Rayonier Inc. (RYN) Q3 2017 Earnings Report, Transcript and Summary

Welcome and thank you for joining Rayonier’s Third Quarter 2017 Teleconference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Mr. Mark McHugh, Senior Vice President and CFO. Sir, you may begin.

Thank you and good morning. Welcome to Rayonier’s investor teleconference covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws. Our earnings release and Form 10-K filed with the SEC lists some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on page two of our financial supplement. Throughout these presentations we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let’s start our teleconference with opening comments from Dave Nunes, President and CEO. Dave?

Thanks Mark. First, I will make some overall comments before turning it back over to Mark to review our financial results. Then we will ask Doug Long, our Senior Vice President of U.S. Operations to comment on U.S. Timber results. I will cover the New Zealand Timber results and following the brief review of our three Timber segments, Chris Corr, our Senior Vice President of Real Estate will discuss our Real Estate results. I am pleased with our third quarter results, especially given the challenging weather conditions we content with during the quarter. All three of our Timber segments realized meaningful increases in adjusted EBITDA relative to the prior year quarter. Stronger results in our Southern Timber segment were driven by 24% higher harvest volumes and increase non-timber income. While weighted average pricing was down slight due to salvage volume from the West Mims fire and geographic mix. Our Pacific Northwest Timber segment also reported higher harvest volumes, as well as a 17% lift in average delivered saw timber pricing driven by continued strengthening of both domestic and export markets. New Zealand Timber had another very strong quarter, with adjusted EBITDA more than doubling versus the prior year quarter. Both volumes and prices were up significantly in New Zealand, as we capitalize on continued strong market conditions and increased export demand from China. Our Real Estate segment also had a solid quarter, driven by significant transaction comprised of 1,300 acres for $10,000 an acre. In summary it was an all-around solid quarter with all our segments contributing to strong overall results. And with that, let me turn it back over to Mark to review our financial results.

Thanks, Dave. Let’s start on page five with our financial highlights. Sales for the quarter totaled $178 million, while operating income [Technical Difficulty] (3:10) was $25 million or $0.19 per share. Pro forma EPS was also $0.19 per share we have no pro forma items this quarter. Third quarter adjusted EBITDA [ph] $70 million (3:24) was below the prior year quarter primarily due to lower Real Estate results and the prior year quarter included a $48 million land sale in Georgia. As Dave noted, our Timber segments, as well as our Trading segment all put the gains really to the [Technical Difficulty] (3:39). On the bottom of page five, we provide an overview of our capital resources and liquidity at quarter end, as well as a comparison to the prior period. Our cash available for distribution or CAD for first nine months was $144 million, compared to $124 million in the prior year period, primarily due to significantly higher adjusted EBITDA and lower cash interest paid, partially offset by higher capital [Technical Difficulty] (4:03). Reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page eight of the financial supplement. We closed the quarter with $104 million of cash and roughly $1 billion of debt. Our net debt of $929 million represented 20% of our enterprise value based on our closing stock price at quarter end. I will now turn the call over to Doug to provide a more detailed review of our U.S. Timber results.

Thanks Mark. Good morning. Let’s start on page nine with the Southern Timber results, adjusted EBITDA in the third quarter was $24 million, $3 million favorable to the second quarter and $6 million favorable compared to the prior year quarter. Third quarter harvest land of approximately 1.4 million tons was flat to prior quarter, but 266,000 tons higher in the prior year quarter. During the third quarter, portions of our Southern Timber segment effected by hurricanes Harvey and Irma. Flooding in Louisiana, Texas and Florida severally impacted our ability to harvest timber in those regions. However, we were able to maintain our targeted harvest result levels this quarter by shifting volumes to dry areas that were less impacted by the storms. We sustained relatively minor damage from the storms, with roughly 1,200 acres in Florida sustaining some wind damage, a portion of which will necessitate salvage operations. We do not anticipate any material impairment charges resulting from these storms. We expect to start salvage operation on West Mims in the fourth quarter. Third quarter Pine Pulpwood prices of $16.32 per ton or 4.5% favorable compared to second quarter, but 6% unfavorable compared to prior year quarter. The price decline compared to prior year quarter was largely due to salvage volume from the West Mims fire, as well as increased supply along the east coast. We expect to complete salvage operations from West Mims fire during the fourth quarter. Pine Sawtimber prices of $25.93 per ton, 1% favorable compared to second quarter, 1% unfavorable compared to the prior year quarter. Absent the impact of geographic mix, our Pine Sawtimber prices have remained relatively stable for over the last few quarters. It’s also worth noting that we continue to see upward price pressure in areas with export exposure, offsetting weakness in log market serving plywood mills. Hardwood prices $15.98 per ton or 37% and 8% higher than the prior quarter and in prior year quarter, respectively. In both cases, the increase in price was primarily due to favorable changes in product mix, as well as stronger overall pricing finance. Now moving to Pacific Northwest Timber segment on page 10, adjusted EBITDA of $8 million, was $2 million higher in the prior quarter and $4 million higher in the prior year quarter. Third quarter average volume of 232,000 tons was down 8% relative to prior quarter and up 5% relative to prior year quarter. Puplwood prices [ph] $21.43 (7:11) per ton or 5% completely favorable to prior quarter and prior year quarter, respectively. The increase in [Technical Difficulty] (7:17). Sawtimber prices of $89.02 per ton or 9% and 17% favorable to prior quarter and prior year quarter, respectively. Strong export market along with restricted supply did fire restrictions in Oregon and [ph] Bridge, Columbia (7:36) contributed strong Sawtimber prices in the region. Non-timber income from both our Southern and Pacific Northwest Timber segments totaled $5.5 million, an increase of $1.1 million or 25% as compared to prior year quarter. The increase was due to additional hunting license income combined with positive gains in [Technical Difficulty] (7:51) sales, builder and minor forest products. Now Dave will review New Zealand Timber results. Dave?

Thanks, Doug. On page 11 you can see the results of the key operating metrics for our New Zealand Timber segment. We continue to be pleased with the [Technical Difficulty] (8:09) New Zealand Timber segment, which delivered another very strong quarter. Adjusted EBITDA of $28 million was roughly $16 million favorable to the prior year quarter and $14 million unfavorable compared to the second quarter, primarily due to the $24 million landfill we reported last quarter. Export Sawtimber prices increased 2% and 16% compared to the prior quarter and prior year quarter, respectively, primarily the continued strong demand from China. Similarly, domestic Sawtimber prices in U.S. dollar terms increased 6% and 11% compared to the prior quarter and prior year quarter, respectively, as a result of strong export lumber demand and a robust local demand for construction materials, as well as a modest increase in the U.S. to New Zealand dollar exchange rate. Our Trading segment generated adjusted EBITDA of $1 million in the third quarter and sales volumes was up 38% compared to the prior year period due to increased volume from existing suppliers and stumpage blocks purchased from [Technical Difficulty] (9:24) coupled with improving export marketing. I will turn it over to Chris to cover Real Estate results.

Thanks, Dave. So sales for our Real Estate segment in the third quarter totaled $17 million on roughly 2,550 acres sold. The bulk of our third quarter real estate sales were in our higher value HBU categories at a weighted average price of roughly $6,750 per acre, excluding improved development. Adjusted EBITDA for the quarter was $13 million. The third quarter results were stronger than we had anticipated going into the quarter due to the accelerated closing of a large transaction. As we have stated in the past, our Real Estate results will be lumpy from quarter-to-quarter as we seek to enter into transactions opportunistically, an effort to maximize long-term value. Sales in the improved development category reflect the first residential lot sale of Wildlight. Sales in the unapproved develop category reflect the significant transaction consisting of 1,300 acres at the Crawford Diamond property in Florida for $10,000 per acre. Crawford Diamond is a property entitled for industrial land uses with good proximity to highways and two railroads. This 1,300 acre sale leaves us with roughly 500 acres remaining to market [Technical Difficulty] (10:42). Unimproved development sales in the quarter also included 9 acres in Georgia sold for commercial use for a price at $90,000 per acre. In rural category sales totaled $3 million on approximately 1,100 acres with an averaged to $2,771 per acre. Lastly in a non-strategic and timberland category we sold 102 acres of low productivity land for an average price of $1,616 per acre. Overall, we’re encouraged by market interest and remain focused on executing our strategy of positioning select market ready properties for higher and better uses. We anticipate a strong fourth quarter based on a number of significant prospects either under contract or in active negotiation. I will now turn the call back over to Mark.

Thanks, Chris. As noted in our earnings release based on our strong performance through the first nine months, we expect to achieve full year adjusted EBITDA near the high end of our prior guidance of $255 to $270 million. With respect to our individual segments, we expect our Southern Timber segment volumes will decreased slightly in the fourth quarter relative to the third quarter due to wet ground conditions and we expect the modest decrease in average pricing due [Technical Difficulty] (11:49) and increase spending activity. In our Pacific Northwest Timber segment we expect fourth quarter volumes will increase relative to the third quarter due to the lifting of fire restrictions and we continue, I am sorry, we expect to continue strength in sawtimber prices based on favorable domestic and export market conditions. In our New Zealand Timber segment we expect fourth quarter volumes will decline compared to [Technical Difficulty] (12:11) product pricing will continue to reflect strong demand from China, as well as domestic markets. In our Real Estate segment we anticipate additional closings in the Wildlight development in the fourth quarter and expect to achieve our prior full year EBITDA target for the segment. I will now turn the call back to Dave for closing comments.

Thanks Mark. Overall, we are very pleased with the quarter, particularly given the weather-related challenges that we faced. Once again the quality and diversity of our portfolio, as well as the dedication of our team allowed us to deliver strong operating results despite these headwinds. Regarding timberland acquisitions we closed two small transactions in the third quarter totaling $2 million. Our acquisition so far this year reflect our disciplined growth strategy, which focuses on select acquisitions that upgrade our land portfolio, grow our sustainable harvest and contribute to CAD accretion. We continue to see an active timberland market and we will adhere to our discipline process to evaluate acquisition opportunities. As we have stated in the past, capital allocation remained key priority for our Board and senior leadership team. We look forward to continuing to evaluate all opportunities to enhance shareholder value through nimble and opportunistic capital allocation. Lastly, I’d like to remind you that we will be hosting an Investor Day on November 10th at the New York Stock Exchange. Preregistration is required to attend the event. We look forward to seeing many of you there. I will now close the formal part of the presentation and turn the call back to the operator for questions.

Thank you. [Operator Instructions] Our first question will come from Ketan Mamtora with BMO Capital Markets. Your line is open.

Thank you and congrats on a strong quarter. I want to start with New Zealand, obviously, it was a very strong quarter, if you can give a little more color on what’s driving the strength. I know you mentioned that China was wrong, but if you can provide a little more color that would be helpful?

I understand we are having some technical difficulty with the line and it’s very hard to hear. So give us some moment, we are going to try to resolve that and will be back in just a moment. Hey. This is Mark McHugh. We are having some technical difficulties. Ketan I believe you had just asked the question, I’m sorry, but if you could just repeat that, hopefully, we can get back to it.

Yeah. Much better now with the voice clarity, but yeah, I was asking, my question was on New Zealand and I was just curious if you can provide a little more color on what drove the strength. I know you mentioned strength in China. But any more detail you can provide will be helpful?

Well, I think, that’s the main driver is that, we continue to see strong demand in China. But there’s lots of factors that play here. First of all, there was a band on the harvest of domestic natural forest in China that went into effect last year that has increased the reliance on log imports. That has certainly helped. I think we have seen a gradual modernizing of some of the mill infrastructure in China. China continues to have a very large wood products needs and we really see that in both primary construction. We see it in the fit out market, where you have a large demand for plywood and radiata has historically of -- roughly 30% of the radiate volume has been going into that plywood market. So it brings an added ability to compete in that market. The -- and then the last component of large market demand is in the furniture segment. So you have a very strong market in China and that influences not only our log export demand, but also our demand from New Zealand domestic sawmills, which have a bulk of their product that is also exported and the portion that goes into the domestic market in New Zealand has been aided by a very robust building condition and particularly in Auckland market and in more recently associated with the Christchurch earthquake rebuild. And then you also have favorable shipping rates that are really a combination of oil prices and the availability of ships. And then you’ve got both the South Korean market, as well as the India market providing additional market portions. So you really have all these factors just working in tandem for our operations and that’s part of why you’re seeing such strong results coming out of that segment.

That’s very helpful color. So just one question on New Zealand, the current rate of harvest, are you taking advantage of this strong markets to harvest more than what would be kind of the sustainable harvest or are you still within the sustainable harvest at New Zealand.

Yeah. Ketan, I think, we are slightly above sort of what we are -- and what we would characterize is a kind of quarterly run rate. I believe we guided to at the start of the year 2.4 million tons to 2.5 million tons and I believe Q3 was just over 770. So, perhaps, a little bit above that that kind quarterly run rate. But for the full year, I think, we are still anticipating being in that range.

And some of what you’re seeing -- some of what you’re seeing has also been aided by some recent acquisitions of both lands that will show up in the Timber segment, as well as a stumpage blocks that have contributed to the growth in our performance of the Trading segment.

Right. And the current markets are strong, but it makes a lot of sense to be taking advantage of that. And then, just turning to the U.S., the U.S. South you have seen quite a few incremental sawmill investments over the past few weeks both in terms of greenfield and additional investment on existing mills. From your standpoint and with your land ownership, can you just talk about what impact this might have on your markets and what you are seeing in terms of supply/demand right now in U.S. South?

Yeah. This is Doug Long. Good morning. You are correct. We are seeing a lot of growth in the area and we really believe that we will start to see some impact come on as we move into middle of 2018 and probably later half 2018 and ‘19. As we mentioned on our prior calls, we are talking about 9 million tons of additional capacity coming online in our operating area and the recent announcements of GPS Talladega and then came recent announcement and we are looking greenfield opportunities encourage us that that we should see more competition out there. But as of right now, we haven’t really seen the impact of those mills changing anything and still lot of them are still, the ones that have more line in second half this year are still in startup phases and just starting to kind of move in productions, so we really expect to kind of second half of next year to start to see some of that impact come into the market more.

Got it. That’s helpful. And just very quickly, exports our of U.S. South, what are you seeing recently?

Yeah. We are seeing really strong growth in the U.S. South at export market, including ourselves. Year-to-date we’ve done over 90,000 tons of export out U.S. South and that would even have been higher number the work for the West Mims fire salvage, so that’s all come out of our coastal resourcing it. So the growth in export out of South has just been tremendous and we continue to expect that to increase as we go forward.

And how does this compare to last year, year-to-date or any sort of framework?

Yes. For ourselves we are more than double where we were last year at this point in time. For year-to-date we are more than double our 2016 export volumes and that’s a very similar trends for the entire South.

Got it. That’s very helpful. I appreciate it. Good luck in Q4 and in 2018. Thank you.

Thanks, Ketan.

Our next question will come from Collin Mings with Raymond James. Your line is open.

Hey. Good morning.

Good morning.

Good morning.

First question for me goes back to just log pricing in the U.S. South, as you are budgeting for 2018, Doug, I don’t know you can talk about maybe just overall a kind of expectation you are building in terms of upside in terms of log pricing in U.S. South? And maybe even more, specifically, what type of variance you expecting between some of the maybe your stronger wood basket versus some of your more weaker wood basket in terms of supply/demand dynamics?

Yeah. Collin, this is Mark. I will take that and then Doug or Dave can add additional color. I think it’s still little bit early to be talking about 2018. We would certainly expect to do that with our Q4 earnings, but generally speaking, I think, we are encouraged by the incremental capacity that’s coming online. We continue to think that the U.S. South that the market pricing has been and will continue to be differential based on the unique supply/demand dynamics within the regional submarkets. We are continuing to see that play out in our own pricing relative to the peer group. So, again, I think, overall, encouraging signs. We’ve also generally said that, we think there is an inflection point at 1.3, 1.4 million housing starts and we continue to sort of move toward that level. So, again, overall, encouraging signs, but little bit too early to give specific guidance on what -- where we anticipate pricing to be in 2018.

And I would add to that, I think, that we continue to be very focused on the relative build in inventory across the South and how we are positioned against that, because we believe that will ultimately translate into more price tensioning in those markets that have experienced less of a build. And so we have focus on that in terms of both our operational plans but as well our portfolio moves.

Okay. And I guess…

Collin, this is Doug.

Oh! Okay. I am sorry. Go ahead, Doug.

No. That answer pretty well, so I am -- that’s all I have that.

Okay. Maybe just put a little bit more color on the gap between stronger and weaker wood basket. Can you maybe talk about just currently what you’re seeing in terms of price differential between maybe the markets where you have the most supply/demand tension versus the weaker markets?

I mean, if you look at the Timber South data, you -- from the best to the worst market it’s roughly a 2x on a composite stumpage basis.

You are probably not quite that why, but call it $12 to $20 on a composite stumpage price basis, we calculate that assuming that makes a 50% pulpwood, 30% shipment and 20% sawtimber?

It’s a moving target, but that that’s generally the order of magnitude.

Okay. And then, just switching to Pacific Northwest, do you think, I mean, in the prepared remarks and the press release, it sounds like you’re still pretty beat about what you are seeing out there. But could we see any sort of just moderation in 4Q pricing relative to 3Q just given conditions normalizing for some of the fire conditions out there?

Collin, this is Doug. Right now we are still seeing very strong pricing and demand in the area. As you mentioned the restrictions have been lifted but there’s still a lot of pent-up demand from wood going into the domestic mills, as well as export demand. So we are really seeing a continue strong prices in the fourth quarter.

Okay. That’s helpful. Turning to Chris real quick, just as far as your real estate activity in Bryan County, Georgia, can you just update us on some of the recent progress there, just given some of the recent use report out of Richmond Hill?

Yeah. Hey, Collin. Good morning. What’s happening up in Richmond Hill, which -- you remember Richmond Hill is about 20 minutes or so South of Savannah, Georgia. It’s an identified area for us as a high potential for HBU activity, because of the strength of the market there. We’ve been doing a number of things to kind of set the table for opportunities there, including the Belfast Commerce Park project, which you followed and then working with the Georgia Department of Transportation for the development of a new interchange or proposed interchange of the interstate there. Those things have continue to sort of drive activity. The interchanges is going along nicely and so we continue to put energy into those things. The other thing we are doing is, working to provide the enabling infrastructure that could set up real estate opportunities later and that’s where the annexation of the city of Richmond Hill comes in. But the city is in best position there to provide utilities, which namely as water and sewer, they are the ones with the infrastructure and plant capacity. So that annexation is about getting into the city in order to get utilities driven to sort of key real estate parcels for the future.

Great. That’s helpful color there Chris. And then just one last one and I will turn over, just Dave any update you can provide us on thoughts around potentially consolidating your position in New Zealand that we talked about last quarter?

No. I would say that really there is no new news there. Collin, I think, that we are certainly interested at the right price and but this is a decision that’s being made really by our JV partner.

Great. I will turn it over. Thanks, guys.

The next question will come from Paul Quinn with RBC Capital Markets. Your line is open.

Yeah. Thanks very much and thanks for the improved sound. It was getting pretty difficult listening here.

Apologies.

And just maybe a couple follow-on questions, just on the sustainable harvest level in New Zealand. I understand the one year guidance the 2.4 million to 2.5 million for 2017, but my understanding is lot of plantations in New Zealand expect an uptick in harvest levels in the coming years, maybe you could address, what you see from that jurisdiction over the next five years and maybe the next 10 years?

I think that generally for that region, they are around 32 million cubic meters of total harvest. It -- a lot of the delta is really going to be driven by what happens with the small woodlot owners. There is a view that that number could go up modestly, perhaps, to the $35 million or, excuse me, 35 million cubic meter range. But recognized that that New Zealand just like the U.S. is facing tightness in terms of availability of loggers and so that’s a counter balance to that growth. And so, I think, the short answer is, we don’t expect much in the way of material increase in harvest coming out of New Zealand in the near-term.

Okay. So we can hold your harvest levels to this 2.4 million, 2.5 million for quite a bit in our forecast?

Yeah. Certainly, from our land, that’s true and I was speaking more broadly to the industry.

Right.

But, yes, we operate all of our lands and you can see that in the information that we provide in the 10-K on a sustainable harvest level, which allows us to essentially harvest in the perpetuity.

Okay. And then, I guess, flipping over -- you mentioned exports are up double, Doug, year-to-date for -- versus last year, can you give us an idea what the margin is on the export log versus the domestic sawlog in the U.S. South?

Yeah. I think, we would want to be a little bit cautious to talk about that specifically, obviously, it’s going to depend on the individual market that is being sourced from generally speaking we are obviously exporting out of our coastal markets, those also happened to be some of our strongest markets from pricing standpoint within the domestic markets and so, clearly, there is a premium, but I think, we want to be cautious about speaking to the magnitude that.

So you are saying it’s a premium to the coastal market average?

Yes. Yes.

Okay. And then, I guess, lastly, just not sure if I heard this right, just on the Real Estate. The improved sale that you had, was that just one lot in Wildlight?

It was basically a lot that the builder took down for purposes of constructing a model home.

Okay. Can you just remind us…

So we have two builders that are essentially under contract to take down lots in a series of take down and this was the initial take down to build their model home.

Right. And those two builders, how many lots did they secured there?

53 thus far.

And how long do we expect that builder to be?

The full build out?

The builder of those 53 lots, is that over two-year period, is that over five-year period?

Yeah. I mean, it really, obviously, just depends on the velocity of sales in the town. But I think we’ll probably have better information on that in the coming quarters.

All right. That’s all I had. Best of luck. Thanks, guys.

The next question will come from Chip Dillon with Vertical Research Partners. Your line is open.

Yes. Good afternoon -- good morning. First question has to do with, as you think about 2018 and 2019 and you think about the pricing is terrific what we have seen, obviously, in New Zealand and in the Pacific Northwest. But how are you thinking about pricing in those years and how could that possibly influence any changes in your harvest plan? And then maybe the same thing in the South, there’s various views, there’s obviously, a few weeks ago at a recent conference they kind of expressed their view that there would be an overhang and I know from the heat maps you showed us that it can vary by specific region, but the overhang would persist, but then again, there has been the sort of daylight created by the increased export demand. So as you think about ‘18 or ‘19, not asking for specific forecast, but directionally what you think it is a good way to go in terms of pricing expectations in those regions?

I mean, I think, generally we -- we are always more focused on some of these local market dynamics and I think that having optionality has always been better. I think, part of the reason that you see a divergence across the South in terms of markets being stronger or weaker is in addition to these inventory build, you have got markets on the strong side that have just a greater diversity of a product outlets from pulpwood demand through sawlog demand and be able to add an expert component to that, to be able to add a on the low end a component for bioenergy, those are all important things on the margin. And so we look at that and we look at kind of where our footprint is across the South, and notwithstanding, kind of broad averages -- broad Southern averages, we are encouraged by what we are seeing in terms of how our footprint looks going forward when we look at growth trend analysis at some of these micro markets. And I think for the West -- the Pacific Northwest, as well as New Zealand, again that same concept of optionality is really important. In the Northwest you have a lot of wood that can flow either to the China market or to the domestic market. We continue to believe that as the U.S. housing recovery advances, it’s going to take market share away from the export market, but today that that’s a really nice set of options to have. We also feel that we are blessed by having a mix of both Douglas-fir and hemlock in our product offers that form of diversity is very helpful as well. And then moving to New Zealand, China is certainly an important component of that, but remember that, you have also got the market in India that’s growing at a very rapid rate and you’ve got a very stable market in Korea. So we are looking at the markets kind of in that way. We tend to start with a sustainable harvest level for each of our regions and then we always look for ways within that sustainable harvest to flex during the year to take advantage of stronger or weaker markets in different quarters and that may include deferring some volume, as we did late last year, we deferred some volume in the U.S. South and that’s paid off very well this year as we’re able to bring much of that deferred volume back to market at a much stronger pricing. So we are happy to kind of put on the brakes or tap on the gas when we see fit, but we tend to keep it within -- generally within that sustainable harvest that you see us publish.

That’s very helpful. And then also if you could talk a little bit about the dividend policy, especially if you’re able to keep some of this sort of heightened level of earnings that we were seeing this quarter and expect next quarter, just maybe review your thoughts about how the dividends should progress?

Hey. Chip, we don’t have a specific dividend policy in terms of payout ratio. Primary reason being is that specifically within real estate, for example, you are going to see some volatility, I mean, it tends to be pretty lumpy and so, I think, that the general mindset is that dividend growth will occur with sort of sustainable cash flow growth and that is something that we evaluate pretty continuously and it is obviously decision of the Board and it’s something we monitor closely.

And I think we’re also…

Okay.

… very cognizant of our capital allocation opportunities and we’ve been very pleased with the quality of the acquisitions that we have been able to do over the last few years and we think, frankly, those have been a better return to our shareholders then increasing the dividend during that period of time. And so that goes into the mix as well.

Okay. Thank you.

[Operator Instructions] Our next question is coming from James Armstrong with Armstrong Investment Research. Your line is open.

Good morning and thanks for fixing the phone. I am glad it just -- it wasn’t just me. First question is on the hurricane impacts, can you -- that you pointed out in the third quarter, will there be any bleed over into the fourth quarter and should all of the Florida salvage be done in the fourth quarter?

Yes. This is Doug. Yeah. You are correct. There will be bleed over in the fourth quarter, we are just now getting salvage operations going on those properties and we do believe that we should be finished up with hopefully all of the salvage, whether it would be fires or hurricanes by the end of the year, so it looks like this was a year of salvage in our Florida resource unit, but that we should be finishing up by the end of fourth quarter.

Perfect. Switching to the Northwest, last year Northwest volumes ticked up a lot in the fourth quarter, you did mentioned that volume should be up, but should you -- we see the same sequential change in volumes from the third quarter to fourth quarter as we saw last year?

I think some of what you saw last year was us getting the new Menasha acquisition kind of up and running. And I think that you shouldn’t expect that same lift this year’s fourth quarter versus last year’s fourth quarter and that we’ve been operating more on the run rate that we would -- that we have -- we would expect to for the Northwest.

Yeah. Keep in mind, Q3 was low due to the fire restrictions and so, I would say, that that was a seasonal low point relative to the harvest. We did nearly 400,000 tons in Q1, 275,000 in Q2, 250,000 in Q3, so we would expected to elevate more towards a kind of run rate on the basis of that prior three quarter average I would say.

Yeah. We will be targeting our annual average run rate for the month -- for the quarter.

Okay. That helps. And then, lastly, what are you expecting in terms of large land sales in the fourth quarter. I know you don’t count that as operating, but any guidance would be helpful?

Yeah. Well, we have said, in terms of guidance and recognizing that, you guys obviously want to -- want -- it’s a big contributor to EPS and so you want some guidance, but from our advantage point it can also be pretty lumpy and so we want to be cautious about sort of getting to managing earnings on a quarterly basis, because that’s not how we run our business. But suffice to say that we -- we have said that we anticipate hitting our full year target, which our initial EBITDA guidance in Real Estate was $52 million to $60 million of adjusted EBITDA. So that will give you a better sense of generally the range of outcomes that we expect in Q4.

Okay. But is that count -- is the -- are the large land sales counted in adjusted EBITDA or…

The large dispositions in terms of the…

Yeah.

… sales that we designate over $20 million that don’t have an HBU premium are not included in adjusted EBITDA and those would be more on a one-off basis and we wouldn’t be to provide any guidance on that.

Okay. That helps. Thank you.

At this time, there are no further questions. I will hand it back to the speakers for closing remarks.

Thanks. This is Mark McHugh. And again appreciate everybody joining. Apologies for the technical difficulties earlier, but happy to take any questions after the call, just feel free to reach out to me. Thank you.

Once again that will conclude today’s conference. Thank you for participating. You may disconnect at this time.