board and our lead underwriter have agreed to move up the conversion of the last class of the B shares from June to February 27th of this month. So to sum up, we’re extremely proud of 2014 results, which exceed the plan significantly. The operating and growth strategies we employed worked to increase revenues and EBITDA substantially. And we look to continue and grow those strategies during the course of 2015 expanding our own timberlands, increasing revenues and ensuring sustained growth with the opportunity to increase dividends. For CatchMark it’s about assembling the highest quality timberlands with superior property characteristics and biological advantages and then managing forest growth and timber sales to maximize durable earnings, that is not only in 2015, but for years ahead. We intend to remain very disciplined and take extreme care in carrying out our plan. Now, John and Brian and I will be happy to take any of your questions.

[Operator:]

[Operator Instructions] We’ll take our first question from Collin Mings and Raymond James & Associates.

[Collin Mings:]

Hey good morning guys congrats on a solid quarter.

[Jerry Barag:]

Thank you.

[Collin Mings:]

I think first question I guess, just as you guys think about your capacity to complete additional acquisitions following the credit facility expansion in December. I think I had roughly about $200 million of additional runway as far as thinking about a leverage level you would be comfortable with. Sounds like you guys have about $25 million of acquisitions either teed up or you’ve closed on. Just talk a little bit more about again just that capacity to continue to grow given that credit facility expansion? And then how are you guys thinking about potential JV partner shifts I know that something that you guys have talked about in the past as far as a way to continue to grow the portfolio?

[Brian Davis:]

Sure I’ll take that good morning, Collin. We’re very pleased with the debt structure we’ve put in place in December as it really met our primary objectives in increasing our acquisition capacity and lowering our effective interest rate for our debt. So as you alluded to we put a couple of credits so is in place including a $35 million a working capital facility at 10 year $100 million term loan, but the cornerstone was a $275 million acquisition facility. As Jerry alluded to we have a number of smaller deals under control or have closed on approximately $25 million beside of the calendar. And so when we think about acquisition capacity kind of put us in a comfortable leverage range for looking at about $175 million to $200 million of additional acquisition capacity and with a blended interest rate, effective interest rate of just under 3% we’re looking forward to strategically putting that capital to work this year.

[Jerry Barag:]

So as Brian pointed out in terms of acquisition capacity we roughly have as much available to us as the amount of acquisition volumes that we did during 2014. So we feel very comfortable at least during 2015 that we have adequate capital available to us. As you mentioned Collin there has been a strategic initiative underway in terms of raising private capital in partnerships or in combination with that public capital and it’s a little bit too early to announce anything, but we have continue to proceed down there on a couple of different initiatives and we’re making good progress. And I would expect that sometime during the course of 2015 we’ll be able to announce something more concrete regarding that.

[Collin Mings:]

Okay. And then guys just to clarify the $25 million all is going to close in the first quarter of this year or has already closed in the first quarter of this year or just trying to think about the timing and just making sure none of that actually fell into 2014 and all that’s going to be 2015 and just again the timeline of that closing in ‘15?

[Jerry Barag:]

It’s been closing really in large part during December and January and that is appropriate that we will continue on during the first quarter of this year, but most part it’s just the normal business that we continued on in between these quarterly calls.

[Collin Mings:]

Okay. And then maybe on that front Jerry, can you just talk a little bit more about the acquisition environment sounds like you are still buying smaller one-off deals, I know you guys were in attendance to myself as well at the UGA Conference last week where there was a lot of conversation about just how competitive the acquisition market has become particularly in the U.S. South? And just any color that you might be able to provide on the types of deals you’re seeing what I think in the past you guys had given kind of a pipeline number being $500 million just maybe some additional color on that pipeline and just the opportunities you’re seeing out there?

[Jerry Barag:]

Sure, so a couple of things I’ll highlight, in terms of the overall dollar value of the pipeline it has been building very quickly since the beginning of the year and it’s probably some place in that $500 million range, might actually be a little bit higher now over the last week or so, in terms of some potential transactions that are out there. The competition of the pipeline looks significantly different than it probably did during most of 2014, where we saw in general moderate size transactions smaller and moderate size transactions that were very active and we’re going to see really in a large transactions until the end of the year our pipeline right now is kind of a barbell there is a fairly robust pipeline of small deals and then there is fairly large pipeline of very large deals, so it’s not a lot of the medium and intermediate size deals. So we’re processing through that and trying to figure out how we can look at that and do what’s right for the company in terms of growth. But understanding that’s the opportunity that’s in front of us today and it’s still very early days, I mean that pipeline has really just come together most recently over the last 20 to 30 days. In terms of the acquisition environment we’re seeing pretty steady pricing and pretty steady levels of competition that’s out there. So for us it has not really significantly changed and we think that that’s a very good development these markets have remained steady, because as you know and as you can see from a lot of these results a lot of the positive news and results that we’ve been able to generate have been buying into this market at with the dynamics that existed at the current prices and we don’t see much pressure out there to push prices and we think even with a slowly or slower recovering housing market timberland deals in the U.S. South seems to be generally fairly priced.

[Collin Mings:]

Okay. And then I guess a question both for you Jerry and John, just how you think about that MeadWestvaco Rock-Tenn how do you think about that impacting your business and I guess more specifically can you maybe just update us on that supply agreement as it relates to that mark mill and maybe just what your exposure was in terms of revenue too MeadWestvaco last year?

[John Rasor:]

Sure Collin, look Brian put a metric around MeadWestvaco percentage.

[Brian Davis:]

Right, so for 2014 Collin that was approximately 34% and that’s down from the low 60s high 50s.

[Collin Mings:]

Okay, that’s help.

[John Rasor:]

And so with that we have been talking with the MeadWestvaco folks as it relates to the Rock-Tenn merger and at this point in time we don’t see any negatives in fact there could be some added synergy for some of the legacy marked properties, but that would be very preliminary, but I think the point here is we really don’t see any downside and separate from the merger, but associated with MeadWestvaco and ultimately Rock-Tenn is the Evadale, Texas mill which we supply out to Nowland [ph] and now with the addition of Beauregard in Louisiana that puts us into a position of becoming a bigger and more important supplier to them and we’ve entered into some fairly serious conversations about how we can work together to make that happen.

[Collin Mings:]

Okay, alright… okay, that’s helpful. And then I guess John another one for you and I guess broadly one for the team and then I will just turn it over. Just can you maybe update us on how that Satilla River acquisition is going? Is it close enough to benefit from that new Klosner [ph] mill that started up in [indiscernible] Florida and then I guess more broadly just what are your expectations kind of imbedded in guidance as far as saw a lot of pricing improvements this year and pulpwood pricing trends this year?

[John Rasor:]

Okay, it’s a pretty good size question. First of all Klosner’s [ph] up and starting to work through the Kansas starting anything as big a deal as that is up no small task. We are going to be impacted in any kind of a what I would call a measurably significant way we will benefit around the fringes of the southern end of our properties in Georgia that are within striking distance of that mill. The Satilla River tracks that are closest to the Klosner [ph] mill are really so small that it’s in consequential as far as being able to quantify anything effect of guidance, okay.

[Collin Mings:]

Okay.

[John Rasor:]

On the broader scale and I try to get my thoughts collected around this overnight anticipating you would be interested in our entire landscape. I would say we are anchored in the Southeast with the Waycross acquisition and some of the smaller ones that have been put around that in a very, very strong mill market we are seeing prices running ahead of our expectations and we are looking for that to continue into 2015. On the other side is Southwest where we had a huge year with Panola last year we’re expecting to do well again this year and now with Beauregard being added we are in a position to start supplying Boise Cascade with products manufacturing facilities at the PCA mill down there pulp and paper. And so the combination of [indiscernible] Boise Cascade and some of the smaller operators in that area is giving us very stable and positive outlook. We started the year out well we think first quarter looks good for that. In the mill with if the largest share of our acreage of course is with the legacy mark properties and then the [indiscernible] addition and a few other smaller ones that we have built out and what we are seeing there is basically four mill inventories across the system both pulp and paper and with products. On the pulp and paper side I think it’s important to point out that we are going to work through two big mill shut downs first one is starting within a week at MeadWestvaco to install a new chipper in the work on our continuous digester and probably do maintenance on one of their machine lines and we will work through that and we’ve already started the process of repositioning those deliveries elsewhere and will be on a curtailed schedule for a few weeks the actual mill was only going to be down for shorter periods of that. But the Woodyard will be down whole for the week with the chippers being installed. So we will have to work through that and then following that warehouse at [indiscernible] it’s going to take a five week cold shutdown to put in a new cogen plant and that’s going to be a multi-week redistribution of wood, pulpwood and we have already started that process. So part of what will go on Mead will go down first we will position wood back east to warehouse and warehouse will now will fuel Mead backup and then push further West to some of our other customers. But it’s a major challenge to get through, but see it being able to do that and maintain our volumes and having a minimal impact on the pricing. Lastly as it relates to saw, and the saw mills full as far as inventories we are still able to move our volumes, it’s not an environment right now that is really showing any opportunity to push price we just want to be sure we hold it.

[Collin Mings:]

Okay, John. So taking that last comment you guys did try and quantify or kind of I think that’s very useful color quantify the overall picture, you are expecting pretty much flat pulpwood pricing and then just a modest uptick in sawlog pricing as we progress through the year, is that the right way to think about it?

[John Rasor:]

As we progress through the year that’s still our point of view, yes.

[Collin Mings:]

Okay.

[Brian Davis:]

Collin these are building on what turned out to be pretty substantial gains during 2014. So it’s not a pessimistic outlook I mean we’ve been able to hold those gains and that’s been important overall for the industry.

[John Rasor:]

I mean I think I would also mention that both of these outages at warehouse in MeadWestvaco are going to be a real plus to the operating efficiencies and cost position of those mills. So I mean if capital being invested to getting even better in terms of where they already are. The lumber industry will kind of have to work through this, the weather has allowed them to have pretty good inventories and so yeah, we do not have as good pricing in that area as we do in the South in the far Southeast and in the Southwest.

[Collin Mings:]

Okay, great color guys. I will jump back in the queue and turn it over.

[Jerry Barag:]

Okay, thanks Collin.

[Operator:]

[Operator Instructions] And we will take our next question from Dave Rodgers with Baird.

[Dave Rodgers:]

Yeah, good morning guys. May be John or Jerry to start with you can you talk a little bit about the sequential decline in volume, I mean it wasn’t substantial but it was down after some nice increases was that weather? I know you had alluded a little bit of that on the last call, but can you kind of recap how much of that was expected versus other impacts impact out of your control?

[Jerry Barag:]

Sure I will start and I’ll turn it over to John, morning Dave. As you recall Dave the third quarter for us from pricing perspective and the volumes perspective was a really big quarter and we saw the opportunity there and we actually moved a lot of volume into the third quarter purposely to take advantage of those price increases. So, we knew going into the fourth quarter that that was not a run rate that we could sustain and even so fourth quarter pricing turned out to be pretty good and the operations seem to be pretty good, it was just a fall off from what was a particularly strong quarter in the third quarter.

[John Rasor:]

Yeah, I would just add to that, seasonally we will following the third quarter as we get into the fourth quarter we start moving into a more intensive training regime and as we are catching up on those things we don’t have to push that quite as hard, so didn’t see quite as much pulpwood and we are feeling pretty good about our balance now between pulpwood and sawtimber, but we managed what we have said as the annual harvest volume to maintain our sustainability.

[Dave Rodgers:]

Okay. And then follow-up on that a little bit, I think throughout the quarter you think the number was about 77,000 acres that you ended up acquiring or closing, I don’t know the best measure, but can you talk about kind of the productivity of the acquisitions in the quarter I think in prior quarters you have been able to get properties have been running pretty quickly, don’t know if that was able to occur this quarter and kind of what should we expect the incremental impact going forward from the acquisitions in the fourth quarter?

[John Rasor:]

On the acquisitions in terms of anything that we harvest to develop the acquisitions that we closed out in the fourth quarter was relatively small.

[Jerry Barag:]

Yeah, so the big transaction in the fourth quarter would have been Beauregard and the contribution during that quarter was minimal with anything. And so that property is really brought up online and it’s in full operation at this point. And so the greater share of the impact of that transaction really is a 2015 event.

[Dave Rodgers:]

Okay, okay. And then maybe lastly for Brian, you can walk me through a little bit on the adjusted EBITDA guidance. I think your timber harvest kind of run rate was about $5.3 million in the fourth quarter and if you kind of analyze that to about 21.5, you pick-up kind of what’s coming out of Beauregard in the fourth quarter acquisitions which sounds all incremental and when you give the land sale guidance. It seems like the EBITDA guidance should just be a little bit higher. So I guess one I’m wondering if John’s comments before it sounds like you expect to maintain volume in the face some of these planned shutdown, I don’t know if that’s impacting your conservatism around that number or two if there something in the land sales basis or calculations that we should be thinking about to kind of get a run rate EBITDA for 2015?

[Brian Davis:]

Alright, so good morning Dave. So when you think a little bit of your model it’s really a p times b. So from our expectation I think you probably heard about our anticipated pricing is going to be, we’ve provided guidance from a tonnage standpoint. And then also from a land sale standpoint $11 million to $13 million you have to recall on a basis standpoint that’s also added back into our EBITDA. So changes and basis wouldn’t have an impact on EBITDA it’s a non-cash charge. And while we have a standpoint we have a lot of our increase on a year-over-year basis is going to be coming from we’re doing $27 million to $31 million of EBITDA with $23.7 million last year. So on a run rate basis you’re seeing a double-digit increased in our EBITDA. So from the standpoint of moderate prices is what you’ve heard from a pulpwood, sawlog standpoint we are going to change our mix, you have some mix change in there. And so from our standpoint, we’re seeing still very good growth, I wouldn’t consider it any degree of conservative, because there is an operational hurdle that we’ll have to go through, but we feel that’s a reasonable range of expectations for this upcoming year.

[Dave Rodgers:]

Okay, thanks for the color guys.

[Brian Davis:]

Sure.

[Operator:]

We’ll take a follow-up question from Collin Mings with Raymond James & Associates.

[Collin Mings:]

Hey guys. Going back to guidance, just real quickly on the $11 million to $13 million of land sales that you expect this year, are there really any large land sales expect in that? And then maybe can you talk about how much of that already under contract, I know that pipeline has been building or as you guys were trying to move some of that from ‘14 into ‘15. Just talk about what’s under contract are there any large contracts in that and just some additional color and maybe you carry debenture kind of a per acre value for some of that land sales?

[Jerry Barag:]

Hey Collin, this is John. We’re doing well in fact we’ve closed a number of transactions since January 1 already. And we expect our first quarter to account for a measurable part of the annual projections and then probably brought up again in the later part of the year. So we’re right on schedule to achieve what we said, we expected here, these have been mostly smaller size sales and we’ve been in the 2,000 plus per acre range.

[Brian Davis:]

So the land sale market especially small tracks is continue to hold up certainly from whatever momentum it had during 2014, they is still good number of inquiries and a good amount of activity that’s coming in from potential buyers on our land. We did have, as John said we did have a lot of activity that happened in January and that’s kind of worked through February and you’ll see that in our first quarter numbers.

[Collin Mings:]

Okay. So if I will trying to think about that, so I think about maybe a third of the full year number is going to be in the first quarter is it going to be half or is there any way to think about how much might happen in the first quarter?

[Brian Davis:]

Yeah, it’s probably between the a third and half.

[Collin Mings:]

Okay, that’s helpful. And then Brian just another question kind of on guidance, can you talk at all about the G&A expectations embedded in your guidance range?

[Brian Davis:]

Right so as we think about G&A we really think about it as a target as a percentage of our enterprise value, we really we’re targeting at kind of 1% to 1.25% relative to enterprise value we’ll be at the top-end of the range where we are today. But as we continue to grow we will be closer to the target of the lower end of that target of 1%.

[Collin Mings:]

Okay. So I guess assuming no other acquisitions how should I think about that in terms of a dollar figure for 2015 then would you say?

[Brian Davis:]

Right, so it would be and a lot of this would be to non-cash because we’re putting together compensation programs associated with equity awards so we’d be looking at approximately $7 million to $7.5 million of G&A.

[Collin Mings:]

Okay, that’s helpful. And then kind of a bigger picture question given the commentary in the press release alluding to the again and we’ve spoken in the past Jerry about the emphasis of the importance to have growing and sustainable dividend overtime one is really the next catalyst or event for you guys to get more comfortable with another dividend bump it seems like again the adjusted EBITDA you guys are just creating off of core portfolio going forward it gives you some flexibility where if you wanted to increase the dividend if it just going to be a matter of closing some additional acquisitions you need to start to see a little bit more of a sawlog price recovery just what should we looking forward as far as thinking about a dividend increase?

[Brian Davis:]

Well I think all of those things would be helpful, but clearly the biggest driver of that is going to be just some additional transactions, accretive transactions that have the ability to contribute above the average cash flow to the operations of the company and we’re as I said we’re growing in the South the transaction landscape has changed a little bit we’ve been closing smaller deals, but we’re grinding it out piece by piece and I think as you see us continue to acquire property and get it operational that will give us more free board in terms of operating cash flow to dividend it out and once it’s there and available our intention is to make that available for our shareholders through a dividend.

[Collin Mings:]

Okay. And then another question and this just kind of tying together some comments about just the pricing and demand environment as well as the acquisition outlook, but kind of comment at all about Texas in particular I’m curious particularly just given the decline in oil prices is that impacting either the HBU component of how you thought about some of the acquisitions you made with the Panola acquisition or the Beauregard acquisition are you seeing more acquisition opportunities in those markets because people aren’t maybe putting as much of a premium for either oil or gas right on, on land out there, just a little bit more color around how kind of lower oil prices in particular is impacting some of your thoughts on that market? And then second part of that just are there any benefits as you think about your contractors and the law of increase out there of lower oil prices how could that impact you guys and this business in 2015?

[Jerry Barag:]

So I’ll start I’m sure John would want to weigh in, so the most immediate impact has really been on the whole oil and gas royalties and adjunct income sources that are coming from properties and quite frankly the precipitous drop in oil prices has caused some level of disarray in the marketplace where owners of properties that are there today and potential sellers just don’t look to think in terms of what the value of these rights that has become quite valuable when oil was at $100 a barrel have now have moved into some other phase and in terms of oil and gas exploration it’s coming offline really, really quickly and new demand for exploration has all that stopped in the areas where we target where we’re doing business today. And so I think that’s just going to take a little bit time to percolate through and have people reset their expectations we’re not rushing into with any expectation that oil is going back to $100 a barrel in fact we think it’s at least for the foreseeable future settled in some place where it is today and it’s going to take a while for global supply demand to rebalance itself to understand where that direction is going forward. In the meantime and in terms of the operations the mills in the region, we continue to see pretty steady operating rates and demand going on through the entire milling infrastructure in the Texas region, which is one of the biggest in the United States it’s considerable market there and whether that timber is going to get consumed in housing activities specifically in Texas and Oklahoma and places like that or whether it’s going to travel further certainly the operators, the manufactures of lumber continue to run those facilities at the same capacity that they have been prior to the decrease in oil.

[John Rasor:]

Yes I would add to that it’s almost unusual rather than the norm to find timber in timberland in both these Texas and Louisiana areas where the mineral rights have not already been sold. Most of the acquisitions we worked on out there has involved just the surface. Now there are acquisitions occasionally that do have some minerals associated with them and those that we’ve been involved with while we haven’t closed on anything certainly we’re taking into account the decreased value of the minerals that were associated with the offering. But again those are the exception rather than the rule to most of the transactions. As far as the HDU side of it, potentially there could be some dampening effect with the prolonged oil slump, but we’re not seeing any evidence of it yet in terms of the interest in the incoming calls that we get. And a lot of that I think is driven by the fact that there is a very strong rule and recreational base of interest over there particularly when you think about how close we are to Houston and Lake Charles for that matter. So it’s too early to quantify I think whether it’s going to have any kind of measurable impact around any HBU ambitions that we may have over there. And by the way that’s not driving those acquisitions anyway. So it would be minimal if it does have a negative impact. HBU across the rest of our timberland portfolio remains very good and rather robust. As it relates to harvesting and hauling there has been a lot of study and a lot of it is developed around the correlation between the price of diesel and the delivered price of wood or the price paid for stumpage. Let me just say that over a longer period of time that can certainly translate into an upside for us. But it takes some time to work through the whole system and we’ll see how that goes.

[Collin Mings:]

Okay. Well thank you again for all the color on today’s call and good luck during the course of 2015 guys.

[Brian Davis:]

Thanks, Collin.

[Operator:]

[Operator Instructions] And we’ll take our next question from Edward [indiscernible] with Hicks Capital.

[Unidentified Analyst:]

Hi guys, good morning. Nice job this last quarter. First, could you just maybe just give a little clarity that kind of from your mills about the kind of debt level that you guys are comfortable with not getting to but comfortable with and staying at? So do we really have $200 million of debt capacity or roughly that amount available assuming we don't issue any more equity?

[Brian Davis:]

That’s correct yeah this is Brian good morning. We talked about a range of a comfort level of the kind of the mid-30s and [strangulated] with what’s the type of acquisitions we want to make and what’s the type of interest cost associated with those properties. But as we think about it our actual name plate capacity is larger than probably level which we want to settle on and to settle on that’s another $175 million to $200 million we would be comfortable operating at.

[Unidentified Analyst:]

Okay, that’s great. And then the second I just kind a curious about what’s the motivation was to accelerate the conversion and maybe kind of in conjunction with my last question, is this in your preparation or anticipation of another equity offering?

[Brian Davis:]

No, absolutely not, the motivation really was it was an overhang that seems to be somewhat of a term for some investors or potential investors in shares because of the suspicion that every time the lock ups expire that there is going to be a lot of trading activity that would move our shares lower. We haven’t seen that to be the case whatever benefit they were providing at the outset a year ago that seems to have evaporated at this point. And so continuing all within just seem to be a bad idea. So we have removed all impediments from people perception that is overhang is out there that was the motivation it’s a bit hard to go ahead an issue or do anything else I mean quite frankly we could have issued with them out there.

[Unidentified Analyst:]

Okay, great. Alright I appreciate it. Thanks a lot guys. See you soon.

[Brian Davis:]

Thanks Ed.

[Operator:]

And it appears there are no further questions at this time. So I would turn the conference back to Mr. Davis for any additional or closing remarks.

[Brian Davis:]

Alright this concludes our call. We appreciate everybody listening in. Have a great afternoon.

[Operator:]

Thank you for your participation. This does conclude today’s call.