Earnings Labs

Rayonier Inc. (RYN)

Q3 2014 Earnings Call· Mon, Nov 10, 2014

$21.50

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Transcript

Operator

Operator

Welcome. And thank you for joining Rayonier’s Third Quarter 2014 Teleconference Call. At this time all participants are in a listen-only mode. (Operator Instructions) Today’s conference is being recorded, if you have any objections you may disconnect at this time. And now I’ll turn today’s meeting over to Mr. Ed Kiker, Senior Vice President and CFO. Thank you, sir. You may begin.

Ed Kiker

Management

Thank you and good morning. Welcome to Rayonier’s investor teleconference. The press release we issued this morning and supplemental materials are available on our website at rayonier.com. I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of Federal Securities laws. Our earnings release, as well as our amended Form 10-K and our Form 10-Q filled with the SEC lists some of these factors, which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page one of our presentation materials. With that, I’ll hand the conference call over to Dave Nunes, President and CEO.

Dave Nunes

Management

Thanks, Ed, and good morning, everyone. Ed will walk through our results for the quarter, as well as our segment results shortly. And also on the call today are Doug Long, our newly appointed Vice President of U.S. Operations; and Chris Corr, our Senior Vice President of Real Estate. The key focus of the call this morning will be to discuss the results of the internal review we initiated this quarter, our first full quarter since the spin-off of the Performance Fibers business and to provide detail on the immediate actions we have taken in response to this review. From there, I’d like to outline our initiatives to realign our strategy and operations to the build a sustainable and profitable path forward. So let me begin with some background, following the spin-off of Rayonier Advanced Materials on June 27th of this year, our management team initiated a review of Rayonier’s operations and business strategies in the context of developing a long-range plan to present to our Board of Directors. During that process, we quickly identified issues related to our historical timber harvest levels in the Pacific Northwest. I informed the Board of these issues and at their direction we commenced an internal review of these matters with the assistance of newly retained independent legal counsel, financial advisors and forensic accountants. In the course of this internal review, the company also discovered issues related to our estimate of merchantable timber inventory. Specifically, the company’s Form 10-K for 2013, Rayonier had included in its merchantable timber inventory, timber in specially designated parcels located in restricted, environmentally sensitive or economically inaccessible areas, which was incorrect in consistent with our historical definition of merchantable timber inventory and a significant change from prior years. As a result of these findings, we determined that there was…

Ed Kiker

Management

Thanks Dave. Let’s start with overall financial results and highlights as shown on page four of the supplemental materials posted on our website. We had a solid third quarter with sales of $150 million, operating income of $32 million and net income attributable to Rayonier of $33 million. The quarter included one special item and unfavorable $3 million cumulative out-of-period adjustment to collect for immaterial errors and depletion expense reported in prior years. Also on our year-to-date comparisons, we have excluded $16 million gain recorded in the second quarter 2013 from acquisition of an additional 39% interest in our New Zealand joint venture. We have also excluded the results of our discontinued performance fibers and wood products businesses to arrive at pro forma operating income and pro forma net income, which will be used throughout this call for the comparisons with prior periods. Also on page four of the third quarter supplemental materials, we provide an outline of capital resources and liquidity. Our year-to-date cash flow has been solid with pro forma adjusted EBITDA of $183 million and cash available for distribution of $120 million. We ended the quarter with $736 million of debt and $183 million in cash. So on a net debt basis, $553 million. We continue to feel very comfortable with our current balance sheet and liquidity. Let’s now briefly run through the variance analysis. Page five of our third quarter financial supplement provides a sequential variance analysis of pro forma operating income. And Forest Resources third quarter operating income was comparable to the second quarter as favorable non-timber income and mix in the U.S. and lower New Zealand cost were offset by declines in New Zealand prices due to weaker export markets. Despite a strong third quarter, real estate offering income was $11 million below the…

Dave Nunes

Management

Thank you, Ed. The changes to our strategy, management and reporting structure that I discussed earlier are only part of a much broader effort to sharpen our focus on transparency and accountability at every level of our organization. All of us at Rayonier are rededicating ourselves to embodying the core values that have helped Rayonier build the company to what it is today. Rayonier is fortunate to have the most talented and dedicated employees in the industry that have embodied and live by these core values everyday. I'm confident that by the actions we’ve taken and the realignment of our strategy we announced today that we have a bright future ahead of us. With that, we are happy to take questions. Operator?

Operator

Operator

Thank you. (Operator Instructions) Our first question comes from Mike Roxland of Bank of America Merrill Lynch.

Mike Roxland - Bank of America Merrill Lynch

Analyst

Thanks for taking my questions. Dave, just put together a sense for you, was there anything else that prompted this review or was it just simply the spin of RAM and you wanting -- can you just figure out what the operations look like on a more detailed level post spin?

Dave Nunes

Management

It was really had to do with the latter of getting, as a new CEO, getting out on the ground and seeing the operations. So it was not related to the spin but more what you would expect as a new CEO.

Mike Roxland - Bank of America Merrill Lynch

Analyst

Got it. And why weren't the company’s orders able to pick this up sooner?

Dave Nunes

Management

Well, certainly the Board was -- the Board was not aware of this and once we made it -- once we alerted the Board to that, I'm pleased with the reactions that they took and collectively working with the Board to launch this internal review and get after this as quickly as possible.

Mike Roxland - Bank of America Merrill Lynch

Analyst

Got it. Was there any reason why, I guess, the orders weren’t able to pick it up or was it something that wasn’t disclosed to them or….?

Dave Nunes

Management

We recognized that most of the things that are included in our results were things that were not -- they are part of the 2014 audit that have not yet occurred. So the two restatements that Ed referred to were part of our 2014 results and the adjustment to our 10-K was the disclosure of our inventory information.

Mike Roxland - Bank of America Merrill Lynch

Analyst

Got it. And last question and then I will just turn it over. Is the dividend cut that you’ve announced this morning more a function of lower timber harvest and less dependency on land sales? What gives you comfort that this is the right level for the dividend, particularly as you are curtailing harvest?

Doug Long

Analyst

Well, I think we’ve recognized that as we have emerged as a smaller, more pure play REIT, we've got to do the right things that fit our assets and so we -- as we adjusted the harvest and looked carefully at what was best from a long-term value standpoint on our broader timberland assets, we decided it does not make sense for us to continue selling non-strategic timberland simply to generate cash flow. And so as we had adjusted both the harvest levels and the sale of non-core timberlands which we really view as an issue of quality earnings, we feel that we got the right posture going forward. And then the dividend simply is a byproduct of that.

Mike Roxland - Bank of America Merrill Lynch

Analyst

Thank you.

Operator

Operator

Thank you. Next question is Paul Quinn of RBC.

Paul Quinn - RBC

Analyst

Yes. Thanks very much. Just want to understand the overstatement of the merchantable timber inventories. Is that a hard and fast calculation, or is that more of a gray zone, especially around economically inaccessible areas?

Dave Nunes

Management

We recognize that timber inventory by itself involves estimates every year. You are doing statistical sampling. And in this case, there were stands that were -- that had been previously excluded for the various reasons described in our release that as of the end of '13 were included in those volumes. And so we went back and took a detailed look, we went literally item-by-item. And it was more a case of excluding things that had been added into as opposed to changing the methods that we were assessing particular stands of timber if that makes sense.

Paul Quinn - RBC

Analyst

Okay. I get that. So it sounds the error occurred really at the end of '13 with the database at that point?

Dave Nunes

Management

Correct.

Paul Quinn - RBC

Analyst

Okay. And just a question on overall U.S. timberland market. As you guys were active in the market buying and selling, how do you characterize that market right now in terms of potential for M&A going forward?

Dave Nunes

Management

Well, I think it’s -- I think it's a -- we have certainly seen a pickup in the activity of timber transactions this year. And I think that's driven by a number of factors. One, from the TIMO side where you have a large supply of lands, you are starting to see turnover in fund life as funds near the end of their term length. You're starting to see managers putting those properties up for sale and not something that we anticipate going forward will continue to represent a large component of the supply of timber. And so we've seen that in both the South as well as in the Pacific Northwest. And I think our activity level is indicative of that, the fact that we have been able to place or either purchase or have under contract, as Ed had mentioned, $152 million of timber through the year is a significant increase where it was last year and some of that certainly is a function of the greater activity level of transactions.

Paul Quinn - RBC

Analyst

Again last question I had was just on export markets I guess out of the Northern and New Zealand into China. You stated that they log inventories. Import inventories were still slightly high. What do you expect for 2015 into that market in terms of demand?

Dave Nunes

Management

Well, I think if you look at it -- if you look at it in a short-term and long-term sense, I think that the inventories in the Chinese ports are quite high right now and we do expect that that will result in impact short-term. It’s our understanding that that is more a function of Northwest logs as opposed to radiata pine coming out of New Zealand. But nevertheless that will have a dampening effect on Northwest log exports, while those inventories are down. And you should expect to see a lower application rate to the export markets in the Pacific Northwest as a result of that. Having said that, in the longer-term sense, I think the fundamentals in China are still strong in the context that, if China needs to be a large net importer of wood, that has not changed. So even if China's growth rate declines, which looks like it has some, there is still very large consumer of wood from other countries.

Paul Quinn - RBC

Analyst

Great. That’s all I had. Thanks very much.

Operator

Operator

Thank you. Next question is Collin Mings of Raymond James.

Collin Mings - Raymond James

Analyst

Hey, good morning, Dave, Ed. Couple of questions. First off, just on the -- can you talk about the decision or maybe even the error that led to overharvesting so long in the West. I mean, looking at about a 40% adjustment related to what you have been harvesting over the last decade, can you maybe talk about the decision to trend that back, particularly given the fact that that continues to be a relatively stronger market compared to the U.S. South?

Dave Nunes

Management

Well, Collin, I am not going to speculate on why those decisions were made. We’re really looking at this going forward as I said earlier as a smaller pure play REIT. We are taking kind of a fresh look at how we want to manage those assets. And we quite honestly didn't spend a lot of time trying to figure out why they were managed the way they were managed.

Collin Mings - Raymond James

Analyst

Okay. And then maybe just can you talk about what led to just a large inventory adjustment in the Northern region compared to the Atlantic and Gulf region?

Dave Nunes

Management

Yes. It’s my understanding Collin that that has to do with the various categories that were included in the inventory that had not previously been included and recognized that Washington state has a stronger regulatory overlay than in the South. And so as a percentage of the acre base, you have a larger percentage of the acre base in the Northwest that’s tied up in riparian management zones. And so that volume was included. And that’s why as a percentage sense, you're seeing a much larger impact there than in other parts of the country.

Collin Mings - Raymond James

Analyst

Okay. And I guess to that, Dave, just to further clarify, I think it came out in one of the questions already. But you are really not adjusting your definition of merchantable inventory at all. It is really just I think got captured at the end of last year that shouldn’t have in context of the definition that you’ve had the last couple of years and you’re just kind of correcting for that error. It’s not really a redefinition or reclassification. It’s just kind of correcting an error, correct? Is that the right way to think about it?

Dave Nunes

Management

I would think about it as an area base thing where we are -- at the end of 2013, there were areas that were included that should not have been included. It does not have to do with the actual process of making the estimates on a particular acre, it has to do with should that acre have been included as part of merchantable timber inventory or not.

Collin Mings - Raymond James

Analyst

Okay. Thanks. That’s helpful. And then just two quick follow-ups here on the -- just stepping back to 2Q as it relates to I think acquisitions that you guys talked about last quarter, it’s about 15,000 acres. It looks like you guys may have paid over $3000 an acre for some of that timberland in Georgia. Can you give just remind us of some of that characteristics of that particular timberland and just again talk about the pricing environment in general that kind of warrants that type of pricing?

Dave Nunes

Management

Sure. I will touch on this and then I will put Doug Long on the hot seat here on day one of the job. But this was a property that the company was very excited about and a lot of that had to do with what I described earlier of -- we look at all of the acquisitions as we’re assessing them in terms of the qualitative -- their qualitative attributes and this was a property that had very heavy stocking, very high sight and it literally was significantly better in all respects to our base portfolio. It was also a very large -- had a very large contiguous land base, so it was going to result in some nice operating cost dynamics. And so as a result, you see that translated into a higher price. And recognize also that it’s an area where we’ve had a lot of HBU experience. And so one of the things that we look at whenever we are assessing timber properties as well as the proximity of that property relative to our other operations, and we tend to think about that in an execution risk context. If we are familiar with the local log markets and the real estate markets, we take that into account from an execution standpoint. And so this was a property that was interspersed with a lot of our other properties. And so we felt very comfortable in that geography. And Doug what additional would you add to that?

Doug Long

Analyst

Thanks, Dave. Dave has done a very good job explaining it. I guess for a context, I would say this is a property that Rayonier had to look at for a long time. And most of our current land base, as you mentioned, really above quality timber, what we’ve seen from it. The prior managers had done a good job with it. And we had stocking out there that we thought we could capitalize on in markets that are very strong for us. So historically, this is an area that we have great confidence in and ability to execute on. And also as Dave mentioned, there is a good HBU in the area and there is some entitlements that have been in place for that property also. So we saw lots of advantages.

Collin Mings - Raymond James

Analyst

Okay, great. Thanks for that additional color. I mean, just one last one. I may have missed it. Just as you think about instituting that 2015 forecast, again recognizing you are still kind of going through the planning process there, what type of saw log price appreciation in the U.S. South is embedded in that?

Dave Nunes

Management

Thanks, Collin. That’s a good question. One of the things that we are putting forth in the context of our planning effort is a more conservative approach on the recovery of the housing market where we have currently -- our forecast includes hitting the 1.5 million housing starts by 2018, which is a fairly slow and steady ramp up. And so we have fairly modest price recovery built in pursuant to that underlying housing forecast.

Collin Mings - Raymond James

Analyst

Okay. So think about maybe low single digits next year, is that a fair way to think about it?

Dave Nunes

Management

Yeah. I think that’s probably a fair way to think about it.

Collin Mings - Raymond James

Analyst

Okay. Thanks, guys. I’ll turn it over.

Operator

Operator

Thank you. Next question is Mark Weintraub of Buckingham Research.

Mark Weintraub - Buckingham Research

Analyst

Thank you. I was hoping to get a little bit more color on how you think through the dividend, not just right now but over time. Is it kind of a percentage of CAD from the timber operations exclusively? How do you think about the cash that comes from HBU sales as well?

Dave Nunes

Management

Thanks. Good question. The way that we are approaching the setting of the dividend is -- I’ll give you a couple of dynamics. One, we like to look at the recurring timber harvest cash flows and then the sale of our -- what we call kind of our base HBU rural land sales. And that we would like to think more of our development land sales, which are going to be lumpier in nature, as more capital that can be used for other purposes. But we definitely include those core HBU land sales as part of the effort. And the other thing to recognize, it's not quite as simple as simply looking at cash available for distribution in the context of the dividend, because as a REIT, we have required REIT distributions. And so you’ve always got a balance that REIT taxable income requirement with your CAD generation.

Mark Weintraub - Buckingham Research

Analyst

And can you give us a sense as to over time what percentage of CAD using into the timber and the core rural land sales you think is appropriate to be dividend out as opposed to reinvested and allow you to meet the requirements at the same time?

Dave Nunes

Management

Again, we look at it as the interplay between those two as opposed to a percent of the CAD.

Mark Weintraub - Buckingham Research

Analyst

Okay. And now realize this is probably a tough one, but in terms of the potential development capital or the capital that comes from development itself, are you getting a -- are you at this stage able to frame how significant that could be over time?

Dave Nunes

Management

Well, I think the important thing to recognize on the development project is these are very long-term projects in nature. And Chris Corr and his team have done a good job of prioritizing, which of those projects we feel have the greatest near-term potential, but recognize the near-term is still quite a ways out in terms of all the things that you have to do from an entitlement standpoint. And one of the things that you'll see more in our discussions and our materials going forward is we talk about the need for developing catalysts to help some of those projects move along. And so that’s something that Chris and his team are focusing on.

Mark Weintraub - Buckingham Research

Analyst

Thanks very much.

Operator

Operator

Thank you. Next question is Steve Chercover of D. A. Davidson.

Steve Chercover - D. A. Davidson

Analyst

Thanks. Good morning, everyone. So I guess, we’re…

Dave Nunes

Management

Sorry for the early morning, Steve.

Steve Chercover - D. A. Davidson

Analyst

Not at all. I’m awake. So absent the spin Performance Fibers and the management changes, do you think that this harvesting -- the overharvesting would have gone on until there was a crisis?

Dave Nunes

Management

Well, I think Steve the thing to keep in mind is that you have a physical limitation of merchantable timber and so this is something that we believe would have indeed come to light before too long.

Steve Chercover - D. A. Davidson

Analyst

And since the previous restatement was fairly minimal, I think, Ed said, $2.6 million. This was really something that started in 2014? I mean, although, evidently issues going back further? And consequently, it shouldn't really impair our view of the value of all your land?

Dave Nunes

Management

Yeah. Steve, think about it in two different ways. I mean, you have a sort of a rate of harvest going forward, which is one issue. And the whole restatement of the inventory and the result in change in depletion, that’s really a very separate issue. And so, I don't see, that’s more of the disclosure of the merch inventory and the calculation of the depletion that doesn't really bare a lot of weight on to the underlying asset value. The harvest level does that.

Steve Chercover - D. A. Davidson

Analyst

Yeah. And to be clear, I guess, you were counting this inventory trees that couldn't have been harvested given their sensitive location and over harvesting on core timberland? But, I mean, is there any -- did you hit any of that environmentally sensitive land and might there be any issues from a legal perspective if you closed on those sensitive lands?

Dave Nunes

Management

That’s an important distinction there. It was not that harvesting was taking place in any of those environmentally sensitive areas. It was that we were simply borrowing from some future years harvest in the current periods.

Steve Chercover - D. A. Davidson

Analyst

Yeah. I think that is an important distinction and that’s a good answer. But, so Dave, do you think this might be the legal secret that’s common in the industry?

Dave Nunes

Management

Oh! Steve, I’m not going to speculate on that. That’s for others to do.

Steve Chercover - D. A. Davidson

Analyst

Okay. And final question, how would you characterize your silvicultural practices? I mean, are they still best-in-class or…

Dave Nunes

Management

I’ve been very and granted, I’m still learning my way around here, but I’ve been very impressed by what I've seen thus far. And one other things that I'm quite pleased to see is a very deeply ingrained set of thinking down to the forester level in terms of the application of silvicultural practices and the understanding of the financial impacts at various practices. So this is not a company that’s run where you’ve got road silvicultural practices being dictated. It’s very much a dynamic model that relies on the forester’s expertise and understanding of the local conditions and then applying a fairly broad sweet of tools against it. So I’ve been very impressed on that and its some thing that I coming into the company, I wanted to make sure that we were putting all of those investments in the place. I’ve been very pleased with what I have seen thus far. Doug, what would you add to the silvicultural application question?

Doug Long

Analyst

I would just say something that myself and the rest of foresters when you take great pride in and it worked hard towards accomplishing. And what, Dave mentioned, I think is right on it. It’s good to get that kind of validation, some one step may outside and coming in and looking at it. So I think we do just, as Dave said. We are really look to maximize that net present value of each every acre and apply, we’ve learned and continuingly put in new research to learn new things and just keep focusing on the future and growing.

Steve Chercover - D. A. Davidson

Analyst

Okay. Well, like you said, Dave. It’s really in the morning, but I think this news explains why you were late in the reporting cycle and I was just glad to have this addressed now. Thank you.

Dave Nunes

Management

Thanks, Steve.

Operator

Operator

Thank you. Next question is Chip Dillon of Vertical Research Partners.

Chip Dillon - Vertical Research Partners

Analyst

Yes. Good morning. Excuse me, when I look at the Gulf Coast, I guess, decline in the merchantable timber? I’m just wondering how much of that might be from those 2011 acquisitions, I think one of them called the Oklahoma, I had another name to it? I guess Joshua properties that actually were in, not in Oklahoma, but Louisiana, Mississippi and Alabama? I seen to recall that that there was an indication that the EBITA contribution would be around $40 million from just that acquisition, which certainly on a per acre basis was way above what the company had, was generating and has generated up till now? And I just didn’t know if that had been recalibrated as well?

Dave Nunes

Management

No. The inventory really recognized that it was simply more a function of including acres and the volume in those acres that had not been included before. Selling in the south it really had to do more with wetland areas that had been included before. And then to some degree some lands tied up with Red Hills Salamander that were not included, that became part of that 2013 estimate. So, again, it’s sort of like when we talk about what the answers with Steve’s questions, this isn’t affecting kind of that underlying character of the cash flow production, it’s more the characterization of the inventory.

Chip Dillon - Vertical Research Partners

Analyst

Okay. That would be sort of a way of saying, I guess, that everything they bought in that -- in those acquisitions was merchantable and not subject to being in the restricted areas?

Dave Nunes

Management

Well, I think, whenever you buy an acquisition, you are going to have properties that are in restricted areas, that’s pretty fare and it varies by region.

Chip Dillon - Vertical Research Partners

Analyst

Okay. And then looking at the Northern region, the 20% factor of the change in which merchantable, can you give us a little color in terms of how you would break that out into either being just restricted, which I'm not quite sure what that means if that's a legal -- the government won’t let you get in there, versus environmentally sensitive and versus economically inaccessible? I mean, is it roughly a third each or was it tilted toward one of those three or two of those three designations?

Dave Nunes

Management

Recognize that in the Northwest you have Washington State has a regulatory overlay that’s different than other parts of country and a big part of that has to do with a process of protecting streams for fish and so. In Washington State, there is a three-pronged protection of riparian management zones that include a core zone where you're not allowed to take any harvesting at all and then an inner zone and an outer zone. And those zones are variable by the stream width and properties such as Rayonier that are on -- predominantly on the west side of the Olympic mountain range. You have a lot of rivers going through there and as a result, Rayonier has a fairly high proportion of what we call non-productive lands that are lands located in those riparian management zones. And so that’s going to be, the bulk of the change will be in that area. The economically inaccessible reference are for things that might be on isolated pockets of timber that were left over or they are hard to get to, maybe on a mountaintop kind of thing where you might require helicopter logging to get it, where it doesn't have economic viability due to the harvesting costs needed to get to it, that type of thing. But I think the simple way to think about it is those very large riparian management zones.

Chip Dillon - Vertical Research Partners

Analyst

Okay. And then the last thing, could you talk a little bit about what your thoughts are -- remember the name TerraPointe from back in the day and the opportunities with the acres that are near Interstate 95 and both Northern Florida and Southern Georgia. So, David, I didn’t know if there was any thought because you sort of gave this 1% of HBU lands to kind of be the level. But I would think, given the nature of residential real estate, it could be more lumpy, certainly as we think about the dollars, if it in fact you do have opportunities to -- as we had learned about eight years ago before the crisis that there were rezoning possibilities and ways that you could make a lot of money per acre down in those areas?

Dave Nunes

Management

Yeah, so let me break that up into a couple pieces then, I will ask Chris Corr to chime in as well. When we refer to the 1% of our Southern ownership, we are really referring there more to the operational land sales of basic HBU rural properties. And when we talk more about some of -- a subset of that coastal, Florida, Georgia area, there we are talking about projects that have deeper, longer term, higher value real estate potential. But they are going to take some work. And so what Chris and his team has done is to go through that land base and really prioritize in a few year, where we think we have the most potential. And then we’re working on projects to unlock those values but it’s a fairly long term entitlement effort to do so. So very different from kind of about 1%, which was meant more as that operational piece. Chris, what you would add to that?

Chris Corr

Analyst

Yeah. Hey Chip, it’s Chris. Dave said it, there is the operational land sales is one area that works across the portfolio. And we‘re typically marketing world recreation and residential -- world residential land that traditionally had a fairly stable base to it. So one think that we manage, we’re in one way. And then there is the subset of some key areas mostly in Florida and Georgia, that we think over time have some potential for development. And each one of those have their own stories, their own timeframe or own point of view about how much and how fast. And we’ll continue to be disciplined about optimizing those opportunities.

Chip Dillon - Vertical Research Partners

Analyst

And it sounds to me just that sum up of those at least as you plan your strategy that those are kind of icing on the cake type opportunities in the future and that perhaps as you realize those two, five, eight years, whenever down in the future down the line that you at that point decide whether, do we pay a special dividend, do we buyback stock, do we acquire more timberland. That sort of the way we should think about how -- about those opportunities?

Chris Corr

Analyst

Yeah. That’s well said. I think I view it very similarly.

Chip Dillon - Vertical Research Partners

Analyst

Thank you.

Operator

Operator

Thank you. Our last question is from Collin Mings of Raymond James.

Collin Mings - Raymond James

Analyst

Hey. Good morning again. Thanks for the follow-up. Just a couple of quick question, I think in the prepared remarks you highlighted the site index of the Timberland, you guys were acquiring in the U.S. South. Can you maybe just show at least for the portfolio overall? I think you said what you sold and what you bought but how does that compare to the portfolio overall?

Dave Nunes

Management

Collin, I don’t have that in front of me. But that's a great lead into one of the things I talk about earlier that we intend to not have these questions in the future because you have all that information in front of you. So stay tuned for a deeper dive, when we get to the 10K. And we intend to supply that type of information for you.

Collin Mings - Raymond James

Analyst

Okay. And then Dave just as relates to a lot of the conversation about the definition of merchantable timber, how as the Rayonier definition compared to other companies as you kind of conducted this internal review by definition as consistent across other Timber REITs and some of the other timber companies out there or do you think the Rayonier definition or each copy in the peer group might have a slightly -- different definition

Dave Nunes

Management

I’ll leave that to you. I’ll just speak to our own definition. In the South, we use 15 years for everything but Oklahoma, which is 17 years. And then in the Northwest, we use 35 years.

Collin Mings - Raymond James

Analyst

Okay. That’s very helpful. And then the last question Dave, just as you’ve completed the internal review, can you talk a little bit more about how you think about New Zealand and I know there has been conversation on prior Rayonier calls about continuing to look at opportunities in New Zealand or maybe Australia but applying a little bit higher discount rates to acquisition in those market? Do you continue to see kind of opportunity internationally or might it make sense to redeploy some of the capital in the U.S.?

Dave Nunes

Management

Well. I think that we’re still in the process of assessing that. I think generally were excited about the exposure that we have in New Zealand from just a differentiation standpoint. We’re the third largest landowner there and it give us great access to the China market, which we think is going to be a strong long-term market. And it gives us a different access point to that market than a Pacific Northwest Timberland. So we’re generally pleased to be there. And I think we’re in -- we're very much in the throws of trying to address internally that the question that you laid out in terms of that capital allocation as a result to acquisition.

Collin Mings - Raymond James

Analyst

Okay. I apologize, one last one maybe just broadly on the acquisition environment in the U.S. South. Can you talk about I know you may now want to reference specific what Rayonier uses but just talk about maybe the range of real discount rates that you think are being utilized on most of the acquisitions out there right now?

Dave Nunes

Management

Well, I think that has -- I won’t speculate on what various folks are using for the specific real discount rates. I would say that as we've seen net inflows of capital into the market. And we've seen the impending recovery in housing, I think, you are seeing some compression of real discount rates. That’s my sense in the market both in the South and the West.

Collin Mings - Raymond James

Analyst

Okay. Thanks Dave.

Dave Nunes

Management

Thanks.

Operator

Operator

Thank you. We’re showing no other questions at this time.

Dave Nunes

Management

Great. Then we’ll wrap it up. As I noted earlier, we’ve taken swift and decisive measures to strengthen Rayonier’s operations and realign our strategy. We are very confident in the results of our review and believe the actions we've taken position us to prudently manage our Timberland resources, increased transparency of our business and refocus our capital allocation priorities to support our commitment to delivering long-term shareholder returns. And with that, I thank you all for joining us on the call and especially those on the West Coast where it was little early this morning. Thank you and goodbye.